Essential Estate Planning Documents

18 Sep 2022 Essential Estate Planning Documents

Estate planning is an essential part of financial planning for all individuals, regardless of age or asset level. It can help ensure you have enough money for retirement, minimize your estate taxes and maximize the wealth you pass to your beneficiaries. 

This article will outline which documents are essential for any estate plan and introduce other estate planning tools that may benefit you depending on your unique circumstances. 

Essential Estate Planning Documents Everyone Needs

While the estate planning documents you need will depend on your specific situation, the following documents should be included in your plan: 

• Last Will and Testament, 
• Durable Power of Attorney,
• Healthcare Power of Attorney, and
• Living Will or Advance Directive

Last Will and Testament

A Last Will and Testament (a “Will”) legally sets forth your wishes regarding the distribution of your assets after your death. Without a Will, your state’s intestacy laws will determine who will inherit your property. A Will also enables you to name a guardian for your minor children; otherwise, a court will appoint a guardian for your children, which may or may not be the person you would have chosen. 

Durable Power of Attorney

A Durable Power of Attorney appoints someone to handle your financial affairs if you cannot do so yourself. This can be useful in various situations, such as experiencing a serious medical condition or needing someone to handle your affairs while out of the country.

While you can give someone a limited Power of Attorney for specific tasks, a Durable Power of Attorney provides broad authority to make decisions on your behalf. A Durable Power of Attorney is especially important for older adults, who may be more likely to experience an incapacitating event such as a stroke or fall. 

Healthcare Power of Attorney

A Healthcare Power of Attorney appoints someone, called your agent, to make healthcare decisions on your behalf if you cannot do so yourself. It can also include specific instructions regarding your medical care that you wish to be followed, such as refusing life-sustaining treatment. 

This type of Power of Attorney can help ensure that your wishes are carried out if you cannot communicate them yourself. It also provides peace of mind for you and your family, knowing that there is a plan in place in an emergency. Without a Healthcare Power of Attorney, your loved ones would have to obtain a court order to make decisions on your behalf, which can be time-consuming and expensive. 

Living Will or Advance Directive

A Living Will or Advance Directive sets forth your wishes regarding life-sustaining medical treatment if you are in a terminal condition or permanently unconscious state. While it is often thought of as a document for end-of-life care, an Advance Directive can be used in any situation where you cannot speak for yourself. For example, if you are in a car accident and become unconscious, an Advance Directive can provide guidance for your medical care. 

Because it’s impossible to predict when you may need medical treatment, it’s important for everyone to have an Advance Directive in place. 

Moreover, your healthcare agent named in your Healthcare Power of Attorney can use your Advance Directive to guide their decisions regarding your medical care. This can help your agent avoid difficult decisions and disagreements among family members at an emotional time. 

An Advance Directive or Living Will is typically provided to your Healthcare Power of Attorney Agent, doctor, and medical facility. The medical instructions in this document are typically more specific than what might be included in a Healthcare Power of Attorney.  

Other Estate Planning Documents 

Like most legal matters, your estate plan will differ depending on your circumstances. For example, if you own a business, you will likely need documents to ensure your business is managed, closed, or sold according to your wishes (and what is best for your family). 

The following list describes other estate planning tools that may be useful depending on your circumstances: 

• Personal Property Memorandum – a legal document that lists and describes one’s personal property. It can be helpful for those tasked with distributing your personal belongings. 
• Revocable Living Trust – a legal entity that can hold assets on behalf of its beneficiaries. These are primarily used to avoid probate, which can be costly and time-consuming. 
• Life Insurance Policy – a contract that provides beneficiaries with a death benefit in the event of the policyholder’s death. It can provide financial security for your loved ones and be used to pay off your debts if you die. 
• Legacy Binder – a binder or file that contains your important information such as legal documents, financial account information, passwords, and key contacts. It is an important resource for family members to use in an emergency like your incapacity or death. 
• Cohabitation Agreement – a contract between two unmarried people living together that outlines each person’s rights and obligations concerning property ownership, financial support, and decision-making. It can be used to protect each person’s assets in case of a break-up or death. 
• Irrevocable Life Insurance Trust – an irrevocable trust that owns a life insurance policy. It can be used to minimize estate taxes and protect life insurance benefits from creditors. 
• Irrevocable Trust – a type of trust that cannot be modified or terminated. It is often used to protect assets from creditors and reduce estate taxes. 
• Family Limited Partnership – a legal entity created by family members to pool assets (such as a business or real estate) and invest together. It can help to reduce the overall taxable value of an estate. 
• Buy/Sell Agreements – a contract between business partners that outlines what will happen if one of the partners dies or otherwise leaves the business. It can help ensure that a business can continue operating in case of a partner’s death. 

Maintaining your estate plan

Once you have created an estate plan, it is vital to review and update the plan as needed regularly. You should review the plan at least once per year and more often if there are significant life changes, such as marriage, divorce, the birth of a child, death of a family member, or changes in family relationships. Similarly, changes in tax law can also necessitate updates to your estate plan. 

We can help you plan for the future

This article is intended to provide a brief overview of essential estate planning documents. It is not a substitute for speaking with one of our expert advisors about your unique circumstances. If you’d like to learn more about estate planning, please contact our office.

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