Wills and Estate Plans
Estate plans aren’t just for rich people. Despite the fact that an estate plan is simply a legal plan defining what to do with you and your property in case your are incapacitated, the myth persists that the only people who need them are the wealthy.
In the real world, where the wealthy are not the only people who own cars, homes, jewelry, or even financial investments, estate plans are as important for everyday people as anyone else.
What is an estate plan?
An estate plan is a set of legal instructions for what to do with your estate in the case that you can no longer express your desires, and the word “estate” simply refers to anything that you own. One common misunderstanding is that you don’t need to be dead in order for an estate plan to activate. As long as you are incapacitated to the point that you cannot communicate, you need an estate plan to speak for you.
For example, if you got in a car wreck and were not able to speak, your estate plan would clarify to the doctors who could decide how you want to be treated, and it could allow someone to access any funds that may be required for your treatment. Or, in the event of your death, you estate plan would express to whom you want your assets to go. This can be especially important if you separated from a spouse without legally divorcing them, as the default rule in the state of Alabama is for all of your possessions to go to your spouse. Many people who have not taken this precaution find that someone they have not seen in twenty years is legally entitled to all that they own, and their actual family and loved ones are left with nothing.
What is the difference between an estate plan and a will?
People commonly confused estate plans and wills, and they aren’t entirely wrong to do so. A will is simply one ingredient of an estate plan. It dictates what will be done with your possessions after you die. The only difference between a will and an estate plan is that “estate plan” is a blanket plan for multiple different documents, each of which address different aspects of your estate.
So what are the different parts of an estate plan?
Will: The most commonly known part of an estate plan is a will. As discussed previously, it simply dictates what should be done with your possessions after you die. Do you want that old family heirloom to go to your brother or to your son? Do you want your late mother’s jewelry to go to your daughter or you
Power of Attorney: Power of Attorney is a phrase used to refer to the ability of a person to handle your finances for you in certain situations. For example, if you are bedridden and have to take money out of your bank account, how would you do it? You cannot go to the bank yourself, and yet the bank will not give money from your account to anyone other than you. The solution is to have a power of attorney which gives a specific person, such as a spouse or a relative, the ability handle your finances and business related tasks for you. In another situation, maybe you are in a coma or are unable to communicate, but your bank account must be accessed to pay a mortgage, a car payment, or hospital bills. For this, you would need to give someone in your life the power of attorney to do so.
Healthcare Directive: A healthcare directive is a legal document which gives the ability to make decisions about your medical treatment in the case that you are not able to. For example, if you get in car crash and are thrown into a coma, there are actually many important questions regarding your treatment that doctors need to have answered in order to treat you appropriately. Who will answer those questions for them? Your healthcare directive will express your opinions for you, and it will give the authority to a single person to answer questions which are not addressed in the document itself.
What is the advantage of having an estate plan?
The advantage of making an estate plan lies in the fact that our lives almost never look the way that the law thinks they look. If you die or are injured and do not have a will, then the law of the state you live in will choose what to do with your car, your home, or any family heirlooms. In most cases, that means they will go to your closing living relative. This could be your spouse, your parents, your siblings, children, cousins, or an aunt or uncle. In countless life circumstances, these people could be the furthest thing from who you would want to keep everything you own after you die, or decide whether or not to keep you alive in a coma. You could be legally married to someone from whom you have long since separated. You could be estranged from your immediate family, or simply want a close friend to make those decisions over anyone else. Without an estate plan, none of these desires could be expressed.
If estate plans are so important, why does’t everyone have them?
The short answer is: many people do. But those who don’t think to themselves, “I don’t have anything that I care too much about anyway, so I don’t care where it goes when I die.” About this, individuals are often wrong.
It is as easy to forget that there are things we own which mean the world to us as it is to neglect the fact that things which seem totally mundane have significant value. It could be a family heirloom that was handed down from your grandparents. It could even be your car or your home, which you have gotten so used to that you forgot that they even needed to be dealt with after your death.
No matter what it is, it almost always is the case that you own things which are valuable, which you care about, and which you would prefer go to the right person upon your death. The tendency to neglect some of the most important parts about our lives because we are caught up.