Estate planning is the preparation of an official document. It states who will handle and own an individual’s assets after their death or incapacitation. It involves managing, preserving, and distributing an individual’s assets after their demise. Estate planning ensures that your loved ones, family, and spouse are financially secure. There are three types of documents for legal estate planning –
- A Will
- A Living Trust
- A Power of Attorney
Types of legal estate planning
A will is the documentation of your wishes regarding the distribution of your assets and property. It will divide and give upon your death. It also contains guardianship of a minor in case both parents pass away. This document is easy to prepare. But the time taken to implement your wishes depends upon the size of your assets and property. Charities can also do it through the will.
The person specifying their wish in the will is known as the ‘testator.’ However, an organization or individual who will look over the state after the person’s demise is known as the ‘executor.’
Codicil to the will
One should update there annually if there are any changes or updates to your will due to divorce, birth, or death. If there are minor changes to the will, then using codicil is enough to make amendments to your existing will.
A Living will is when you cannot communicate due to deteriorating health conditions; hence this document specifies your wishes. It also states that you do not wish for treatment if there is no hope for recovery and would like to remain by your family’s side.
A Living Trust
A Living Trust is similar to a will where you specify your wishes regarding the distribution of assets and property. Then, you transfer all the assets and property to the trust while you are living, and upon your death, the trust passes it on to the recipient without going through probate. You also create a joint living trust with your spouse.
Joint Living Trust
If you and your spouse want to protect your assets and property, a joint living trust could help secure your spouse and provide for them after your demise.
This would secure your family and assets at the same time.
Use of Joint living trust:
- A joint living trust helps both spouses control their assets.
- A joint living trust helps your spouse avoid probate court in case of one of the spouse’s demise.
- In a joint living trust, you can designate the individual or organization that would attain your assets after both of the spouse’s demise.
- In a joint living trust, you can create a system to handle your assets if you are unwilling or unable to handle them.
- Joint living trust documents are best for education and estate planning.
- Tax exemption if the estate is bigger than a federal estate.
- Avoiding conservatorship proceedings.
A Power of Attorney
Power of attorney, as the name suggests, is a document that gives the power to hold over your assets and property to sign legal documents, accesses your bank, sell property, etc., to an individual you trust. The person giving the power is known as the ‘principle,’ and the person who receives power is known as the ‘agent.’
Types of power of attorney
- General power of attorney grants the individual a wide scope of power or authority over your affair.
- Special power of attorney grants specific or limited authority over your affair.
- A durable power of attorney: In case of health deterioration, it remains intact until your death or recovery has been granted.
- Springing power of attorney: It has guidelines and comes into effect afterward.
- Transfer on death deed: Transfer on death deeds allows one to avoid the lengthy probate process and directly transfer their home and property upon death. Though this is not active everywhere.
Globally, will and trust have widely known and practiced estate planning forms. Will has most practiced and has been in use for many years. At the same time, Trust had advanced and structured and hence preferred by wealthy families.
Will comes into effect after the demise of an individual, whereas Trust can be created and is in effect during the Individual’s lifetime. In Trust, one can avoid probate, and the asset will be smoothly passed down. In addition, tax is reduced or exempted in trust regarding the size of assets and property.