Estate planning is a process that many people often find stressful. This is true even for those who have dealt with this type of situation before.
We’ve put together a short estate planning checklist to help streamline your obligations. Let’s explore everything you should know.
A Comprehensive Will or Trust
As you may guess, one of your primary estate planning responsibilities is to develop a comprehensive will or trust. This is true even for those who do not have a substantial number of assets to distribute.
Without these documents in place, it can be notoriously difficult to ensure that the appropriate parties receive what they are entitled to. It’s not uncommon for the absence of a will or trust to result in legal complications for other individuals down the line.
Additionally, the wording of these documents is highly important. Individuals should be clearly defined, and there should be no question about what party is entitled to specific assets.
Wills that have ambiguous language can often lead to feuds over entitlement, legal battles, etc.
Power of Attorney
For those unfamiliar with this term, power of attorney refers to allowing a specific individual to act on your behalf.
To elaborate, it’s crucial to establish a strong power of attorney during your estate planning so that your assets are properly allocated. Otherwise, a court may be in charge of deciding how your assets or property are distributed.
More often than not, their decision will not align with your original intentions.
Power of attorney comes into play during scenarios where you are no longer fit to make decisions for yourself, such as if you are mentally incompetent or deceased. It’s highly recommended to choose someone who has your best interest in mind.
As previously mentioned, you need to clearly designate what individuals are going to receive certain possessions or property. But, there’s an interesting component of estate planning that many people tend to overlook.
Certain types of possessions can be claimed by your heirs without being formally designated within your will or trust. For example, 401(k) plan assets fall into this category.
Declaring the beneficiary will ensure that this individual can handle your wishes appropriately. When choosing a beneficiary, it’s also worth considering their overall health.
If the individual that you designate is mentally incompetent or deceased, the court could take over instead. Additionally, the beneficiary that you name should be over the age of 21 in order to prevent complications from arising in the future.
Healthcare Power of Attorney (HPCA)
As the name suggests, a healthcare power of attorney allows another individual to make health-related decisions on your behalf.
This often comes into play when someone suffers from a debilitating mental condition, gets into an accident, etc. At this point, the HPCA (which is often a family member or spouse) can make decisions for the affected individual.
It’s best to choose someone you trust who has views that align with your own. Because this role is so important, you also need to designate a backup agent.
This individual will take over in the event that your designated HPCA is unable to act. Typically, a backup agent is someone who is not associated with the original HPCA.
A Letter of Intent
This document is as straightforward as it sounds — it declares exactly how your beneficiary should handle your assets. Common details include funeral arrangement requests or how to act during specific scenarios (such as giving money to a nephew after they graduate college).
In the event that your will is deemed invalid, a letter of intent could help the court gain insight into your original intentions. This is something essential to keep in mind, as your plans may otherwise fall through entirely.
For those who have children or are plan on having kids one day, it’s imperative that you clearly define designated guardians while planning your estate. Unfortunately, this obligation is often overlooked due to being preoccupied with the distribution of property or finances.
Additionally, individuals with children often do not foresee themselves becoming deceased or mentally incompetent before their children are grown.
The guardian you declare should be both mentally competent and enthusiastic about caring for your children. Additionally, they should be financially sound and capable of providing your children with a safe environment that is conducive to their development.
As you might expect, you should also name additional individuals as backups. Without these precautions in place, a court may rule that your children should be placed under the care of a family member you don’t trust.
In some circumstances, a court may even rule that your children are to be deemed wards of the state.
Create a List of Outstanding Debts
For those who are unaware, it’s possible that certain debts can pass to the beneficiary of your will. In some cases, the amount of debt that this individual experiences will outweigh the total value of the assets they receive.
To elaborate, let’s assume that the combined value of the assets someone inherits is worth $50,000. But, they also become responsible for $250,000 in secured loan debt.
To help navigate this situation, it's highly recommended to get in touch with a professional and inform them about your concerns.
This Estate Planning Checklist Can Be Game-Changing
It’s essential that you keep it in mind. From here, you can use the above estate planning checklist to ensure that the process goes as smoothly as possible.
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