NEW YORK ( MainStreet) — The beginning of a new year is a great time for a financial check-up. While taking inventory of personal finances can encompass everything from managing credit card debt to planning to buy a home, it is important not to overlook estate planning. More than half of American adults will die without a will, leaving their inheritance and the guardianship of their children up to states to decide. Shomari Hearn, vice president, of Palisades Hudson Financial Group, and Allan B. Cutrow from Mitchell Silberberg & Knupp LLP broke down exactly how much of this planning is necessary and what it entails.

Wills

Wills are designed so that intended beneficiaries get what they are supposed to acquire. If you die without a will, heirs designated by statute get your money (not the state). If the state decides on guardianship issues or where wealth is to be allocated on your behalf after you pass away, it can lead down a winding road. For example, this can be a disaster in second marriage situations, or in instances where you do not want distant family relatives to inherit property. In setting up a will, you should take inventory of all your assets. In most cases, you should also have a lawyer with some expertise in estate planning assist with the preparation. While there are websites, which offer forms and instructions, wills are state specific. If you do not understand the instructions, or they are not clear (with respect to options or considerations in choices) the document you prepare may not do what you thought or wanted.

Living Will

While a will is read after a person has died, a living will generally refers to instructions about healthcare and end of life decisions. For example, it covers topics such as life support and what the course of action is when there is no hope for recovery. It can also designate who will make healthcare decisions for you when you cannot. This also falls under the umbrella of power of attorney for healthcare.

Power of Attorney Asset Management

This is a document that allows another person (your agent) to manage your assets when you cannot. It is appropriate in almost all cases but particularly with older people with simpler estate plans. Combined with a will and a power of attorney for healthcare, you have a management vehicle if incapacitated and at death.

Trusts

The basic tip about setting up a trust is to use a lawyer who specializes in this area. Trusts are much more sophisticated and complicated than wills. There are many different types of trusts. Among them are those specific to life insurance, special needs beneficiaries and tax planning techniques. If you have a life insurance policy, and it is not secured in a trust after you are deceased it is subject to taxation, and the amount of money you think you are leaving your family may not be the same sum they get. The same holds true with the transfer of a family business from one generation to the next. Having a trust can save fees that would be shelled out in probate court and transfer assets seamlessly.