3 Main Components of Estate Planning

Regardless of a person’s age, financial situation or health, having a comprehensive estate plan in place can ensure that their wishes are respected should they become seriously ill or pass away.

An estate is comprised of everything that an individual owns, including real estate, vehicles, investments, collectibles, furnishings and personal belongings. An estate plan includes legal documents outlining exactly how a person’s assets should be distributed upon death.

Estate planning can also involve creating a power of attorney that grants a trusted friend, family member or trustee the right to act on an individual’s behalf should they become incapacitated due to an illness or injury.

This guide looks at the basics of estate planning, including what to consider, why estate planning is important for everyone, and where to find help when making an estate plan.

Regardless of a person’s net worth, a will is an absolute must-have for everyone. A will is a legal document that specifies exactly what should happen to someone’s assets after death. While anyone can have a will drawn up by an attorney, legally binding wills can also be drafted using an online will service.

A will determines:

• Who will inherit the assets and how those assets will be divided
• Who will act as the executor
• Who will be contingent beneficiaries and executors should the person’s first choices predecease them

People can also outline their wishes for their pets in a will, an increasingly common practice among devoted pet owners.

If someone dies without a will, known as intestacy, their estate is distributed in accordance with state laws via the probate courts. In general, the assets of the deceased are assigned to their survivors in the following order:

• Their surviving spouse, then
• Between any surviving children, then
• Their extended family, such as aunts, cousins and nieces and nephews

In the absence of a valid will or eligible surviving family members, all assets eventually become the property of the state.

A power of attorney, or POA, is a legally binding document that appoints one or more individuals to act on the grantor’s behalf. It’s commonly used to enable a trusted friend or family member to make essential financial, medical and legal decisions should the grantor become incapacitated.

There are several types of POAs, including:

• General power of attorney
• Financial power of attorney/durable power of attorney
• Healthcare power of attorney

It’s a good idea to consult with a lawyer before signing a POA, as there are some specific clauses and exclusions to consider. For example, the grantor might want to specify that the POA can only be activated if they’re deemed incompetent by a physician or that their agent’s powers are limited to matters related to health.

Regardless of what type or how many POAs someone has, all these documents are rendered null and void upon their death.

Another essential part of estate planning is determining what happens when someone becomes incapacitated and unable to direct their own medical care.

Anyone who is of sound mind can create a living will, a medical power of attorney or both. These documents help ensure that loved ones and medical providers know what medical care an individual wants, regardless of their ability to direct their own care.

While both documents are designed to help ensure that someone’s wishes are honored should they become incapacitated due to severe illness or injury, there are some important differences between a living will/advanced directive and a medical power of attorney.

A living will details wishes regarding end-of-life care. This legal document lets the person indicate whether they’d like to be intubated or resuscitated if necessary, discuss issues related to pain management and tube feeding, and specify if they’d like to donate organs or tissues.

A medical power of attorney, also called a durable healthcare power of attorney, grants one or more individuals the right to make medical decisions on the grantor’s behalf should they be incapacitated.

When a living will is combined with a medical power of attorney, the resulting documentation is often called an advanced directive.