5 Documents Needed For Estate Planning

This article is intended to provide general info. You should always seek the advice of a licensed and qualified attorney for specific recommendations about your specific situation.

No matter where you are in life, what age you are or your financial situation, it’s important to think about estate planning. Estate planning can feel overwhelming, but it’s vitally important for both the ease of your loved ones and the protection of your wishes. Planning for managing and distributing your assets and property after you pass away can help ensure that your loved ones are taken care of and aren’t tasked with tricky court situations while they are grieving.

However, estate planning is not as simple as just telling people what you want. These estate planning documents need to be in accordance with the legal stipulations of your state; attempting to put them into place without a lawyer is challenging at best and may even be impossible, depending on what you want to set up. You will need to include several legal documents in your estate plan to make the process of disbursing your estate as smooth and painless as possible.

Each of these five documents needed for estate planning does something different, but all of them can provide important protections for you, your assets and plans for those assets, and your family members and any other loved ones. Whether you’re just beginning to think about estate planning or are looking to update your existing plan, understanding these documents will help you make informed decisions and create the plan that works best for you and your loved ones.

1. Last Will and Testament

If you have only heard of one estate planning document, this is the one you’re familiar with. The last will and testament is the estate planning document that determines who gets your material assets– your money, your real estate, your personal possessions, and everything else that comprises your estate (except for a few certain types of financial accounts– see the last document on our list for those). In addition to naming your heirs, your last will and testament will also allow you to appoint an executor to carry out your wishes and oversee the estate, as well as include instructions for the care of minor children and pets.

If you pass away without a last will and testament, you are considered “intestate.” Your estate will need to go through the full probate court process, and your assets will be distributed based on your state’s laws– not your wishes. We all know that family can be complicated, but the state is only concerned with legal designations.

For example, if you die intestate and you have a long-term partner to whom you are not married, they may receive nothing. Without a will, any minor children will also go to the home of somebody designated by the state; again, this may not be in accordance with your desires. Your next of kin might not be the person you want raising your kids!

Knowing that a will does not give you complete control over your assets is important. Wills only apply to assets that are solely yours. Things like life insurance policies and retirement accounts must have designated beneficiaries, and these assets will pass directly to them.

Wills are an extremely important document to have in place before you pass away.
If you pass away with a valid will…

• The document will be submitted to probate court.
• Probate court will validate the will and oversee the distribution of your assets.
• The court will ensure that your debts are paid, and your assets are distributed according to what you outlined in the will.

If you pass away without a valid will…

• Probate court will distribute your assets according to state law.
• It will take longer and be more complicated for your heirs to inherit.
• There is no guarantee that anyone other than your legal next of kin will receive anything from your estate.

2. Durable Power of Attorney

When legal experts refer to “power of attorney,” there are multiple different designations for this term. Two of them are very important for estate planning: the durable power of attorney (DPOA) and the medical power of attorney (MPOA).

The DPOA document is a legal document that designates someone to act on your behalf and gives that person financial power of attorney, which means that they can financial decisions for you if you become incapacitated or can’t make decisions for yourself. The term “durable” means that a power of attorney remains in effect even if you become incapacitated, while a regular power of attorney typically ends if you become incapacitated.

A DPOA can be general, giving your designated person broad authority over your financial affairs, or limited, giving your agent the authority to perform specific tasks on your behalf. It’s important to choose someone you trust as your agent and provide clear instructions about your wishes for your finances.

The DPOA ends upon your death, but if you don’t have a DPOA, a court may need to appoint a guardian or conservator to make decisions about your financial accounts if you become incapacitated. This can be both time-consuming and expensive, and may result in somebody you would not have chosen to act on your behalf being given access to your financial affairs. Even though the DPOA ends at death, it remains a vital part of your comprehensive estate plan.

3. Medical Power of Attorney

Similar to the DPOA, the MPOA (also known as health care power of attorney) is a legal document that names a person who is authorized to make medical decisions on your behalf. Unlike the DPOA, the MPOA is not strictly financial and is related to medical care.

The MPOA can also include a living will or advance directive, which outlines your specific wishes for end-of-life care, palliative care, advanced healthcare, and other medical treatment. It’s important to choose someone who understands your wishes and will make decisions that are consistent with your beliefs and values.

4. Revocable Trust

A revocable living trust is a document that allows you to transfer ownership of your assets to a trust during your lifetime, with the ability to change or revoke the trust at any time. You have the option to change the terms or dissolve the trust at any time during your life if you want. The function of a revocable trust is to transfer ownership of your assets to the trust. You retain control over them, but after your death, they are owned by the trust rather than by you as an individual.

If you’ve never heard of a revocable trust before, you may wonder why you would want one. For many people, a will is sufficient for the distribution of assets. But there are advantages to having a revocable trust. While this route is more expensive and complex than a will, it can make things easier for your heirs in several key ways:

• A revocable trust will almost always avoid probate court entirely. Assets owned by a trust typically pass directly to beneficiaries outside of probate, meaning that they will receive the assets more quickly.
• A revocable trust will help maintain your privacy. Probate proceedings are generally a matter of public record, which means that anyone can access information about your estate, like assets, debts, and the identities of your beneficiaries. By using a revocable trust, you can keep your estate affairs confidential.
• If you become incapacitated, a revocable trust will provide for your care and financial needs. During the creation of a revocable trust document, you will name a successor trustee. If you cannot manage your affairs yourself, This person will step up and manage the trust assets on your behalf, avoiding the need for a court-appointed conservator.

Creating a revocable trust has no advantages for estate taxes, and you cannot hide assets this way. If the increased control of a revocable living trust is appealing to you, talk to your lawyer about setting one up and choosing a trustee.

5. Beneficiary Designations

Similar to a will, beneficiary designations are part of a legal document where you specify who will receive certain assets after you die. Beneficiary designations are commonly used for retirement accounts, life insurance policies, annuities, and other types of financial accounts. Typically when you open these accounts, you will be asked to name a beneficiary.

If you do not name a beneficiary, the account will generally pass through your estate and be distributed according to your will. If you don’t have a will, the state will have other laws (called the laws of intestacy) to help distribute these assets.

While wills, beneficiary designations, and revocable trusts all have some similarities, there are key differences. Here are some of the key things to know about these documents and what they can do:

• Probate: Assets distributed through a will typically go through probate. Beneficiary designations and trusts generally allow assets to be passed on outside of probate.
• Control over assets: With a will and with a revocable trust, you have complete control over how your assets are distributed after your death. With a beneficiary designation, you can only control who receives the specific asset that is designated; you have no control over further distribution.
• Flexibility: Wills are flexible and can be changed or updated at any time. Trusts are also flexible, but require more setup than a will. Beneficiary designations require significant paperwork to make changes.
• Applicability: Wills and trusts are used to distribute assets and accounts that do not have a designated beneficiary, like some bank accounts. Designated beneficiary documents control the distribution of specific financial assets like retirement accounts, life insurance policies, and payable-on-death bank accounts.