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  • With this written document, you grant another person (a member of your family, a trusted acquaintance, an institution, or an attorney) power to manage your affairs, particularly in the event of your incapacity or incompetency. This person is sometimes referred to as your "agent" or your "attorney-in-fact." The powers that the attorney-in-fact has are specified in the document and may be broad in scope (e.g., management of all financial and legal affairs) or narrow (e.g., take actions necessary to sell a specific piece of property) according your wishes as the principal.
    A legal document that clearly explains your health care preferences to your physician and family members. It should specify the kinds of medical treatment you want—or don't want—at the end of your life. This may include your preference on everything from testing and surgical procedures to cardiopulmonary resuscitation and organ donation. Be aware that your state of legal residence may have specific requirements to make your directives binding, so you should consult with your estate planning attorney.
    A contract between an insurance company and a policyholder in which the company agrees to pay a predetermined amount to the policy's designated beneficiary upon the death of the insured person in exchange for paying the insurance premiums. Life insurance is mainly purchased to provide for a person, family, or business dependent on your income. The insured may or may not be the policyholder who pays the premiums on the life insurance policy.
    A revocable living trust holds property and other assets that you transfer to it and can be changed or rescinded during your lifetime, whereas the terms and conditions of an irrevocable trust generally cannot be altered once you create the trust. While assets in a revocable living trust avoid probate, the assets are considered part of your taxable estate.
    Probate proceedings conducted in a different state from the deceased person's legal state of residence. Ancillary probate proceedings generally are held if the deceased person owned real estate in another state.
    An executor (sometimes called an administrator or personal representative) is a person or an institution (like a bank) that you appoint in your will to carry out its provisions. If you die without a will or no executor named in your will survives you, a court appoints one for you to handle the assets that are subject to probate. An executor named in a will may choose not to act or may not be allowed to assume the role in some states if they are not a legal resident of that state. Make sure to account for these contingencies when selecting an executor. Some typical duties of an executor include:
    • Locating all of your assets that are subject to probate;
    • Paying any outstanding debts you may have from your assets;
    • Preparing any reports required by the probate court;
    • Filing a final income tax return for you (or your surviving spouse can file jointly);
    • Filing a fiduciary income tax return for the estate, if applicable;
    • Paying all taxes and final expenses from your assets; and
    • Distributing the assets remaining in your estate according to the instructions in your will.
    The trustee is an individual or an institution, such as a bank, that manages assets held in a trust for the beneficiary(ies) of the trust. The responsibilities of a trustee managing a trust upon your death generally are to:

    • Identify assets in the trust;
    • Manage the addition of any assets to the trust by your executor according to the terms of your will;
    • Invest the assets in the trust created; and
    • Distribute the assets outright to your beneficiaries and/or continue the trust or establish any new trust as specified in the trust documents.
    A guardian is an individual who manages and cares for the property and/or physical well-being of a minor. If you have children, you typically would name a guardian for them in your will. Some parents prefer to name one individual to be guardian of their child's physical care (a "guardian of the person") and another individual (or institution) to be guardian or custodian of their child's property/financial assets (a "guardian of the estate"). For an adult who becomes incompetent to care for his or her financial and/or physical well-being, a court may be petitioned to appoint a guardian (or conservator) if there is no person to step in under a durable power of attorney.

    This basic "to do" list organizes some of the topics and action steps you'll want to consider. These steps should help you prepare for an informed discussion with your estate planning attorney.

    1. Consider putting in place a durable power of attorney, an advance health care directive and organ donor papers.
    2. Write down, in your own words, how you want your assets to be distributed after your death. Review all contracts and beneficiary designations you have in force today and confer with your estate planning attorney to see if they will actually accomplish what you intend and offer the appropriate level of control and flexibility. Make sure to update your will/trust periodically.
    3. Make sure your plan leaves adequate sources of income for your beneficiaries. Consider purchasing life insurance to account for the loss of your income to any financial dependents.
    4. Have a frank discussion with your spouse or loved one to make certain he or she is comfortable with how your estate plan would affect him or her if you die first. If called for, make changes to your plan based on your discussion, assuming you both agree.
    5. Estimate the amount of estate taxes that will be due at your death and, if you are married with childern, the eventual impact of taxes on your children if your spouse predeceases you or you predecease your spouse. If the figure is significant, consider changing your estate plan and/or making current gifts to minimize potential estate taxes, if advisable.
    6. Consider funding a revocable living trust (if it is currently unfunded) now with all or some of your assets to maximize flexibility, privacy, and convenience for you and your beneficiaries. If you have real property in states other than your state of legal residence, consider deeding the property to the trust now in order to avoid ancillary probate proceedings in the other state after your death.
    7. Review or choose an executor of your estate, a trustee for your trust(s) (if you choose to have any), and a guardian for your minor children.

    Be certain that you understand the language in your current estate planning documents. If you don't, ask your attorney to explain unclear statements and clarify for you the impact on your heirs—perhaps even draw them a picture.

    Copyright 2014, T. Rowe Price Investment Services, Inc., Distributor. All rights reserved.