Hello and welcome back to Smart Financial Future. I’m John Williams, Certified Financial Planner and Senior Advisor at Ironwood Wealth Management and today I want to talk about some of the documents used in estate planning.
A good estate plan is often built on the foundation of the estate planning documents that cover all three phases of your life: while you’re alive, if you become disabled, and after you pass away.
Before we take a few minutes to briefly review, some of the more common estate planning documents, keep in mind you should use a competent attorney when it comes time to draft them or review your existing ones. Now that means one who specializes in this area. It’s sort of like not going to the eye doctor for a foot problem.
At the end of the day there are five commonly used estate planning documents: A Will, A Revocable Trust Document, A Medical Power of Attorney, A Living Will and a Power of Attorney. In some situations, a revocable trust may not be necessary so you may only need four.
Simply stated, your Last Will and Testament is a detailed list of how your property should be distributed after you pass away. If you have minor children, it should also contain provisions for designating a guardian for your children. Please keep in mind that a will normally will not allow you to control your property once it’s been distributed. That’s part of what a revocable trust is for. If, for example you want a certain sum of money to go to a loved one if they finish college and you are not around when they graduate, then a revocable trust document may be something you need to add to your four other estate planning documents.
A Revocable Living Trust document normally contains a detailed set of instructions covering what happens while you are alive and well; What happens if you become incapacitated; and unlike a will, it can also allow you to control what happens to your property after your death. In addition, assets held in the name of your Revocable Living Trust at the time of your death should avoid probate.
A Medical Power of Attorney allows you to designate someone to make medical decisions for you if you are unable to make them for yourself. It can also be used to designate someone to serve as your guardian or conservator in the event a court determines that you have become incapacitated.
A Living Will contains a written set of instructions discussing whether or not you want to receive life-sustaining procedures if you have a terminal illness or are in a persistent vegetative state. It can also give guidelines for your family members to follow if you become terminally ill. This important document helps to assure your wishes will be followed.
The final document we’ll discuss is the Power of Attorney document. It allows you to appoint someone to manage your financial affairs like pay your bills and manage assets that are titled in your name, such as checking accounts, retirement plans and investment accounts.
Financial Powers of Attorney like these come in two forms:
- A Durable Power of Attorney, which goes into effect as soon as you sign it; and
- A Springing Power of Attorney, which only goes into effect after you have been declared incapacitated.
This has been John Williams, with the financial educational blog site Smart Financial Future. Don’t hesitate to let us know if you have any questions. We’ll see you next time.