Two things in life are inevitable: life and death. Just as it is necessary to prepare for the arrival of a newborn, with shopping or saving to move to a bigger home, it’s also essential to have your affairs in order in preparation for your departure. Doing this not only spares your family from the paperwork hassle, but also gives them time to grieve. Besides, it also gives you the peace of mind that you’ll leave your affairs straightened out, and your beneficiaries will be well taken care of after you’re gone.
Wondering how to get started with estate planning? A basic estate plan consists of three components: a healthcare power of attorney, a last will and testament, and a general power of attorney. The list below takes a look at each component in more detail.
Table of Contents
1. Healthcare Power of Attorney
If you can’t make any healthcare decisions for yourself, you can institute a healthcare power of attorney. This involves naming someone as your proxy or representative, a trusted person who can make all your healthcare decisions should you be incapacitated or in a position that makes it difficult to do so on your own.
The person you choose to be your proxy should know your values and wishes. A healthcare proxy is one way to plan for unforeseen situations like a heart attack or a car accident. A proxy can be an addition or substitute for a living will. Obtaining Health Insurance Portability and Accountability Act (HIPAA) permission can also be necessary before allowing others to discuss your condition with your doctor or nurse.
2. Last Will and Testament
One of the most important estate planning documents you can have is a will. When you make a will, you (the testator) name a person you trust to oversee the distribution of your assets (estate executor). A will outlines how your estate, money, business, and other possessions will be divided and managed after your demise.
A will can also cover end-of-life decisions, including a funeral or memorial ceremony, burial, or cremation. In 2021, the median cost of a funeral with a viewing and burial was around $7,848; for a funeral with cremation, it was around $6,971. Knowing the costs beforehand aids in decision-making. A will can also include care for children under 18, adult dependents, and pets. Remember that your estate will be divided per state law if you don’t make a will. So, why leave such an important matter to the state?
3. General Power of Attorney
If you can’t make decisions independently, a power of attorney allows you to appoint someone to handle your finances, such as in the unfortunate event of incapacitation. The most crucial estate planning decision you’ll make is who will serve as your executor. Consider choosing someone whose values align with yours. Ask them if they will assist you if anything happens to you.
Consider having a backup executor if your first choice can’t do it. Once everything is in place, let your executor or power of attorney know how you have arranged your papers and information, including where you have kept everything.
Estate planning may seem like a daunting task. According to Legal Zoom, approximately just 33% of U.S. adults have created estate planning documents. However, it’s never too early to start. You could do this over several months or years. Start by collecting your critical documents, your will, official certificates (marriage, birth, etc.), business documents, tax returns, and life insurance policies. Save them in a safe place. Once you settle on estate planning, speak with a qualified estate planning counsel so they can help you through the process. With estate planning counsel, you will avoid making errors in the documentation or omitting certain assets, which could result in disagreements among your beneficiaries later on. Planning for what happens if you pass away may sound grim, but in the end, you’re doing this out of love for those you are leaving behind.