Beginners and billionaires alike should refresh their knowledge of these basic estate planning terms and concepts.
The word "estate" tends to conjure up images of billionaires and aristocrats, but estate planning is not just for the wealthy. It's widely believed that estate planning in one form or another is needed by everyone, and it doesn't need to be sophisticated, complex or costly to help fulfill final wishes and protect assets. Whether you're a prince or a pauper, refreshing on estate planning basics can help make sure your legacy is left the way you intended.
Keep It Simple
An estate is the net worth of a person at any point, including all land, possessions and other assets. A good estate plan passes on your assets to intended recipients in a manner and timing that reflects your wishes.
A will is not sufficient to protect your assets. Wills are outdated as a form of comprehensive estate planning because they only take effect at death – and with life expectancies higher than ever, the challenge of protecting your assets begins much earlier. An estate plan should ensure that the cost of long-term care for a disability won't devour your assets, which could occur well before a will would come into play.
Your estate plan should protect your assets from nursing homes. This can be achieved by purchasing a long-term care insurance policy. The IRS considers the insurance premiums for “qualified long-term care plans” to be medical expenses, which means it's possible to deduct them from federal taxes. Many states offer tax breaks as well. And because benefits paid under long-term care insurance policies generally aren't taxable, long-term care insurance can help avoid a nursing home laying claim to all your assets until Medicaid kicks in. Check with a tax advisor to be sure.
Power of attorney specifies who will represent you in the event that you're unable to make or communicate decisions about all aspects of your healthcare.
Assigning joint power of attorney to two parties allows one to keep the other in check. The “two heads are better than one” approach acts as a safeguard in case one individual becomes unable or unwilling to make important decisions. Common options include selecting two family members, a family member and a lawyer, or a bank or trust company.
A durable power of attorney differs from a traditional power of attorney in that it continues the agency relationship beyond the incapacity of the principal..
The laws for creating a power of attorney vary from state to state, but there are certain general guidelines to follow. If no power of attorney is appointed, the state appoints guardians, conservators or committees, depending upon local state law. Before you or your loved ones sign any documents, however, consult with an attorney concerning all applicable laws and regulations.
While most of us will never have huge fortunes to worry about, we should still pay attention to our own legacies, how we’ll protect them, and how they'll affect our loved ones. A legacy is not just about leaving what you earned – it's also about leaving what you’ve learned.