What Are the 5 Components of Estate Planning?

When some people think about what they want to leave to their loved ones after they are gone, they believe that preparing a will is the only step they must take, and most shy away from the idea of “estate planning,” as they believe the term only applies to those with vast estates. In truth, however, most individuals who have reached adulthood should have a comprehensive estate plan.

An estate plan doesn’t simply apply to the distribution of one’s assets but includes provisions that allow loved ones and medical professionals to follow specific instructions on medical care if the individual becomes incapacitated. Consider the following essential elements of a solid estate plan.

The Fundamentals of a Good Estate Plan

There are five key features that every person should ensure they have covered in the event that they become incapacitated or pass away, including the following:

1. The WillA person’s last will and testament is the document that most people think of as their “estate plan.” It allows an individual to dictate how their property and assets are handled after their death. No matter how large a person’s estate is, their age, or their health conditions, a will is the primary means of specifying one’s wishes for their personal property and belongings, including their home, which is often the largest part of the estate. The individual may also name a guardian for any minor dependents or children and an executor to settle the estate in their will.If a person doesn’t create a will, the final decisions regarding their estate will be made by the state of California’s inheritance laws. Their assets will be divided among their loved ones accordingly. If an individual passes away and the other parent cannot care for their children or has also died, a family member may be appointed by the state to take custody of the children and act as guardian.

   Anyone who is eighteen years old or older can write a will. For the will to be considered valid and legally enforceable, however, it must be written in accordance with any other estate planning documents and must conform to state laws. The final draft must be signed and dated, along with the signatures of two witnesses who are not named as beneficiaries in the will. The individual who creates the will must not do so under coercion and is required to be of sound mind, or the document may not be considered valid. Once such a document is created, it is valid unless the individual revokes it, destroys it, or creates a new will.

2. TrustsA revocable or irrevocable trust is a legal arrangement that allows an individual to transfer ownership rights to their property over to a separate entity, which is the trust itself. The person who creates a trust must name a trustee, giving them the ability to make decisions on the individual’s behalf for their property and assets after they pass away. The trustee will manage all legal titles to the person’s property, manage trust administration, and disperse the individual’s assets to the beneficiaries according to their wishes, as stated in the trust.One reason many individuals decide to create a trust is that the assets in the trust may avoid the probate process, giving their beneficiaries access to their inheritance immediately after their death. When a person creates a revocable trust, they still maintain control over their assets and have the ability to change the terms or revoke the trust while they are still alive. An irrevocable trust, on the other hand, cannot be terminated, amended, or modified after ownership of the assets is transferred to the trust, except in unique situations. An individual who creates an irrevocable trust must have the consent of their beneficiaries but benefit from the fact that assets in the trust are no longer in their name, so they are exempt from their “taxable estate.” This allows for the avoidance of estate taxes and any tax responsibility related to income the assets may generate.
3. Durable Power of AttorneyA person named as a durable power of attorney has the ability to legally make decisions regarding an individual’s estate. Once a document is signed giving this person such authority, they can make legal decisions, enter financial arrangements, or make real estate transactions on behalf of the individual. If a person is ruled mentally incompetent and they do not have a durable power of attorney, the court will hold the final power in making decisions regarding the management and distribution of the individual’s assets.
4. An Advance Health Care DirectiveThis component of an estate plan includes a living will and a named health care proxy. The purpose of such a document is to allow an individual to make decisions on one’s behalf if they become incapacitated. The health care proxy is vital in protecting one’s wishes if they develop a critical medical condition or suffer a severe injury that renders them too ill to communicate their wishes for treatment, unresponsive, or otherwise unable to make or execute decisions regarding their medical care.A living will is a document that describes a person’s specific instructions for their medical care if they become terminally ill. When health conditions deteriorate so severely that the individual requires palliative care or life support, the health care proxy is crucial in ensuring their wishes are handled properly. It is imperative to select a trusted individual to fill this role, as they must represent the person’s values in recommending appropriate measures regarding health care.
5. Beneficiary DesignationsIf an individual wishes to pass specific items or assets on to certain loved ones, they must name them as beneficiaries clearly in their estate planning documents, along with a full accounting of the portions of the estate they wish for them to receive. Some investment accounts and life insurance policies already contain beneficiary designations, so it is important to ensure that these match with the designations in the estate documents to avoid any potential conflicts or disputes.

Trust a Professional to Help Protect Your Assets and Wishes

If you are ready to create an estate plan, it is essential to seek the counsel of an experienced estate planning attorney. They can help you to navigate California state laws, gather the necessary paperwork, and draft documents to precisely state your desires. The legal team at the Law Office of Christopher P. Walker approaches every client with the goal of building trust and proving our integrity in handling such delicate matters. Visit our website today to see how we can help you.