Many people conflate a last will with an estate plan, but they are not the same thing. A last will is a specific document that indicates how you want possession of your assets to pass on to other people after you die. An estate plan is a collection of documents, almost always including a last will, that guide people to follow your wishes in the event of your death or a medical incapacitation.
Obviously, a last will is a critical document and the foundation of your estate plan, but it doesn’t offer as many protections as a more comprehensive estate plan can. Considering your long-term needs and including additional documents in your estate plan can do a lot to improve your sense of security as you age and take the pressure off your loved ones in the event that something tragic happens.
An estate plan should address incapacitation as well as death
There are many circumstances beyond the end of your life that could leave you unable to make medical decisions or conduct financial transactions. Experiencing a sudden accident or medical event like a stroke could leave you hospitalized for weeks and unable to arrange for your own care or the payment of your bill. Getting older over time could also lead to a decline in your mental acuity that could eventually prevent you from making legally binding decisions on your own behalf.
Including an advance medical directive in your estate plan ensures that your loved ones know about your medical preferences. A medical power of attorney will grant someone the authority to make important medical decisions for you, while a financial power of attorney will authorize someone to access certain financial accounts on your behalf in order to pay necessary expenses, such as property taxes, your mortgage and utility bills.
If you suspect that you could develop Alzheimer’s or suffer significant cognitive decline later in life, a durable power of attorney will retain its authority even if the courts rule that you can no longer make decisions on your own behalf.
An estate plan can also look at tax issues and asset protection
The bigger your estate’s value and the more significant the assets you intend to pass on to another generation, the more likely it is that there will be estate taxes levied against the assets you pass on. Those with substantial estates may want to take steps early on to protect their assets in the event of medical decline or death.
Asset protection can involve moving funds into trusts or making financial gifts to family members who would be heirs from your estate. It can also look like taking steps now to plan for a future where you might need Medicaid benefits. Considering your financial and medical needs after retirement can help you decide what additional documents to include in your estate plan.