What Documents Are Needed for Estate Planning?

No estate plan is complete without these 6 documents

A couple dicusses their will with their grown child.
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Estate planning allows you to prepare for difficult events such as death and incapacity. While it’s never enjoyable to think about these things, you can make these situations easier by planning ahead. With a well-designed estate plan, you and your family may experience less suffering and better financial outcomes than if you hadn’t put a plan in place.

A basic understanding of the most important estate planning documents is essential. This knowledge can help you uncover opportunities and gaps in your plan, and it will give you a foundation as you discuss these topics with an estate planning attorney.

Key Takeaways

  • Estate planning helps you prepare for your death or any scenario in which you’re incapable of making financial decisions.
  • With careful planning, you can potentially save money and make difficult situations easier for your loved ones.
  • Legal documents are typically required to put a plan into action.
  • Wills and trusts form the foundation of most estate plans, and additional documents can enhance your plan.

What Does Estate Planning Involve?

The process of estate planning involves anticipating scenarios and taking action. Some of the most common situations for estate planning include death and disability, which can cover a surprising amount of ground.

When you consider how complicated life can get—with mixed families, end-of-life decisions, and tragic events—the importance of estate planning becomes clear. For example, a second marriage might involve children from previous relationships. But depending on who dies first and any existing estate plans, some family members might be disinherited. That’s typically not what anybody wants. Likewise, even a young, single person can benefit from estate planning in case they become injured and can no longer manage their finances.

In many cases, you’ll need to complete legal documents and take additional steps to implement your plan. Estate planning attorneys generally provide those documents, and the strategies and requirements can vary from state to state.

Different Approaches to Estate Planning

While estate planning can come in numerous variations, one way to broadly characterize them is based on the presence or absence of trusts.

Trust-Based Estate Planning

A trust enables a high degree of customization and can simplify the process of managing the affairs of someone who has died or become incapacitated. The trust’s rules might specify who controls the assets and what should happen with those assets. Plus, a trust may help you avoid probate, which can be a costly and time-consuming process.

Creating a trust is only the first step. You may also need to fund the trust by re-titling assets or putting them into trust accounts. Until you do that, the trust may not accomplish what you need.

A trust spells out your wishes, and it’s an essential piece of any trust-based estate plan. To create a robust estate plan, you typically need additional legal documents, which may include:

Will-Based Estate Planning

A will, also known as a last will and testament, is a document with instructions on how to distribute assets in your estate after your death. These documents can also accomplish personal objectives, such as naming a guardian for minor children. To prepare for events besides death, you’ll likely need to create additional documents, including:

  • Power of attorney
  • Medical directive
  • Living will

Which Is Best for You?

Trust-based planning typically makes the most sense when your situation is complicated enough to justify the cost and effort of establishing and funding a trust. Will-based plans might be appropriate for relatively simple situations.

For example, if you have limited assets and a straightforward family situation, a will might be all you need. But with more complicated relationships or higher asset levels, trusts can make it easier to control what happens and avoid probate.

In some cases, the decision you make can have serious consequences. That’s why it’s critical to discuss your situation with an estate planning attorney who can help you evaluate your family and financial circumstances.

For example, you might want to control when your heirs will receive assets after your death, which would make a trust the better choice. A trust could pay out a modest annual income instead of making the entire amount available to beneficiaries as a lump sum. That way, a beneficiary can’t deplete the trust quickly, and creditors can’t easily seize the assets.

Key Documents for Your Estate Plan

Let’s review some essential estate planning documents to better understand how they might fit into your plan.

Last Will and Testament

Your will provides essential instructions on how to handle your affairs after death. For example, you can appoint a personal representative, or executor, to manage the estate and complete tasks like closing accounts and distributing assets. You can also specify who should receive any assets in your estate and name a guardian for minor children.

If you die without a will, state laws usually dictate what happens with your assets and dependants. That can be problematic if those rules lead to an outcome you wouldn’t have wanted. For example, if you have minor children, they might end up in the care of a relative you wouldn’t have chosen to care for them (or manage their assets). That’s why it’s wise to be proactive and spell out your wishes in a will.

A simple will might say that your spouse will receive all assets and be your executor. However, it’s possible to get more complicated if that makes sense for your family.

