Estate plans: Not just for the rich and famous

Estate plans are tools that help ensure a person's assets are distributed according to his or her wishes. Although many people consider these financial tools important only for the rich and famous, an estate plan can offer benefits for everyone regardless of their net worth.

What is an estate plan?

Estate plans provide an action plan for how a person's estate and healthcare issues are handled in the event of a person's death or incapacitation.

A person's estate is composed of any real estate, stocks, insurance plans and personal property owned at the time of death or incapacitation. The presence of a plan can help identify which family members or loved ones a person would like to receive these assets and minimize the amount of taxes paid when the assets are transferred.

An estate plan can also provide guidance on the type of medical procedures that are desired in the event an individual is unable to communicate his or her wishes.

What types of legal tools are used to make an estate plan?

An estate plan can include a will and various types of trusts as well as a living will and power of attorney.

A will is a legal document that can be used to outline how assets such as property, bank accounts and personal belongings should be distributed. Some people prefer to use trusts, which can manage a person's assets in a similar manner. One primary benefit of a trust over a will is the ability to avoid probate, a potentially lengthy and expensive court process used to determine how assets are distributed. Although the presence of a will can shorten the probate process it does not offer a way to avoid it completely. A trust, however, can.

Living wills, also known as advanced medical directives, provide guidance in the event that the creator becomes terminally ill or unable to communicate his or her wishes regarding healthcare decisions. It may be wise to include a healthcare proxy as well. This document allows the creator to provide an individual with the power to make healthcare decisions on his or her behalf.

In addition to providing someone the power to make decisions regarding healthcare, it is also important to name someone to make decisions regarding finances. This can be done by naming a power of attorney. If incapacitated, this individual can make decisions regarding financial affairs such as investments and how bills are paid.

Determining which tools best suit your specific needs can be difficult. Contact an experienced estate planning attorney if you or a loved one is putting together an estate plan or would like an existing estate plan reviewed to ensure your wishes are met.