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5 Steps to Setting Up a Estate Plan

5 Steps to Set Up an Estate Plan
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By John Walker & William Beynon

Estate planning is essential to ensure your assets are distributed according to your wishes and your loved ones are taken care of. The steps outlined below provide a framework to protect your interests and support your family, guaranteeing your estate is managed and distributed as you desire.

Step 1: Draft Last Will and Testament

Creating a will is a crucial step in estate planning. A last will and testament is a legal document that outlines how your property will be distributed upon your death. Additionally, it allows for the creation of trusts to benefit your spouse or children.

Only 32% of adults (ages 18+) reported having a will in 2024 according to the 2024 Wills and Estate Planning Study from Caring.com.
  • Control Over Asset Distribution: A will enables you to designate a trusted individual to manage and distribute your assets according to your wishes.
  • Appointment of a Guardian: You can appoint a guardian to care for your minor children, ensuring their well-being and upbringing align with your values.
  • Avoid Statutory Distribution: Without a will, your assets will be distributed according to a state laws, which may conflict with your desires. Additionally, if you do not appoint a guardian for your minor children, a judge unfamiliar with your family may have to make that decision on your behalf.

 

Strategies for High-Net-Worth Individuals

For high-net-worth individuals, a “Pour Over” Will combined with a Revocable Living Trust is a popular strategy to streamline These instruments will enable you to avoid the cost associated with Probate. 

  • Revocable Living Trust: A Revocable Living Trust is a legal document where you, the “grantor,” transfer your property into a trust for your benefit during your lifetime (lifetime “beneficiary”) and then the benefit of your heirs (remainder “beneficiaries”). You serve as the “trustee,” maintaining control over the trust’s assets. You can modify or revoke the trust at any time. Upon your death or incapacity, a “successor trustee” takes over, managing and distributing the assets according to your instructions. This trust ensures a smooth transition of your assets to your heirs without the need for probate.
  • Pour Over Will: A Pour Over Will works in conjunction with a Revocable Living Trust, acting as a safety net for assets not initially titled in the name of the trust. It stipulates that any assets not held in the living trust at the time of your death will be transferred to the trust after probate. This ensures all your assets are managed according to the terms of the living trust, providing comprehensive coverage for your estate.
 
Step 2: Establish Financial Power of Attorney 

Establishing a Financial Power of Attorney is a crucial step in ensuring your financial affairs are managed effectively if you become unable to do so yourself. A Statutory Durable Power of Attorney allows you to appoint a trusted family member or friend as your agent to handle your finances in case of temporary or permanent disability.

  • Seamless Financial Management: Your appointed agent can manage your finances, pay bills, and handle other financial matters on your behalf.
  • Avoid Court-Ordered Guardianship: Without a power of attorney, a court-ordered guardianship may be necessary if you become disabled. This process is often time-consuming and expensive but can be avoided by creating a power of attorney.
 
Step 3: Establish Medical Power of Attorney

Creating a Medical Power of Attorney is essential for ensuring your healthcare decisions are managed by someone you trust if you become unable to make them yourself. This document allows you to designate a trusted family member or friend to make medical decisions on your behalf in case you are unconscious or mentally incapacitated.

  • Trusted Healthcare Decision-Maker: Appoint someone who understands your healthcare preferences and will act in your best interest.
  • Peace of Mind: Ensure that medical decisions are made according to your wishes, even if you cannot communicate them yourself.
 
Step 4: Designate HIPAA Authorization

Designating HIPAA Authorization is an important step in managing your healthcare information. HIPAA, the Health Insurance Portability and Accountability Act, is a federal law that regulates who can access your medical records and health information. Covered entities face significant penalties for HIPAA violations, making them cautious about sharing medical information, even with close family members.

  • Controlled Information Sharing: Ensure that your healthcare provider and insurance company can share your medical information with individuals you trust.
  • Avoid Barriers to Information Access: Prevent delays in communication and decision-making by pre-authorizing access to your medical records.
 
Step 5: Draft Directive to Physicians (Living Will)

Creating a Living Will, also known as a Directive to Physicians, is a crucial part of end-of-life planning. This document allows you to provide clear instructions to your physicians regarding the use of artificial methods to extend your life if you are diagnosed with a terminal or irreversible condition.

  • Express Your Wishes: Clearly communicate your preferences for end-of-life care to your medical team.
  • Reduce Family Stress: Prevent potential conflicts and stress among family members by specifying your wishes in advance.
  • Ensure Dignity: Maintain control over your medical care and ensure that your end-of-life treatment aligns with your values and desires.
 
How to Obtain Essential Legal Documents for Your Family

All of these documents are widely available and can often be obtained from a bank, broker, or medical provider. Additionally, many providers are available online, however, online sources often require a level of understanding that many people lack, including correctly answering questions and knowing how those answers will be used.

Consulting an attorney to create the documents your family needs is recommended. Qualified legal counsel can work with you to create documents tailored to your specific needs. Once drafted, ensure these documents are securely stored after the appropriate parties have copies. 

Regularly Review Legal Documents to Meet the Family’s Changing Needs

Regularly review these documents to identify how the family and circumstances have changed since drafting the original documents. Changes in family dynamics, divorces, and shifts in the legal landscape can all impact the effectiveness and suitability of even the best plans. Don’t let your documents become outdated and ignored until an emergency occurs.

Establishing an estate plan through these steps helps ensure your assets are distributed according to your wishes and your loved ones are provided for. Regularly reviewing and updating these documents is essential to adapt to changing family dynamics and legal requirements, ensuring your plan remains effective and aligned with your intentions over time.
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