Advance Medical Directive and Living Will

Advance medical directives can include several types of medical instructions, and different state laws use different terms, including:

  • Medical directives
  • Living wills
  • Health care directives
  • Health directives

Advance directives allow you to name health care representatives and state your preferences in case you’re unable to communicate due to an injury or illness. A living will can provide specific instructions on what types of care you want—and don’t want. For example, you can describe the treatments you want doctors to pursue and for how long. Alternatively, you can ask family members and care providers to make every effort possible to prolong your life.

When you write out your instructions, doctors and loved ones don’t need to guess what you might have wanted, which makes it easier for your family members to make difficult decisions. Plus, you can potentially avoid situations where a family member wants to take an approach you might disagree with.

Health directives also allow you to authorize somebody else (known as a health care proxy or health care power of attorney) to speak for you and make medical decisions on your behalf. You might also specify if you want to donate your organs, which may need to happen quickly after death.

Financial Power of Attorney

A person who has power of attorney has authorization to conduct financial business on your behalf. For example, depending on the powers you grant, they can open and close accounts, transfer money, buy and sell property, and more.

There are two broad categories available:

  • A durable power of attorney takes effect when you grant the power. It remains in effect until you revoke the authorization or die.
  • A springing power of attorney becomes effective only in certain situations. For example, if you become incapacitated, this type of power of attorney might take effect. However, it’s critical to understand the requirements as you explore this option.

The individual with power of attorney has access to your financial assets and personal information. As a result, it’s crucial to choose someone you can trust unconditionally. A person with power of attorney who is dishonest or bad with money can create significant problems and cause you to lose assets.

Pour-Over Will

A pour-over will is a will that includes instructions for any assets that weren’t included in a trust. Those assets will become part of your estate at death, and you will need a will to spell out how to distribute them. Ideally, any significant assets are already in your trust, but it’s not practical to put every little thing you own in one. A pour-over will can “catch” those assets and ensure that they end up in the trust. From there, the trust document dictates what happens with them.

Revocable Living Trust

A revocable living trust is a legal entity you can use during your lifetime. Because it’s revocable, you can withdraw funds or dissolve the trust. But these trusts can be useful if you’re incapacitated or you want control over your assets after death. For example, instead of passing assets to children immediately after your death, you can arrange for someone else to manage the funds and support your children.

Assets in a trust generally avoid probate.

What Documentation Do You Need To Get Started?

As you begin the estate planning process, it’s helpful to gather information about your finances and family members. The documents below can help you and your attorney start figuring out where things stand now, and where you might need to make changes:

  • Existing estate planning documents: wills, trusts, powers of attorney, etc.
  • Account statements from bank and brokerage accounts
  • Life insurance policies
  • An inventory of your assets, including real estate, vehicles, valuables, business interests, and more
  • Current beneficiary designations on retirement and other accounts
  • Existing contracts, such as prenuptial agreements

It’s also helpful to have login information handy for your financial accounts. That way, you and your attorney can review your beneficiary designations and download forms as needed during the consultation.

Create a Stress-Free Process for Your Heirs

With careful estate planning, you can make challenging situations easier for your loved ones. Death, illness, and accidents are difficult enough on their own. Adding financial stress to a tragic situation makes things worse.

By making sure your affairs are in order ahead of time, you enable your family members to focus on emotional processing and any remaining logistical issues—the fewer, the better.

Frequently Asked Questions (FAQs)

Why is estate planning important?

Estate planning allows you to arrange for financial management and medical care in the event of death or disability. By planning ahead, you or your heirs can potentially benefit financially. Plus, life is easier for your loved ones when you provide instructions on how to handle everything from medical issues to asset distributions.

How much does estate planning cost?

Basic estate planning with an attorney might cost roughly $1,000 to several thousand dollars, depending on your needs and location. For example, establishing a trust often costs more than getting a simple will and medical directives. Online services cost less, but it can be helpful to speak with an attorney who is skilled at identifying risks and opportunities.

How do you find a good estate planning attorney?

Ask trusted financial professionals, friends, and family members for suggestions. Ask prospective attorneys about their education, billing practices, and competence in any specific areas that apply to your situation (for example, if you have children with special needs or want to set up a trust). Trust your gut if you’re getting bad vibes.

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Article Sources

  1. New York City Bar. “Spendthrift Trust.”

  2. American Bar Association. “Introduction to Wills.”

  3. American Bar Association. “Living Wills, Health Care Proxies, and Advance Health Care Directives.”

  4. Thrivent. “Your Will and Estate Planning Guide,” Page 19.

  5. Fidelity. “How To Find an Estate Planning Attorney.”