Most of us know we should include estate planning as part of our financial planning task list, but it's easy to procrastinate, especially if you don't know what documents best serve your individual needs.
Estate planning doesn't have to be difficult. Once you understand the different estate planning documents and how they work, you'll be able to weigh your options and choose what's best for you and your family.
1. Last Will and Testament
However intimidating it might sound, a last will is nothing more than a written legal document that states how you'd like your property and assets distributed after your death, whether it's to charity, family and friends, or even pets.
It also allows you to designate an executor to ensure your specifications are carried out and allows you to name guardian(s) for your minor children.
2. Living Will
Sometimes called a health care proxy, a living will ensures that your wishes regarding medical care are followed in the event that you become terminally ill and need to be on a life support system.
When you create a living will you can also create a health care power of attorney, which allows you to designate a health care agent to carry out your wishes in your living will.
3. Financial Power of Attorney
In addition to your last will and testament, another important document you should be aware of is a financial power of attorney. A financial power of attorney allows you to designate someone to manage the affairs of your estate, including financial decisions, if you are unable to manage them yourself.
4. Living Trust
Many people set up what's called a living trust. One advantage of a living trust is that it enables your estate to avoid probate court.
This is a significant advantage because the probate process can last as long as three years and cost as much as 10% of your estate's value. Avoiding probate court with a living trust also ensures your privacy because probate documents are open to the public.