An important step in your overall financial plan can help preserve and disburse assets upon death.

Estate planning is a way to manage an individual’s assets during their lifetime and how they are distributed after their death. Many people associate estate planning with wealthy individuals, but the truth is that everyone needs an estate plan, regardless of their net worth.

An estate plan is comprised of several documents, including a will, power of attorney, and healthcare directive. These documents outline an individual’s wishes for their assets, medical care, and financial decisions.

Here are the basics of each document:

Will: A will is a legal document that outlines an individual’s wishes for their assets after their death. A will can help distribute property, name guardians for children, and appoint an executor to manage the estate.

Power of Attorney: A power of attorney is a legal document that gives another person the authority to act on behalf of an individual. This can include managing financial affairs and making healthcare decisions.

Healthcare Directive: A healthcare directive is a legal document that outlines an individual’s wishes for medical care if they become unable to communicate their preferences. This can include end-of-life decisions and appointing a healthcare proxy.

In addition to these documents, there are several other estate planning tools available. One popular tool is a trust, which can help manage assets during an individual’s lifetime and distribute them after their death. There are several types of trusts available, including revocable living trusts, irrevocable trusts, and special needs trusts.

Revocable Living Trust: A revocable living trust is a legal arrangement that lets you transfer your assets into a trust while you’re alive. You have the ability to make changes or even cancel the trust if you choose to do so. It offers flexibility and easy management of your assets, but it doesn’t provide protection from creditors or help with estate taxes.

Irrevocable Trust: An irrevocable living trust is a type of trust that cannot be altered or cancelled once it’s established, except in certain specific situations. When you transfer assets into this trust, you give up ownership and control over them permanently. Irrevocable trusts often offer better protection for your assets and can have tax advantages, but they are less flexible compared to revocable trusts.

Special Needs Trust: A special needs trust, also called a supplemental needs trust, is specifically created to financially support someone with disabilities while ensuring they can still qualify for important government benefits like Medicaid or SSI. The trust holds assets on behalf of the person with special needs and is managed by a trustee. It allows for the person’s needs to be met without putting their eligibility for crucial government assistance at risk.

It’s important to work with an experienced estate planning attorney to determine which tools are best suited for an individual’s needs and goals. An attorney can also help draft and review estate plan documents to ensure they are legally binding and accurately reflect an individual’s wishes.

One common misconception about estate planning is that it only involves distributing assets after an individual’s death. In reality, drafting a plan for your estate can also help manage assets during an individual’s lifetime, such as creating a financial plan for retirement and medical expenses.

Another key aspect of estate planning is tax planning. Estate taxes can often be a significant expense, but there are several tools available, such as gifting and trusts, that can help minimize tax liability.

It’s important to regularly review and update an estate plan as circumstances change. Major life events, such as marriage, divorce, and the birth of a child, can all impact an estate plan. Regular reviews can ensure that an estate plan accurately reflects an individual’s wishes and goals.

In closing, estate planning is an important process that everyone should engage in, regardless of their net worth. It involves creating legal documents that outline an individual’s wishes for their assets, medical care, and financial decisions. It’s important to work with an experienced attorney to determine which tools are best suited for an individual’s needs and regularly review and update the estate plan as circumstances change.