Key Estate Planning Documents That Almost Everyone Needs

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As Financial Planners, it is very common for us to be asked the question: Do I need an estate plan? The answer to the question, almost every time, is a resounding yes. Estate Planning is a vital part of any financial plan but it is easily overlooked because the process involves having difficult conversations that most people do not what to think about. It is helpful to incorporate a third party, like an estate planning attorney to help ensure no stone is left unturned. We know, creating an estate plan sounds about as fun as going to the dentist, but believe us, your loved ones will be glad you did. You have worked hard for your legacy and a good estate plan will help ensure that your wishes are known and respected if something should happen to you.

There are five key estate planning documents you may need, regardless of your age, health, or wealth:

1. Durable power of attorney
2. Advance medical directives
3. Will
4. Letter of instruction
5. Living trust – while not always necessary, it is included here because it’s a vital component of many estate plans.

Durable power of attorney

A durable power of attorney (DPOA) can help protect your property in the event you become physically unable or mentally incompetent to handle financial matters. If no one is ready to look after your financial affairs when you can’t, your property may be wasted, abused, or lost.

A DPOA allows you to authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, watch over your investments, and file taxes.

Advance medical directives

Advance medical directives let others know what medical treatment you would want, or allows someone to make medical decisions for you, in the event you can’t express your wishes yourself.

There are three types of advance medical directives.

1. Living Will – a living will allows you to approve or decline certain types of medical care, even if you will pass away as a result of that choice. In most states, living wills take effect only under certain circumstances, such as terminal injury or illness. Generally, one can be used only to decline medical treatment that “serves only to postpone the moment of death.” In those states that do not allow living wills, you may still want to have one to serve as evidence of your wishes.
2. Durable power of attorney for health care – (known as a health-care proxy in some states) allows you to appoint a representative to make medical decisions for you. You decide how much power your representative will or will not have.
3. Do Not Resuscitate order (DNR) – is a doctor’s order that tells medical personnel not to perform CPR if you go into cardiac arrest.

Will

A will is often said to be the cornerstone of any estate plan. The main purpose of a will is to disburse property to heirs after your death. If you don’t leave a will, disbursements will be made according to state law, which might not be what you would want.

There are two other equally important aspects of a will:

1. You can name the person (executor) who will manage and settle your estate. If you do not name someone, the court will appoint an administrator.
2. You can name a legal guardian for minor children or dependents with special needs. If you don’t appoint a guardian, the state will appoint one for you.

Keep in mind that a will is a legal document, and the courts are very reluctant to overturn any provisions within it. Therefore, it’s crucial that your will be well written and articulated, and properly executed under your state’s laws. It’s also important to keep your will up-to-date.

Letter of instruction

A letter of instruction is an informal, nonlegal document that generally accompanies your will and is used to express your personal thoughts and directions regarding what is in the will. This can be the most helpful document you leave for your family members and your executor. A letter of instruction is not a substitute for a will. Any directions you include in the letter are only suggestions and are not binding.

Living trust

A living trust (also known as a revocable trust) is a separate legal entity you create to own property, such as your home or investments. The trust is called a living trust because it’s meant to function while you’re alive. You control the property in the trust, and, whenever you wish, you can change the trust terms, transfer property in and out of the trust, or end the trust altogether. Not everyone needs a living trust, but it can be used to accomplish various purposes. The primary function is typically to avoid probate. This is possible because property in a living trust is not included in the probate estate. Depending on your situation and state laws, the probate process can be simple, easy, and inexpensive, or it can be relatively complex, resulting in delay and expense. Further, probate takes time, and your property generally won’t be distributed until the process is completed. Transferring property through a living trust provides for a potential transfer of property to those who need it.

Finding help

You do not (and probably should not) have to go about creating an estate plan on your own. We almost always suggest creating an estate plan with the help of a qualified estate planning attorney. It may be helpful to ask friends, family or other professionals that you work with (like your Financial Planner) for a recommendation. It is a good idea to interview potential attorneys and get a clear explanation of the time involved and the cost of the services that they will provided.