A financial instrument is any physical or digital document that represents a financial legal agreement. The estate planning process should ensure that all your financial instruments are properly prepared and legally effective. Below, we’ve catalogued six important tools to help you safeguard your assets from creditors and predators and protect the next generation.
Instruments to Assist with Estate Planning in Pasadena
The government categorizes financial instruments into two types: equity, which represents an asset, or debt-based, which represents a loan against assets. Both affect your estate. Proper estate planning in Pasadena can mean the difference between your controlling your assets and the courts intervening and managing your estate against your wishes. Although the estate planning process can be intimidating, these tools may help:
- A last will and testament. This instrument specifies who should receive assets from your estate after death and clarifies other essential requests for the next generation. If you do not have a will, the state will decide who receives assets and how they are distributed.
- Financial power of attorney. If you cannot manage your estate, granting someone financial power of attorney enables that person (whom you can choose) to oversee your assets.
- Health care power of attorney. This document, which allows someone to make healthcare decisions if you cannot, is not necessarily a “financial” instrument. Many individuals designate the same person as financial and health care power of attorney, but others prefer the balance of two different appointees.
- Revocable Living Trust. This is a legal contract similar to a will. The estate appoints someone to manage a trust on the beneficiary’s behalf. Creating a living trust generally will prevent your estate from having to go through a timely and costly probate process.
- Charitable Remainder Trust (CRT). This estate tool can be helpful if you own assets that have appreciated over time and if you want to donate to a good cause. The trust first pays you, and then it pays the charity or charities you’ve designated with what’s left over (hence the idea that this is a “remainder” trust). The CRT can help you avoid paying taxes on capital gains and enjoy an income tax deduction.
- Medicaid Asset Protection Trust (MAPT). This irrevocable trust can help seniors who may soon need Medicaid benefits from having to use up their own assets before qualifying for government assistance. Adult children can be designated as trustees, who then pay out to their parents (the beneficiaries).
An attorney who understands the complexities of California estate planning law can advise you regarding what instruments might be appropriate. Call our team for insight and a free consultation about your options.