Clients often ask about what documents are needed to create an estate plan. And while many people believe a will is an estate plan, there are other critical components of an estate plan to cover all your bases. Listed below are four essential documents you need when estate planning, and what each document covers.
1. Last Will and Testament
A will details how you want your assets distributed after your death and who is named as guardian of your children, if they are minors. A will also appoints an executor who is responsible for paying all your final bills from the estate funds and distributing all of your assets. Assets that pass according to a will must go through probate—meaning your estate will have to report all assets, income and expenses to the court. Probate is public record and anyone can request a copy of your estate file from the court.
2. A Revocable Trust
Some clients choose to use a revocable trust and a will for their estate plan. A revocable trust also details how you want your assets distributed after your death and appoints a trustee who is responsible for distributing all trust assets. The biggest differences between the two documents is that trust assets do not have to go through probate and your trust goes into effect immediately after signing it. (Most clients serve as their own trustee during their lifetime and then appoint someone else to take over after their death.) For a trust to govern a specific asset, the account or property must be re-titled into the name of the trust.
3. Durable Power of Attorney
In the event you become incapacitated, a durable power of attorney names an agent to make financial decisions for you, which may include paying bills and writing checks on your behalf. Durable power of attorneys may be made effective immediately or in result of incapacity.
4. Health Care Power of Attorney (Living Will)
Health care power of attorney, otherwise known as a living will, appoints an agent to make medical decisions on your behalf in the event you become incapacitated. This document also contains an advanced directive detailing your decisions about life-prolonging treatments.
All of these documents work together to provide you with a plan to manage your health care decisions, distribute your assets after death and make life’s transitions easier for you and your loved ones.