this is called "intestacy")What is estate planning?
Estate planning is the process of arranging your affairs and property, making decisions in advance to provide for what happens if you lose capacity or when you die. You can name an individual to act on your behalf before you die, you can provide instructions for your doctors to follow if you are in an end-stage medical condition, direct what will happen to your property after you die and you can even create documents that will manage the property you leave behind for years to come. Estate plans are for everyone - not just the rich! Plans typically include a will, power of attorney, advance health care directive and/or a trust.
What does a will do?
A will is an estate planning document in which you direct who gets your property after you die. Only probate property is disposed of by a will. This includes anything you own solely in your name. Anything held jointly, such as bank accounts, real property, stocks and bonds or anything with a beneficiary designation, such as a life insurance policy or retirement account is called "non-probate" property. If an account is joint, the property already 'knows' where it needs to go - it doesn't need the will to direct it and will not pass according to the directions in your will.
What happens if I die without a will?
If you die without a will (this is called "intestacy"), the law dictates how your property will be distributed. Unlike if you have a will, you would have no control or input into who gets your property after your death.
What is a trust?
Think of a trust like a safe deposit box. You open it up, put valuables inside and lock it with a key. Once you've locked it all up, you give the key to someone else or maybe you hold on to the key. Only the person with the key, called the 'trustee' can access the valuables inside and distribute them. The person who gets the valuables is called the 'beneficiary'.
Trusts are a legal mechanism that allows you to split up legal ownership of property and benefit received from property. The trustee and the beneficiary of a trust are almost always different people.
Many television personalities extol the virtues of trusts. Trust come in all different shapes and sizes and are extremely useful tools we use to protect and manage assets. Also, there's no money limit! You don't need to be a Carnegie or a Rockefeller to benefit from having a trust as part of your estate plan.
What is a power of attorney?
A power of attorney can be a person or a document. If you're referring to the latter, then you are talking about legal paperwork in which you designate a third party, called your "agent", (whom you trust completely) to handle your financial affairs. You can place certain limitations on your agent's authority - what they can and cannot do - and you can limit when they're allowed to act for you - can they act right now? Or can they only act if you are incapacitated?
What is a health care directive?
Sometimes people call these 'health care powers of attorney'. Just like a general power of attorney, under a health care directive, you identify someone whom you trust to make your medical decisions for you if you are unable to do so yourself.
What is a living will?
A living will is used only if you are in a permanent and irreversible end-stage medical condition. You can use a living will to provide your doctors and loved ones with instructions on how you would like to be cared for if continued medical treatment will not help you recover. An example of a case where doctors and family would use a living will would be if a patient is brain dead. A living will would direct whether to sustain or withdraw the patient's life support. Living wills make difficult times much easier for family members and physicians alike.