Wednesday, July 8, 2009

The Four Components of Every Estate Plan

In a recent poll, I asked readers if they knew the four components to every estate plan. There were many creative answers, but sadly, no one had the right four components. In fact, none of those answering the poll listed even two of the four components.

In this article, we will detail the four components of EVERY estate plan. If your is missing any of the four, then you know the plan is faulty and exposes you and your family to serious risk.

Component 1: A Testamentary Instrument

Every estate plan should contain a testamentary instrument. This can be a Will or Living Trust acting as a Will substitute. This component has the following purposes:

1. Nomination of executors or personal representatives and trustees and their successors.

2. Provide for care and guardianship of any minor children.

3. Provide for your desired asset and property disposition.

4. Cover any tax planning issues if your estate is large enough.

Component 2: Durable Financial Power of Attorney

Every estate plan must consist of a Durable Financial Power of Attorney. This allows your choice of decision makers for yourself in the event of mental incapacity. In other words, who do you want to make financial decisions for you if you are incapacitated and cannot make those decisions for yourself.

Note that if you do not have this component, then financial decision making for you can be problematic if you are incapacitated.

Component 3: Durable Health Care Power of Attorney

Every estate plan must consist of a Durable Health Care Power of Attorney. This allows your choice of medical decision makers for yourself in the event of mental incapacity. In other words, who do you want to make health care decisions for you if you are incapacitated and cannot make those decisions for yourself.

Note that if you do not have this component, then health care decision making for you can be problematic if you are incapacitated. Also, both types of Powers of Attorney should name a HIPAA Personal Representative for access to protected health care information, including financial health care information. This is why anyone over the age of 18 should consider these two decision making documents.

Component 4: Living Will

Life support issues should be considered and decided upon before you are in that situation, when it is normally too late. This is done through a Living Will.

Each State has its own laws about Powers of Attorney and Living Wills as well as Wills and trusts. However, it is possible for each of these four components to be created at little or no cost to you. We recommend that you consult with your own estate planning attorney to learn about these four components and to learn how each applies to you.

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