Estate Planning Basics
The idea and practice of estate planning can confuse and intimidate. Because multiple misconceptions surround estate planning, we felt an estate planning basics article was necessary to embolden the average person to take charge of their future.
One misconception people hold is the idea that estate planning is just for the elderly. This is false. Estate planning in Pennsylvania is suitable for all adults. Another misconception is that estate planning is only for the wealthy. This is also not true. Estate planning is appropriate for any adult regardless of their wealth. It is important to understand that estate planning is not the same as wealth and asset management, though the concepts do overlap.
This article will cover the Pennsylvania estate planning basics that virtually all adults should understand and utilize as part of a comprehensive estate plan.
What is an estate?
Part of the reason that estate planning basics can confuse is because people are not quite sure what an estate actually is. Perhaps because the word estate is often associated with the super wealthy, regular folks may believe that they need to own a certain amount of property and assets to have an estate.
This is not true. An estate is simply anything you own. This includes your bank account, car, home, furniture, your mom’s wedding ring, and anything else you can think of. As you can see, nearly everyone has an estate of some size and some kind.
Given that everyone most likely has an estate, creating an estate plan in Pennsylvania should at least be given some careful thought.
What is estate planning?
Estate planning is taking concrete actions to ensure that your final financial and healthcare wishes are honored.
If you want to guarantee that your property and assets go to the people you care about when you die, then an estate plan can benefit you. If you want the peace of mind that comes with knowing that you health care wishes are carried out, than making an estate plan should be on your to-do list.
Proper estate planning examines your current situation and your future goals and then arranges for their execution. Estate planning can include minimizing taxes, including gift, inheritance, estate, and income tax. Planning for incapacity and the efficient administration of your estate when you die is also part of estate planning.
Estate planning can be as simple or complex as the client’s situation. Every estate plan is at least slightly different and should be tailored to the needs of the specific person or family.
What are the estate planning basics?
Everyone should consider creating both a financial and healthcare power of attorney.
Various types of financial power of attorney documents exist. The kind you choose is likely to depend on your marital status, age, health, and financial goals. Different financial power of attorney’s allow your agent (the person you designate to act for you) to take act for you financially at different times and under specific circumstances.
If you think you may need help handling your bank accounts, paying bills, or just don’t want to worry about making some financial decisions, a power of attorney document is appropriate. Even if you are younger and married, a financial power of attorney document may be useful.
Whether a client is young or old or healthy or sick, I strongly advise making a healthcare power of attorney. Clients have strong and different opinions about their end of life medical care. Instead of making someone choose what medical care to provide should you become incapacitated, an advanced healthcare directive can ease the stress of deciding how much care to provide and for how long. Along with this advanced healthcare directive, a HIPAA authorization is an important part of estate plan. This authorization will help your agent retrieve necessary medical records and documents.
Finally, the cornerstone of most estate plans in Pennsylvania is the last will and testament. The will identifies where and how your probate assets are distributed. A will is essential regardless of age.
If you have a young family, a will allows you to name a guardian for your minor or incapacitated children. You can create trusts and custodian accounts for your minor children to ensure that their needs are seen to.
If you are elderly, a will that clearly names beneficiaries and who gets what will help avoid unfortunate fighting between children. You can name a personal administrator who will settle the estate and ensure your goals and wishes are honored.
This article on Pennsylvania estate planning basics was written as a primer. We did not mention, for brevity’s sake, the importance of designating a standby guardian or the wisdom of purchasing a term life insurance policy.
Hopefully we clarified some important terms and concepts. If nothing else, we hope that the reader wil consider the value in creating a will and power of attorney documents. These estate planning essentials can provide peace of mind and financial benefits.
If you’d like to discuss your current estate plan or talk about developing an estate plan, please contact us today for a free consultation.