Do yourself and your family a favor: Plan your estate

It is often said that everyone should draft a will. The same goes for planning an estate.

Estate planning addresses issues of medical care, day-to-day money matters and property ownership. The goal is to ensure that your needs and requests are honored while simultaneously saving your family members from any undue stress.

“You want to make it easy and inexpensive for your loved ones to handle your affairs when you pass away or if you become incapacitated,” said attorney and certified financial planner Elizabeth Potts Weinstein, founder and owner of the Wealth Spa in San Jose.

“You do not want unintended consequences due to poor planning, such as your assets being tied up in court for years due to conflict between your heirs.”

By planning your estate rather than letting the courts decide, you determine who can act on your behalf if you become incapacitated and who inherits your property after your death.

“You can make choices that are different from your state’s default rules, such as giving assets to your grandchildren or a charity, and you can avoid conflict between your family members because the decisions are already made,” Weinstein explained.

The following legal documents are part of proper estate planning.

• Health care directive. A health care directive is a protective measure if you become incapacitated and unable to make your own medical decisions.

This is different from a living will. While both include your wishes for medical care, a health care directive goes further by granting decision-making powers to another individual should you become disabled.

In most cases, it is not necessary to consult an attorney to fill out a health care directive. Hospitals and HMOs generally offer forms for free. It is important to revisit your health care directive every three to five years as your medical condition changes or before any major surgery or hospitalization.

• Financial power of attorney. A financial power of attorney gives the person of your choice the right to oversee important money matters if you become disabled, hospitalized or otherwise incapacitated.

They can pay your mortgage, manage your investments and access your bank accounts to ensure that your financial affairs are up-to-date when you return home from the hospital.

Most people opt for a springing power of attorney, which only springs into effect when the need arises. A doctor or medical agent must provide documentation attesting to your condition.

Without a power of attorney, your loved ones may have to navigate the court system to obtain the legal right to attend to your financial matters, a process that can be costly and time consuming.

• Living trust. A living trust can eliminate the need for probate, which is often lengthy and expensive. During probate, an estate is inventoried, appraised and distributed according to a will, which can take months or even years.

The process requires proper legal forms and the transfer of all of your assets to the trust. As the primary trustee, you retain complete control and ownership of your property. You can manage your finances, buy and sell property, and make investments.

Upon your death, the trust becomes a freestanding entity controlled by a successor whom you name. Instead of having your estate handled by the courts, it’s handled privately by an attorney.

A living trust requires vigilance. If you buy a new house, open a new bank account or make new investments, those too must be transferred to the trust or your estate could end up in probate.

• Property agreements. Property agreements are common in second marriages when separate property comes into play.

If each spouse has children from a previous marriage, they may choose to leave assets from their first marriage to those children. In this case, property agreements are essential.

They read a little like prenuptial agreements, but the goal is to itemize individually owned assets, which can make the probate process a lot easier when you pass away.

Keep in mind that a property agreement is not the same as a will. It does not spell out who inherits the property. Instead, it itemizes assets that are individually owned and jointly owned. It covers items such as cars, homes and furniture, as well as income, insurance policies, bank accounts, debts and expenses.