Every adult, regardless of age or wealth, should have an estate plan. Good estate planning allows you to control the transfer of your wealth to your loved ones and the charities that are important to you while reducing estate taxes that may be owed by your estate.
Here are some basic estate plan documents you might consider:
Last will and testament
A will allows you to direct how assets owned in your name at death are distributed. If you do not have a will, those assets could be distributed according to the laws of the state in which you live. A will also is used to appoint an executor to manage your estate as well as a guardian for your minor children.
Revocable trust
A revocable living trust allows the assets held in trust to pass directly to beneficiaries without going through a probate estate. A revocable trust can reduce the time and cost associated with estate administration and keep the details of your estate private.
Credit shelter / bypass trust
A married couple can use a bypass trust (often called a credit shelter trust) to transfer the applicable exclusion amount at your death to someone other than a spouse without paying federal estate tax on that amount. A family trust or an individual revocable trust document creates a bypass trust at the first death that is funded with the maximum applicable exclusion amount. Family members are named as beneficiaries, and the surviving spouse can be given the trust’s income and principal if needed. After the survivor dies, the trust principal passes to family beneficiaries free of federal estate tax.
Power of attorney
A power of attorney appoints a person to be your attorney-in-fact to act as your agent to manage your financial and legal affairs in the event you become incapacitated. The power of attorney can be made durable, which would allow your agent to act on your behalf even if you are mentally incapacitated.
Health care directives
Advanced health care directives state your wishes about your medical treatment in the event you are unable to make these decisions. A health care power of attorney appoints an attorney-in-fact to give medical personnel directions on what procedures they should undertake on your behalf.
It is important that you review your estate plan at least every three years as well as upon a major life change, such as a birth, death, marriage or divorce. Your Financial Advisor as well as your legal and tax advisors can help keep your estate plan documents up-to-date and working for you and your family.
Robert W. Baird & Co. does not provide tax or legal advice. Please consult with your tax and legal professionals.
Article provided by Rebecca Ross, Vice President and Financial Advisor at Robert W. Baird & Co., member SIPC. She has 32 years of financial services industry experience.
