The third week of October is National Estate Planning Awareness Week, a week to highlight one of the most overlooked areas of personal finance management – estate planning. Truth is, everyone has an estate; however, it is estimated that over 50% of Americans do not have an updated estate plan or a plan the reflects their own wishes. One of the main reasons that people give for not having an estate plan is ‘I don’t understand what it is!” So what exactly is estate planning and an estate plan, and why is it needed?
Estate planning is the process of planning and arranging for the management and transfer of your assets – your estate, during your life and after your death. Every person has an estate, which includes everything you own from cars, real estate, bank accounts, investments, life insurance, and even personal items and family heirlooms. You cannot take your assets with you when you die, so planning is needed to make sure you leave what you want, to whom you want, when you want, for the least amount of legal fees, taxes, and court interference.
While an estate plan, and the estate planning process, consists of a variety of documents and tools designed to manage different assets and carry out your wishes, the following are a few basic types of estate plan documents that everyone should have in their estate plan:
1. Last Will and Testament (“Will”) – a Will is a legal document that an attorney creates that states your final wishes for the transfer of your assets, and even for the payment of your debts and final expenses. In Florida, a valid Will must be signed by the person making the Will (called a testator or testatrix) in the presence of two witnesses and a notary, and signed by the two witnesses and a notary in the testator or testatrix’s presence. Upon the death of the testator or testatrix, after notification and claims of creditors, the assets are transferred, by the order of the probate court, in accordance with the Will.
2. Trusts – a trust is an agreement that is created by a grantor (the person making a trust), that provides specific rules and instructions on the management and transfer of the assets that are held in the trust. One reason that a trust is beneficial, is that it is a legal way to hold assets, and can avoid the time and expenses of probate administration – which is the legal process of transferring a deceased person’s assets through the court system. Together with a Will, it will likely provide a more complete and customized estate plan, together with the ability to avoid the probate process.
3. Health Care Directives – Health care directives, including the appointment of a medical power of attorney, and the creation of a Living Will, are ways to make your health care desires and wishes known in the event that you are unable to make health care decisions for yourself.
4. Durable Power of Attorney (“DPOA”) – a DPOA is a powerful document that allows you (the principal) to give authority to a trusted individual, your agent, to make decisions for you or act on your behalf in a variety of matters, including signing legal documents or even opening bank accounts. In Florida, a DPOA is not terminated by the subsequent incapacity of the principal.
Estate planning is a process, and when planned and created carefully, an estate plan will ensure that your assets are properly managed during your life, and after your death. For more information on estate planning and documents, you should consult with your estate planning attorney.