Estate planning is a process in which a person plans the disposition of their property after death. During this process, we look at the family structure and the assets of the planner to determine the best way to ensure that the assets are preserved as long as possible and given over to the correct person when the time comes. At my office, I usually suggest that we plan for incapacity as well, and put in place a power of attorney and health care proxy. A will, power of attorney, and health care proxy are what I call The Basic Three documents almost everyone needs to manage their affairs effectively.

A will is a legal document that states your final wishes as to who shall receive your property after you die. It also names the person who you want to take care of the work involved in carrying out your final wishes. This person is called the executor.

A trust is simply a legal “basket” to hold and manage assets for various purposes. There are many different types of trusts that can created for various different purposes, including probate avoidance, creditor protection, or simply a place to hold assets for a minor until they reach the age of majority.

Trusts can be simple or complex, can be made while you are alive, or come into being through a will as a testamentary trust. Trusts are almost always more complex than a will and have to contain many important terms to be sure the assets are managed properly, taxes paid, and beneficiaries in receipt of assets in a timely manner.

A power of attorney is a legal document in which an agent is appointed to manage your financial affairs if you are incapacitated. This document ceases to be operable after you die. This is one of the Basic Three I like to see everyone have, because it ca prevent a lot of trouble should you be unable to manage your financial affairs. The agent can conduct banking transactions, sell assets, and pay bills.

Power of attorney is not without risks. It is important to choose your agent wisely so that they do not steal your assets! Failure to have a power of attorney in place when one becomes incapacitated can result in a guardianship filing, which is expensive and arduous.

Like a power of attorney, this is a document used when you are alive but incapacitated. In it you appoint an agent to speak for you in reference to your medical care. The document is prepared when you are well and details your wishes for medical treatment when you are incapacitated. Failure to have this in place can also result in a guardianship, should you become incapacitated and no one is appointed to speak for you.

Good question. These documents protect you in the event of incapacity and at the end of life. Without them, family members will have to take on additional financial burdens, as well as time and management duties, that can be onerous and lead to costly disputes. Better to be prepared than leave your children without the help they need.