When people think of estate planning, they most often think of a last will that outlines the financial legacy they want to leave behind. There is no question that a last will is an important component of an estate plan, but it is far from the only document a comprehensive estate plan should include.
Your estate plan should address issues of security and protection for your family, potential concerns about health issues and financial planning for your retirement. By taking a more comprehensive and big-picture approach to estate planning, you can provide more protection for yourself, your loved ones and the legacy that you leave behind when you die.
Put documentation in place to protect your loved ones
If you have children or other financial dependents, you want to ensure that they have the resources and help they need if you die. Naming a guardian for your children or other dependents in your last will or estate plan helps protect them.
Creating a trust can do even more, as it can ensure that the guardian who cares for your child doesn’t have the opportunity to utilize or squander the financial assets you leave for your children. With a trust, you have more control over when, how and why people access the funds or assets you leave behind.
Address what will happen if your health declines or you suffer a major injury
Medical issues that arise later in life can compromise your overall well-being or mental acuity. Regardless of your family background, it makes sense to plan for the potential of degenerative medical conditions or incapacitation in the event of an accident or severe illness.
Creating an advance medical directive as part of your estate plan will ensure that your medical wishes and preferences are known and followed in the event that you can’t speak for yourself. Naming someone to make decisions on your behalf or to handle important financial matters in the event of incapacitation through power of attorney documents can also protect you, your property and your dependents.
Estate planning can include tax-reduction strategies and Medicaid planning
While your retirement may be decades away, you need to start thinking about it now. Particularly if you find yourself living a long life or dealing with serious medical conditions as you age, having a strategy in place to shelter your assets and help you access public insurance programs like Medicaid could prove to be very beneficial.
Medicaid covers costs that Medicare and private insurance will not, such as skilled in-home nursing and nursing home inpatient care. Unfortunately, when you apply for Medicaid, any substantial gifts or financial transfers in the five years prior to your application can result in the denial of benefits or substantial penalties.
Instead of risking the total liquidation and loss of your estate and legacy in the event of illness as you age, you can take steps now to create and fund trusts that will protect your assets and family. The same trust intended to help you get the insurance coverage you need can also reduce or eliminate the tax liability on your heirs when you die.