What Is Estate Planning, and Why Is It Important?

“Planning is bringing the future into the present so that you do something about it now.”

-Alan Lakein

As you know, part of our job as financial advisors is to help people like you pursue the financial success you’ve always dreamed of.  But to do that, we first need to assess your dreams, and then effectively outline what must be done to achieve them.  These are the two stages of planning, and both are essential toward reaching your goals.

One type of planning is particularly important: estate planning.  Estate planning is how you can seek to secure your family’s financial future.  An estate plan is important, even for families who are not wealthy.  It’s a good way to ensure your loved ones receive what you’ve worked so hard to earn.  It’s also a critical part of creating your own legacy. 

You may be thinking, I have a will so I’m all set.”  While having a will is a very important part of your estate plan, it’s not the only part. A will does not specify how you want to be treated should your health fail.  It does not dictate who will carry out your wishes or handle your financial affairs should you ever become incapacitated.  It does not help your heirs limit their tax burden.  These are all important issues that estate planning is designed to address.  So, if these things are important to you, keep reading.

To ensure that both you and your loved ones will be cared for, I’ve created a list of four key documents that should be in every estate plan:

1. Will

I mentioned that creating your will is a very important aspect of estate planning, so let’s cover that first.  A will states how you want your belongings divvied up amongst your loved ones after you pass away. Otherwise, the government will determine how to distribute your property, which may even end up belonging to the state if you don’t have an appropriate will stating otherwise.

2. Power of Attorney

Another crucial document is your power of attorney, which allows you to appoint someone to act on your behalf to make legal decisions about your property and finances.  That person, usually referred to as an “agent,” could be a trusted friend, a family member, or an experienced, reputable professional.

Power of attorney is crucial should you ever become ill or disabled to the point where you can no longer make important decisions yourself.  Keep in mind, however, that granting someone power of attorney is a huge decision in and of itself.  Give careful thought before making your choice.  Whomever you select should be trustworthy, reliable, and mature enough to handle the responsibility. 

3. Advance Medical Directive

A third document is your Advance Medical Directive.  This catch-all term refers to health care directives, living wills, health care (medical) powers of attorney, and other personalized directives.  All of these documents allow you to legally express your preference for continued health care should you become terminally ill. 

A word of advice.  As you finalize your Advance Medical Directive, make sure you have completed your HIPPA Release Forms as well.  By having this special form completed, you enable the individuals named in your Advanced Health Care Directive to have access to your healthcare information.  This way, they can deal with insurance matters on your behalf at a time when you cannot.

4. Letter of Instructions

Last, but not least, is a “Letter of Instructions.”  This is a document giving your survivors information about important financial and personal matters to attend to after your passing.  You don’t need an attorney to prepare it.  Although it doesn’t carry the legal weight of a will, and is in no way a substitute, your Letter of Instructions will clarify any special requests you want carried out after death.

The four documents listed above are all very important, and every adult should have them in their estate plan. Having each of these important documents prepared ahead of time can relieve your family of needless worry, speculation, and expense.  Keep in mind, however, that while this information is a good overview of some important estate planning documents, it certainly doesn’t cover everything.  When it comes to planning for your financial future and those of your loved ones, remember that there are many factors to consider.  If you haven’t yet completed the documents described above, or if your circumstances have changed and you haven’t updated your estate plan accordingly, it’s high time to review your plan.  Because when it comes to planning, there’s no such thing as starting too early.

But there is such a thing as too late.

If you have any questions or would like to know how we can help you reach your financial goals, please give us a call at  212-489-8443 or feel free to schedule a complimentary 15-minute meeting.

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