What Are the Three Elements of an Estate Plan?

Estate plans, otherwise known as end-of-life planning, are formal arrangements of how an individual’s assets will be distributed upon their death. Because an individual is often proud of what they have built up over their lifetime, it is important to them that their belongings are taken care of and go to the people they want to have them, rather than being left to the government or causing family disputes that make a difficult situation even worse.

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While every estate plan is unique in terms of its size and complexity, there are three elements that are common to all estate plans:

1. A Will or Trust

   Wills and trusts are documents that outline an individual’s wishes for their estate. They are similar in that they both allow an individual to specify who will receive their assets, but they differ in how they are executed. A will goes into effect after an individual’s death, at which point their assets are distributed according to the instructions laid out in the will. A trust, however, is a legal entity that holds an individual’s assets during their lifetime and distributes them according to the instructions in the trust upon the individual’s death. Trusts can happen in addition to or instead of a will.

2. Powers of Attorney

   A power of attorney is a legally binding estate document that offers someone else official authority to make critical decisions on your behalf. There are two different types of powers of attorney: financial and medical. A financial power of attorney allows someone else to handle your finances if you cannot do so yourself, while a medical power of attorney gives someone else the authority to make medical decisions on your behalf when you cannot communicate your wishes.

   A scenario where a medical power of attorney would be used is if an individual is in a coma and the hospital staff needs a decision to be made on whether to keep them on life support. If there is no clear directive from the individual in the form of any legal documentation, then the person with medical power of attorney would be responsible for making that decision.

3. Beneficiary Designations

   Beneficiary designations are often used in conjunction with a will or trust, as they specify who will inherit any assets that are not covered by either of those documents. For example, life insurance policies and various retirement accounts typically have beneficiary designations that overrule what is laid out in a will or trust. This is because these types of assets are not always subject to probate, which is the legal process of distributing an individual’s assets after their death.

   The qualities of a strong beneficiary include:

   • Being of age (18+).
   • Having a clear understanding of the estate planning process and what it entails.
   • Having the mental capacity to make decisions about their estate.
   • Being able to communicate their wishes clearly and concisely.
   • Having a good relationship with the person that has chosen them to be their beneficiary.