The Most Important Estate Planning Documents Everyone Should Have

If you haven’t gathered any estate planning documents, you’re not alone.

In fact, about 64% of Americans don’t have a will or trust. That’s a problem because if you don’t have an estate plan, you won’t get any say in what happens to your assets after death.

We’re breaking down all the essential estate planning documents you need, why you need them, and what purpose they serve in your overall estate plan.

Will Based Plan

The most basic component of any estate plan is a will or a trust, which will affect whether your whole estate plan is will or trust based.

Will

Let’s start with the one you’re probably familiar with.

A last will and testament is a legal document that sets forth your wishes for the distribution of your property and assets and the care of any minor children. It should be set forth in writing by a lawyer who specializes in estate planning.

For advice on writing a will, check out this article.

Trust

Then, there’s also a trust. It allows a third party, or trustee, to hold assets on behalf of beneficiaries.

It’s traditionally used to avoid estate taxes and tends to avoids the probate process. This means your beneficiaries can usually gain access to your assets more quickly. If it is an irrevocable trust, it may not be considered part of the taxable estate.

Which One Do You Need?

When you’re considering whether to use a will or a trust (or a revocable living trust), you need to consider a few factors:

  • Planning for potential mental disability
  • Planning for minor beneficiaries
  • Planning for singles
  • Planning for estate taxes
  • Couples in second marriages or late-in-life marriages

There are two kinds of trusts: living and testamentary. You can use a will to create a testamentary trust.

A living trust can be created, used, and changed while the property owner (trustor) is still alive. It becomes operational upon the trustor’s death.

A will places your wishes in the hands of judge presiding over your estate transfer. Unlike a will, a living trust operates outside of probate court.

If you have concerns about your future mental capacity, a revocable living trust is a good way to protect your assets before you die and ensure that your wishes are honored. It can also be used to ensure that adult children caring for senior parents follow their parents’ wishes.

Power of Attorney

Once you know if you need a will or a trust, the next important document you need for your estate plan is a power of attorney.

Essentially, a power of attorney allows you to appoint a person to manage your affairs and make decisions on your behalf if you are unable to do so. There are several different types of power of attorney, each granting your attorney-in-fact a different level of control.

Powers that can fall under a power of attorney can include anything from settling claims to buying life insurance to handling various financial transactions. You want different types of power of attorney depending on what you want your attorney-in-fact to be able to do.

Durable Power of Attorney

A durable power of attorney is one of the most general forms of power of attorney. This is simply a general, healthcare, or financial power of attorney with a durability provision that keeps the current power of attorney in effect.

A durable power of attorney is useful if you want to prepare for the possibility of mental incapacity due to illness or injury. You should make sure to specify in the power of attorney that it cannot go into effect until a doctor declares you mentally incompetent.

Healthcare Power of Attorney

Then, there are specific subsets of the power of attorney.

A healthcare power of attorney designates someone as your representative in the event that you are unable to make decisions about all aspects of your healthcare.

Don’t confuse healthcare power of attorney with a living will. Healthcare power of attorney goes farther than a living will. Living wills only come into effect if you’re terminally ill, permanently unconscious, or a similar condition.

If you are temporarily unconscious or unable to communicate but are not in a terminal condition or permanent vegetative state, a living will doesn’t do you any good. This is where a healthcare power of attorney becomes beneficial.

Financial Power of Attorney

Much like a healthcare power of attorney, a financial power of attorney gives the named agent the power to manage someone’s financial life if they’re unable to do so.

Under this type of document, the agent can make all financial decisions and manage all financial transactions on behalf of the individual. They are legally obligated to make these decisions in accordance with the wishes of the individual.

Letter of Appointment of Executor

The next thing you need is a letter of appointment of an executor. This is a letter that spells out who you want to act as your executor and serves as proof that someone has been appointed as your executor after your death.

The executor is tasked with managing the estate and carrying out the wishes of the deceased, so it’s important that the right person acts as your executor.

If you need an estate planning attorney to help you plan or to act as your executor, read more here to see what professional consulting can do for you.

Beneficiary Designations

After that, you need documentation of your beneficiary designations. To be clear, it is possible for your assets to pass to heirs without specific instructions in a will or trust.

However, if you don’t state your wishes, the fate of your assets and property is left in the hands of a court. A court that doesn’t know anything about your wishes may not make the decision you want.

As such, it’s important to name a beneficiary and a contingent beneficiary on accounts like your life insurance, 401(k), and other assets.

Letter of Intent

A letter of intent is what you use to indicate your wishes to your beneficiary and executor. The point is to define what you want your beneficiary and executor to do with certain assets. Some of them are also used to spell out funeral directions and other special requests.

While this document is not considered a valid legal document per se, it goes a long way to show a court what your intents and wishes are after your death. If your will is deemed invalid for some reason, the letter of intent acts as evidence of your wishes.

HIPAA Release Form

We’ve talked a lot about granting people the power to make medical decisions on your behalf. What we haven’t talked about is granting permission for people to review medical information.

There are several laws in place designed to protect the privacy of your medical information. This is an important protection, but it also makes it more difficult for family members to deal with health insurance on your behalf.

A HIPAA release form helps to ensure that individuals named in your advanced healthcare directive or medical power of attorney are able to access healthcare information and deal with insurance matters on your behalf.

Guardianship Designations

Finally, if you have children or other dependents, it’s vital that you include guardianship designations as part of your estate planning.

Many trusts and wills include such clauses, but not all do. That’s a problem because if you have minor children and want to make sure they go to a specific person, you need to spell it out in your will.

Otherwise, the decision lies with the courts, and they may not make a decision you would agree with.

In selecting a guardian, make sure to choose someone who shares your views, is financially stable enough to care for children, and is genuinely willing to do so. Make sure that they agree before you name them, and do name a contingent guardian just in case.

Legal Advice Beyond Estate Planning Documents

There are a lot of estate planning documents you need to deal with in order to adequately prepare for possible scenarios after your death. And truth be told, it’s not a task many people want to deal with.

But if you want to make sure your estate is handled in a way that you agree with, you need to take the time to find and complete all these documents with an attorney.

If you need more advice, check out our blog for more posts like this one. If you’re interested in exploring the other side of things and helping people manage their estates, check out these five things you should know before becoming a lawyer.

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