What is Estate Planning?
Before I knew what it actually meant, I used to think that Estate Planning was something for very wealthy people that own tremendous mansions. The reality is Estate Planning is just about making sure you have everything in order in case you were to become incapacitated or were to die. It is actually very important for just about everyone to do some degree of Estate Planning. The three big pieces of Estate Planning that apply to most of us are a will, power of attorney and health care proxy.
What is a Will?
A will is a legal document that lays out your final wishes. It basically tells the world who you want to get all of your belongings after you pass away. The will is authenticated and verified through the courts known as the probate process. A will is read in a county court and can be contested. There is no privacy with a will so if you don't want everyone to know who got what then using a trust is the way to go instead.
A big reason to have a will is to name guardians for your children along with a custodian for all the life insurance money you just left for them. In the case you do pass away without a will in place then the courts get to make all these decisions for you.
What is a Power of Attorney?
A power of attorney is a legal document that allows you (the principal) to appoint another person (the agent) to act on your behalf. You can specify in the document the powers you are appointing to your agent. You can give limited power like performing a single transaction on your behalf or you can give broad general power enabling your agent to do almost anything you can do.
Another important thing to remember is the power of attorney ceases at death. So if you are power of attorney for your elderly mom and she passes away you will no longer be able to act on her behalf. Obviously, you need to be very careful when deciding to give someone power of attorney. Personally, my wife and I are each other's power of attorney in case anything happened and we needed to act on the behalf of the other.
What is a Health Care Proxy?
A health care proxy is a legal document that appoints an agent to make health care decisions on your behalf if you are no longer able to do so. It is not an easy job to be a health care proxy for another individual and it is a major responsibility. Make sure the person you appoint is comfortable speaking with doctors and asking questions. Most people imagine having to make the decision to pull the plug, but there are many big decisions that might have to be made before you ever get to that point. Make sure you have a very serious conversation with the person you appoint so there is no gray area and no emotional decisions being made if put in that position.