Understanding what an estate plan encompasses is key to understanding why it is so important, but let's look at least two reasons why it is important. (1) A comprehensive estate plan can help your loved ones when you're gone. (2) It can also give you peace of mind, knowing that your wishes will be carried out.
Now, what does it encompass? Remember, we said "comprehensive," so it encompasses a few documents -- (1) a Last Will and Testament, Revocable Living Trust, or both; (2) a Living Will and Designation of Healthcare Surrogate, or what we call an Advanced Healthcare Directive, which contains both these documents; (3) a Power of Attorney (over finances), most common of which is the Durable Power of Attorney (meaning it remains valid if declared medically incapacitated).
When thought out and properly drafted (and sometimes updated or amended) these documents achieve the goal of caring for yourself and your loved ones. It is important you consider your goals and objectives and understand the options and what kind of impact they will have on you and your loved ones. For example, a Will may send your family to probate court to petition the court to transfer your estate asset(s), but a Trust is more private and does not require probating the estate. Consulting with a licensed attorney will ensure these considerations are discussed.
The US Office of Financial Readiness for the military has a great brochure on estate planning for more information. It can be reviewed by clicking here: