Everything You Need to Know About Estate Planning

According to a recent survey, 73% of U.S. adults don’t have an estate plan. It’s understandable since the idea of making end-of-life plans can deter many of us from tackling this financial milestone. But not having a plan can be a much bigger problem.

Going without an estate plan can mean setting your loved ones up for undue hardship and confusion after you pass. If you don’t have a will, for example, your family could end up spending years in probate court while the government decides who your heirs are and if they have a right to your assets. 

On the flip side, having a plan in place can alleviate stress for everyone, prevent conflict between family members and give your children financial stability during an otherwise difficult season. That’s why, despite the uncomfortable feelings that might come up, we recommend consulting with a legal or estate planning professional right away to start making your plans.  

What is an estate plan? 

An estate plan is a collection of legal documents that outlines what you want to happen with your assets after you pass away or if you become incapacitated. Depending on the documents you include, your estate plan can specify: 

  • Who do you authorize to make important legal, financial, and medical decisions on your behalf 
  • Who will be granted guardianship of your children (if applicable) 
  • When and how your assets will be distributed 

If you don’t have an estate plan, there’s a chance your loved ones will have to go through probate, which is a process where the state determines how your money and property will be handled. 

6 documents to include in your estate plan 

There are certain end-of-life documents that anyone can have drawn up, regardless of age. Preparing these legal documents while you’re in good health can help your next-of-kin better navigate unexpected events, like making medical decisions on your behalf if you’re unable to do so.  

The following documents are recommended for your estate plan, but the necessary documents may vary depending on your personal details and state laws. 

1. Last will and testament 

The last will and testament, more commonly known as a will, is a legal document that states who will receive your assets after you pass away. If you have children under the age of 18, the will also establishes who their guardian(s) will be.  

You are free to change the details in your will whenever you like, so there’s no harm in drawing one up at a young age and making adjustments down the lane. You can get started by visiting a legal website that provides templates for simple wills, but legal experts recommend hiring an estate attorney if you have substantial assets, minor children, or if other factors could make your will more complex. 

Here’s what should be included in your last will and testament:  

  • Executor: The person you choose to carry out your will. This is usually an attorney, a family member or a close friend. 
  • Beneficiaries: Individuals who will inherit your assets.  
  • Personal assets: This includes your home, other property, and any investments or funds left over after your remaining expenses or debts are covered.  
  • Business assets: If you own a business, your business assets need to be listed.  
  • Debts and expenses: How your funeral expenses, inheritance and estate taxes should be paid.  
  • Guardianship: Who has responsibility for your minor children after you’re gone.  
  • Other: Additional details like who gets custody of a family pet to the disposition of your family home.  

If there are any uncertainties about your will, a probate court will determine how to resolve them. The court costs will be paid by the estate, and they can add up fast. On top of that, probate may take up to 18 months or even longer. In other words, you’ll want to keep your will up to date as your circumstances change.  

2. Trust 

Like a will, a trust is a legal contract that lays out how your assets will be distributed. But unlike a will, the trust can specify how assets will be used while you’re alive and after you pass. 

Trusts can be very useful if you have children, since you can designate a trustee to disburse funds to them for specific expenses or at set timeframes, like to cover college tuition or when your child turns a certain age. 

The advantages associated with your chosen trust may vary based on its specific nature.  

3. Power of attorney 

A power of attorney (POA) is a legal document that designates someone who, if needed, will act on your behalf in legal and financial matters. There are two basic types of power of attorney: 

  • Durable power of attorney: Effective from when it is signed until revoked. 
  • Springing power of attorney: Inactive until triggered by a specific event, such as you being ruled mentally incompetent or disabled.  

While it’s not very costly to have a lawyer establish your POA, the decision of who you’ll give that responsibility to is not to be taken lightly. This document and the authority it grants are binding, so it’s crucial you choose someone you trust. 

4. Medical power of attorney 

A medical power of attorney gives a designated individual the authority to make decisions about your medical treatment and procedures. Unlike a standard power of attorney, which only pertains to financial and legal matters, a medical power of attorney only applies to healthcare and medical decisions.  

5. Living will and directive to physicians 

A living will, sometimes called a directive to physicians, establishes your desires for end-of-life care. This document helps clarify what should be done if you’re terminally ill, comatose, or otherwise unable to make medical choices. For example, a living will can include a “do not resuscitate” order. 

While having a trusted person with medical power of attorney gives you an advocate, you may not want to burden them with tough choices, like whether or not to remove you from life support. Instead, laying out your preferences in a living will takes the decision out of their hands. 

6. HIPAA waiver of authorization 

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) sets strict requirements for the confidentiality of your medical records. While this act is important for the privacy and security of individuals, it can have unintended consequences if you become ill. 

For example, healthcare providers can’t provide your family with information about your condition or treatment without authorization. However, filling out a HIPAA release in advance gives your family access to information they may need. 

Other important papers to gather

In addition to the legal documents listed above, there are other end-of-life documents and instructions that can be useful for your loved ones. Depending on your situation, you’ll want to keep up-to-date copies and information on any or all of the following: 

Letter of intent 

A letter of intent isn’t a legal document, but it can help you summarize your desires and clarify any potential points of confusion or special requests. It may include things like a high-level overview of how you want your assets and belongings distributed, details on your funeral preferences or personal messages.  

Authorized user on financial accounts 

Older adults and married individuals might consider adding a trusted family member, spouse or agent’s name to their financial accounts. Doing so can eliminate the red tape involved in gaining access to the accounts, and it can be crucial if you have loved ones who are financially dependent on you. 

Asset information 

You’ll want to include copies of recent statements and login information for your bank accounts and other financial assets, as well as retirement and investment accounts. You should also include real estate deeds and the titles of your automobiles or other vehicles. 

Business documents 

If you own a business, you’ll want to pass on the documents needed to transfer the legal title and ownership to your designated beneficiary. These may include: 

  • Account statements  
  • Titles or other proof of ownership of business assets 
  • Business licenses 
  • Business’s tax returns for the last three years  

Prenuptial and postnuptial agreements 

If you have prenuptial or postnuptial agreements that may impact your estate, those should be placed with your other documentation. 

Loans and bills 

Statements and account information from your outstanding loans, including mortgages and leases, should be gathered together so that, if your loved ones wish to retain your property, they can manage the accounts. You should also include your monthly bills, such as utilities, cell phone or bills for storage units. 

Tax paperwork 

Include your last three years’ worth of federal and state tax returns, plus any gift tax paperwork, such as IRS Form 709, that applies to federal gift and generation-skipping transfer taxes.  

Death certificate and funeral bills 

If you’ve pre-paid for funeral expenses, you’ll want to include the documentation. While your death certificate and remaining funeral bills won’t be produced until after you pass away, you may also want to designate a place where your loved ones can keep these documents organized as they work through the final plans.  

Where should I store my estate planning documents? 

You’ll want to organize these important documents and keep them in a designated, safe place so you can ensure they reach your beneficiaries at the right time. We recommend creating a clearly labeled folder for all of the documents pertaining to your estate plan.  

Here are some tips to make sure your folder serves its purpose: 

  • For a physical folder, keep it in a locked safe 
  • For digital folders, password-protect your documents or store them on a secure drive 
  • Make sure that one or more trusted individuals know where the folder is and how to gain access 
  • Include all relevant financial, legal and medical documents 
  • Clearly organize and label the documents and, if necessary, include a table of contents 

Peace of mind through estate planning 

Estate planning can be an emotional task, whether you’re preparing your own end-of-life documents or helping a loved one. However, doing the work far in advance can ensure your last wishes are honored and relieve your loved ones during times of crisis and loss. 

If you’re hesitant to take on this task, remember this: while good financial planning allows you to live your best life, estate planning allows your family a good life even after you’re gone.  

Written by Sarah Brady | Edited by Rose Wheeler

Sarah Brady is a financial writer and speaker who’s written for Forbes Advisor, Investopedia, Experian and more. She is also a former Housing Counselor (HUD) and Certified Credit Counselor (NFCC).

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