Is Your Estate Plan in Order?

create a will, what is the difference between a trust and a will, difference between a trust and a will

One of the most important -- and ignored -- aspects of financial planning is estate planning. Yes, we all have an estate (our stuff), and yes, we will all reach the time when it will be distributed to others. Unfortunately, this very important aspect of planning is often left undone. When meeting with new clients, we often discover they have no estate plan or instructions in place for the disposition of their assets or guardianship for their minor children.

If you do not have a will, the state in which you live will provide one for you. They call this “dying intestate,” which means you give up the opportunity to distribute your assets as you want; instead, you’ve essentially hired the state to figure it out for you. State laws vary, but the message is the same: All your assets may not pass to your spouse and children.

If you have young children, who will raise them and manage your assets for their care, benefit, and welfare? Do you really want a stranger -- a judge in probate court -- to make those decisions?

Ironically, being unable to choose a guardian is the most common excuse parents of young children use for putting off writing a will. And wills aren't enough. You also need a medical directive and a durable power of attorney. These documents apply if you become disabled and cannot make decisions on your own. After all, just because you’re in the hospital doesn’t mean your mortgage doesn’t have to be paid. Someone needs to pay your monthly bills -- and the power of attorney lets a friend or family member do that for you.

If your condition is so severe that you can be kept alive only by artificial means, or if you need an operation but cannot make that decision because you are incapacitated, your medical directive allows another person of your choice to act on your behalf, honoring your preferences.

Without proper planning, your heirs will have to contend with probate court. And if you own real estate in several states, your heirs will have to deal with probate in each state. The process involves extensive time delays and legal fees, and, being a court action, it’s public -- anyone can learn about your affairs. Fortunately, you can avoid all this with a revocable living trust.

Talk with an estate attorney now.

Originally published in Inside Personal Finance November 2007

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