What is a will plan?

Definition and example of an estate plan

How an estate plan works

Benefits of an estate plan

Definition and example of an estate plan

An estate plan is a strategy for managing assets and wealth during your lifetime and after your death. You create an estate plan according to your financial situation, goals, and how you want to provide for your heirs or beneficiaries. The goal of an estate plan is to protect your wealth for the benefit of your designated beneficiaries and to provide them with security and advantages. Assets in an estate can include real estate and personal property such as homes, vehicles, bank accounts, investment accounts, antiques, and other valuable assets.

How an estate plan works

An estate plan is designed to help you manage your assets. How your plan works depends on the tools you use. For example, an estate plan may include the following:

• Last Will and Testament: A last will and testament is a fundamental part of an estate plan. This written document specifies how you wish to distribute your assets among your heirs after your death. You may also use the will to appoint guardians for minor children and to designate an executor to carry out your wishes.
• Trusts: A trust is a legal arrangement where assets are transferred to a trustee’s control. The trustee manages those assets on behalf of the beneficiaries according to the instructions from the trust creator.
• Power of Attorney: A power of attorney is a legal document that gives another person the authority to act on your behalf when you are unable to make decisions for yourself. The person appointed to act for you is your agent, and the scope of their authority is defined by the power of attorney document.
• Living Will / Advance Healthcare Directives: A living will or advance healthcare directives allows you to specify the type of medical care you wish to receive in case you become temporarily or permanently incapacitated or diagnosed with a terminal illness.
• Life Insurance: Life insurance provides a death benefit to your loved ones after your passing. There are different types of life insurance to choose from, including term insurance, which provides coverage for a specified period, and permanent insurance, which provides coverage for your lifetime.

An estate plan can be used to plan for funeral and burial expenses and to indicate the arrangements you want your loved ones to make for these events. You might purchase separate burial insurance in addition to a traditional life insurance policy.

An estate plan can include assets that may not be covered by the will or trust. For instance, if you have a 401(k) plan at work, an Individual Retirement Account (IRA), and a taxable brokerage account in your name, you may designate your spouse as the beneficiary for those accounts.

Note: Accounts that have designated beneficiaries are not subject to probate. Probate is the legal process in which assets are accounted for by the executor. The executor uses those assets to pay any debts owed against the estate and then distributes the remaining assets to the heirs.

If a person dies without a will, they are considered “intestate,” and their assets are distributed according to state inheritance laws.

Benefits of an estate plan

Establishing an estate plan can have many advantages. First, it provides peace of mind. If you have children, for example, the will allows you to appoint a guardian to care for them in the event of your death.

An estate plan can make the task of managing your finances after your death easier for your loved ones during an emotionally challenging time. A will, trust, and other estate planning documents can provide guidance on what to do with your assets so that your heirs do not have to guess your wishes. A clearly defined estate plan can also help reduce disputes or conflicts over your property or assets.

An estate plan can also help minimize estate taxes for your heirs, depending on the documents or tools included. For 2022, the maximum estate tax exemption is $12,060,000, so this benefit may only apply to individuals with substantial wealth. However, it is still worthwhile to be aware of if you wish to preserve as much of your wealth as possible for future generations.

Summary

Main:

• An estate plan is a strategy for managing assets during your lifetime and after your death.
• A last will and testament is the cornerstone of an estate plan. Other elements include trusts, living wills, powers of attorney, and life insurance.
• An estate plan can benefit individuals with various assets, not just the wealthy.
• An estate plan can provide tax benefits for you and your heirs.
• Creating an estate plan can ensure that your assets are handled according to your wishes.

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Sources:

• Cornell Law School, Legal Information Institute. “Estate Planning.”
• New York State Unified Court System. “Last Will and Testament.”
• IRS. “Definition of a Trust.”
• American Bar Association. “Power of Attorney.”
• Mayo Clinic. “Living Wills and Advance Directives for Medical Decisions.”
• American Bar Association. “Probate Process.”
• IRS. “Estate Tax.”

Source: https://www.thebalancemoney.com/what-is-an-estate-plan-5410209