Estate Planning 101 (Relationships & Finances 3/8)
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Estate Planning 101 (Relationships & Finances 3/8)


Meet Sophie. Sophie has been working at Corporate
Co. for the past six years. Sophie’s happy, and thinks she has everything
she needs: a great job, a loving husband, and an adorable puppy named Luke. However, unbeknownst to Sophie, she’s actually
missing one thing: an estate plan. Sophie is stunned. What on earth is an estate
plan? Well, you should think of it as collection
of legal documents that specifies things like: How your property will be divided once you
die. Who will take care of your children and pets.
And perhaps most importantly, who will make medical and financial decisions on your behalf
should you become incapacitated. Now, I know what most of you are thinking.
I don’t need any of this! And for the most part, you’re right. If
you’re a single individual with few assets, you probably don’t need an estate plan.
However, if you’re married, have children, or possess significant property, than the
benefits of an estate plan are just too important to pass up. Sophie is clearly convinced, but still has
one last question. How does an estate plan work exactly? Well, it generally operates through five components. The first one is the will, which covers things
like what property you’re leaving to whom, and who will be your children’s guardian.
As for who actually carries out these tasks, since you’re um…dead, you’ll nominate
a trustworthy individual to be your executor. Thus, a will has powerful advantages, but
it also has serious limitations, most prominently, any financial account with a named beneficiary,
like a 401K or IRA, will supercede the claims your will. However, don’t worry, you easily
change these beneficiaries to the right person, if you haven’t already. So that’s the first component. The second component of an estate plan is
a living will, which dictates your preferences for end-of-life care, should you be unable
to communicate them. This document is then generally paired with the third component,
a healthcare proxy, which names a trusted individual to make medical decisions on your
behalf. Both documents are critically important, as without them, your doctors must follow
state defined hierarchies, which could leave you and your loved ones with a very unfavorable
outcome. Then, we have the fourth component, assignment
of the power of attorney, which names a trusted individual to manage your financial affairs
should you be incapacitated. And no, these powers are not automatically assigned to your
spouse. In fact, without this power, your spouse could have significant limitations
on selling even jointly-owned property! Finally, should Sophie have a net-worth of
more than $100,000 or substantial real estate assets, she may want to consider the fifth
component of an estate plan, a trust. Think of a trust as a legal “box” which
you can fill with assets, like a house, to be passed down to a specific individual, called
a trustee, once you die. This has two major advantages:
One: It allows you to minimize your estate taxes.
And Two: It keeps your larger assets out of probate, which is the pricey, time-consuming
way the court that distributes your property and pays off your debts, as outlined in your
will. Finally, as for actually making the estate
plan, while you can technically use a cheap, DIY online resource, we don’t recommend
it. It’s just too easy to make a costly legal mistake. That’s why instead we recommend
hiring an experienced estate planning lawyer, and don’t worry, our recommend website makes
this process a breeze. Hopefully you and Sophie now better understand
estate planning. Be sure to check out our next video, which covers children and finances,
and be sure to check out our website, where you can find more educational content and
great legal solutions.

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