Estate planning is more than just leaving behind an inheritance; effective planning helps you create a long-lasting legacy and take care of those you love the most, even when you are no longer here to do so. At Camino, our passion is helping our members and those they love most realize greater financial security, which is at the heart of this process. Learn 5 important components of this process in our blog:
What Are the 5 Components of Estate Planning?
Estate planning isn’t a singular thing. Effective planning requires incorporating several parts and continuous effort to ensure you account for everything as your life changes. Here are the 5 main components of an effective plan:
One of the first parts to consider during estate planning is the will. This document outlines your desires for who will be the guardian of your family and pets and who should receive your assets, like money, a house, a car, or other possessions, after you pass.
Failure to leave behind a will or trust could result in your estate being subject to intestate succession, which means you have no control over who receives your assets.
A trust reinforces your will. Consider it the backbone of your will. Trusts are legal entities that assume ownership over property in an estate. These documents name a trustee who is responsible for administering your estate.
Trusts tell beneficiaries how to handle the assets they inherit once they receive them. A significant distinction is that trusts can administer an estate for an extended period, while will distribute assets all at once.
Still, effective estate planning requires understanding the different types of trusts and choosing the right one for you and your circumstances.
Power of Attorney
A power of attorney (POA) is another important consideration. If you become incapacitated, a POA gives someone legal permission to act on your behalf.
Even if we don’t always realize it, we all have a complicated web of responsibilities, from paying bills to signing documents. There are different types of POAs that account for different responsibilities, ranging from medical to financial.
For example, imagine you are in the hospital and unable to make financial or medical decisions. Including a power of attorney in your estate planning ensures no responsibilities go neglected even if you cannot tend to them yourself.
Health Care Directives
Providing clear healthcare directives is essential to estate planning. While a medical power of attorney will often handle these decisions, clear healthcare directions can serve as a “medical will”.
Lastly, remember to include beneficiary designations when estate planning. Life insurance policies and retirement accounts often detail these designations to determine who receives funds and payouts in the event of your passing.
This component could also ensure you have designated specific beneficiaries to receive assets in all estate planning documents. Thoroughly detailing beneficiaries could also help keep the peace and reduce the chances of disputes after you are gone.
If you have not made these designations, ensure you name beneficiaries and that the designations are current. Otherwise, you run the risk of your family not receiving assets or benefits when you pass.
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Effective estate planning is invaluable, but this is just scratching the surface. For example, after creating a trust, how can you minimize the tax burden on beneficiaries? Just as importantly, how can you ensure that your trust and will is legally valid and enforceable? What is probate and how does it work? At Camino, we are committed to helping each member of our cherished Montebello community build a brighter financial future for them and those they love the most, so we are here to answer your questions.