An estate is more than the home you have. It involves all of your assets, including valuables, cars, and other possessions. While no one wants to think of their own passing, it’s important to create a sound estate plan for your loved ones to rely on when the time comes. Estate planning is about more than picking heirs to inherit your assets, though. It protects you, your well-being, and your wishes when you are not in the position to do so anymore. But that comes with more than just a will – here 10 of the estate planning documents you need when it comes to forming a thorough estate plan.
Estate Planning with a Will vs. Estate Planning with a Trust
You want your estate plan to match your situation, and there are two tools at your disposal to ensure that happens: wills and trusts. While both aim to keep your loved ones out of probate court, they each function slightly differently. Whereas a will only takes effect after you die, a revocable trust can be implemented immediately.
Each option handles your assets but caters to specific needs. Since a will acts as instructions following your passing, it covers a broader range of concerns. Wills can discuss funerary wishes, guardianship for your children, and more. Trusts are focused on the financial component. It ensures specific individuals benefit from your assets even while you’re alive. It can be altered at any time up until your death, much like a will. Understanding the purpose of both wills and trusts can help you get the proper estate planning documents in place.
Last Will and Testament
In a will-based estate plan, you will implement an estate planning document called a last will and testament. You may also know it by its shortened name – a will. It acts as a set of instructions for your loved ones when you’ve passed on. The will should detail the handling of assets, guardian designations for dependents, and typically an executor who will carry out these directions.
If you have a will in place, you’ll need to ensure that your legal and financial advisors, loved ones, and beneficiaries have copies of the document.
A revocable trust is another method that allows you to pass assets on to your beneficiaries. You (the grantor) name a trustee, such as your spouse, and distribute the property, similar to how a will’s executor acts. However, the critical difference is that a trust can allow for immediate distribution or one following your death.
The grantor has the right to alter the trust at any point. They can redirect the trust’s income towards another individual, change the beneficiaries, or manage the assets in it.
If you have ever opened a life insurance policy or a retirement account, you probably know what the title of beneficiary means. Essentially, this is the individual who receives specific assets you’ve set aside. For example, you might name your spouse as the beneficiary of your life insurance policy.
Naming beneficiaries can help you avoid probate costs since the designated assets are transferred directly to the beneficiary. This even takes priority over what’s stated in your will.
That is why it’s vital to revisit your beneficiary designations. If you encounter any changes, such as a divorce, update these documents as soon as possible.
Medical Power of Attorney
A Medical Power of Attorney has a couple of names. You may also find it titled as an advance directive or a designation of health care surrogate. Regardless, these names refer to a document that designates a specific individual to act on your behalf. In particular, they make medical choices for you when you’re incapacitated or otherwise unable to make medical decisions.
It’s also possible to select this person to act as your guardian if you become mentally incapacitated.
Financial Power of Attorney
As the name points out, the power of attorney document chooses someone to handle financial affairs on your behalf. They manage your assets, such as retirement accounts or trusts, when you no longer can. You can also allow them to pay off debt using said assets, make investments, or collect government benefits like Social Security.
They typically come in two forms: a durable power of attorney and a springing power of attorney. The former goes into effect immediately, whereas the latter’s role only starts after you become incapacitated.
When choosing an individual to fill this role, it’s best to pick someone with financial experience. For example, you may have a family member that worked in accounting or a friend with a financial background.
Letter of Intent
Unlike the previous estate planning documents, the letter of intent doesn’t have any legal weight. It’s a space for you to communicate your wishes to an individual who may be affected by your will. You can detail instructions you would like carried out for your funeral or use it as a space to speak to your loved ones.
While it can lay out important information, like digital account information or memorial instructions, it’s often used as a personal letter for those you care about.
Estate Planning Documents: List of Essentials
Every time you create or revise an estate planning document, it’s important you keep an inventory of it as well as where you choose to store it. However, you should maintain this for more than just your estate planning documents.
Other vital documents that your family may need on your passing include:
- Bank account information
- Birth certificates
- Investment documents
- Pension or retirement account details
- Insurance policies
- Bills and debt
- Real estate deeds
List of Contact Information for Professionals
One of the easiest ways to ensure every document properly executes smoothly is to keep a record of important contact information. Keeping records should go both ways. Any professionals who have helped you draft your estate planning documents should have the contact information of necessary individuals, such as your power of attorney and executor. It should include their full name and the quickest way to contact said person. Likewise, the key people involved in your estate plan should have the contact information of professionals you relied on. This can include your lawyer, financial advisor, and insurance agent.
Storing Your Estate Documents
The last thing you want is to complicate the time after you pass. If your loved ones don’t know the location of important estate documents like your last will, it can make the transition process difficult. So, you want to store them somewhere safe and accessible. A trusted friend or family member should know exactly where to find them and how to access them.
While the storage method is up to you, it’s best to have a system with backups. Your attorney’s office will likely keep one copy, but you can store your own physical and digital version as well. A fireproof and waterproof safe is the most secure option if you want to keep a set at home. It’s also possible to keep digital copies. However, you should ensure that you encrypt the files with a password. You must give your executor the information necessary to obtain the documents from either system.
If you are not concerned with having the documents on hand, you can also store them in a safe deposit box at the bank or with the probate court in your area.
Losing a loved one is incredibly difficult. You have the opportunity to take some of the burden off of your family and friends when you create an estate plan. That way, they can rely on your instructions. These estate planning documents can save them time, energy, and even probate costs they otherwise would have faced. It also secures any measures in place that you may want to take to protect your assets and the cherished people in your life.
While some people might be able to get away with a DIY will, many others will not, especially if your estate plan calls for some complex instructions or multiple beneficiaries. Your safest bet is to work with an estate planner and your financial planner. They can ensure all your wishes are laid out in legally sound documents. That way, you and your loved ones can focus on what really matters, when it matters.
If you need help planning your estate, our team is ready to assist you. We’ve helped hundreds of couples and individuals address their estate planning concerns, and we’d like to do the same for you.