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November 28th, 2022 |


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If you haven’t done any estate planning—i.e. finalizing legal documents to manage and pass on property and set out wishes for end-of-life matters—it should be on your list of priorities. But before you call an attorney or start drafting documents on your own, it’s important first to understand some of the basic arrangements involved in estate planning, and the protections and assurances they can provide.

What is estate planning?

Estate planning is a process in which someone specifies how their money and other property should be managed during life and after their death. And it commonly includes a related issue: directions about the type of medical care they want to receive if they become unable to communicate those wishes directly.

Estate planning documents will also often included specific final arrangements—such as whether to be buried or cremated—and more sophisticated estate plans may even cover deferring or decreasing estate taxes or closing up a business.

While these matters require some soul-searching and forethought, estate planning is not the ordered and lockstep procedure that the term implies. In reality, it simply involves drawing up and finalizing one or more documents that give legal force to someone’s wishes for property management and medical care.

What’s in an estate?

When it comes to estate planning, myths and misconceptions abound. The main one is that it’s the province of only the very rich. But despite its lofty-sounding name, estate planning isn’t reserved just for those who have a lot of money or property.

In the eyes of the law, an “estate” is simply all the property individuals own, both outright and jointly—including bank accounts, real estate, stocks and bonds, vehicles, jewelry, retirement accounts and even pets. And it includes interest and money to which they are later entitled, such as insurance proceeds and securities dividends.

What happens without estate planning?

Estate planning is essential for a very specific reason: without it, decisions about your medical care, property and final arrangements will be made without your input.

Medical decisions will fall to the treating doctor or hospital. Property will be divided and distributed at your death according to the hierarchy of survivors specified by state law. And final arrangements will be carried out according to the whims of relatives or in accord with community customs. The plans these people or institutions put in place may not match the wishes of those for whom they’re making the decisions.

6 Key Estate Planning Questions for You or Your Parents

In deciding whether you need to do any estate planning (either for yourself or your aging parents), the key questions you should answer are whether there is any property you would like a particular person or charity to receive after deaths and whether you have strong opinions about your medical care and final arrangements. If so, it’s usually wise to get some simple documentation in writing to provide legal assurance that those wishes will be enforced (which are outlined below in further detail).

But before considering specific legal documents, these are the key questions you or your parents should consider:

1. What are my assets and what is their approximate value?

2. What people or organizations do I want to have these assets—and do I wish to give them away during my lifetime or after my death?

3. Who should manage these assets during my lifetime if I become unable to do so, or after my death if management is needed?

4. Who should be responsible for taking care of any minor or dependent children if I become unable to do so?

5. Who should make decisions about my medical care and finances if I cannot make them?

6. After I die, do I want my remains to be donated, cremated, scattered or buried?

Important estate planning documents

Now that you’ve answered the above questions, it’s time to start thinking about the legal documents you may need to protect the decisions you’ve made about your estate. In addition to wills and trusts (which are described in detail in the following sections), below are several types of estate planning documents you should consider, depending on your individual circumstances.

Joint ownership

When property, such as a house or bank account, is held in joint tenancy (also called tenancy by the entirety), it will pass automatically to the named survivor. Like living trusts, property in joint tenancy doesn’t go through probate. This is a good setup if the survivor is a spouse, close relative or close friend who can be trusted not to sell or squander his or her share of the property.

Transfer or pay-on-death designations

Those who have an account in a bank, savings and loan or credit union may be able to designate a beneficiary to automatically take the account funds at their deaths; these are called payable-on-death accounts. A similar legal arrangement, a transfer-on-death designation, allows them to register stocks, bonds and brokerage accounts so that a named survivor takes them automatically at death. Both methods avoid probate.

Powers of attorney for finances

This document allows you to name a trusted person, called an attorney in fact, to handle your financial matters if you become unable to handle them on your own. Durable powers of attorney for finances are mainly preventive documents. If you don’t have them and you become mentally incompetent, a judge will have to appoint someone to manage your finances for you—even if the appointee is unfamiliar with you or you money matters.

To learn more about this document, visit our Guide to Power of Attorney for Finances.

Health care directives and powers of attorney for health care

These documents, also called advance health care directives, allow you to instruct healthcare providers about what life-prolonging treatments you do and don’t want if you’re no longer able to express yourself—and to name someone to oversee your care to be sure those wishes are enforced, sometimes in a separate document called a durable power of attorney for health care. Although state laws differ slightly, these directives are usually enforced only if someone is close to death from a terminal condition or in a permanent coma.

Learn more at our Guide to Advance Health Care Directives.

Final arrangements

This document will give legal force to your wishes to be considered for body and organ donations, and it can also state your preferences to be buried or cremated. As with other types of documents that take effect after death, you may also choose to name a person to oversee that the stated wishes are carried out as written.

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