Clients often ask about what documents are needed to create an estate plan. While many people believe a will is an estate plan, there are other critical components of an estate plan, some dealing with issues that arise before your death. These documents work together to provide 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.
Listed below are four essential documents you need when estate planning and what each document covers.
1. Last Will and Testament
A will does two principal things. First, it details how you want your assets distributed after your death. Second, a will also appoints an executor, who is the person legally responsible for administering your estate. “Estate administration” generally involves the collection of your assets, the payment of your debts, and the distribution of what is left over to your beneficiaries named in your will. If you have minor children, you also have the opportunity to name a “guardian” of the person of your minor children.
Your will may have your assets go outright to your beneficiaries. In some instances, it may be preferable to leave your assets in “trust” for the benefit of your family or others. In its simplest form, a trust is a three-party arrangement. The creator of the trust is the “grantor.” The persons for whose benefit the trust is established are the “beneficiaries.” The “trustee” is the person/entity that receives the assets from the grantor, manages the assets, and then makes distributions to the beneficiaries. Subject to certain broad limitations, how the trust is managed and when and how distributions are made to the beneficiaries can be whatever the grantor wants.
If a trust is used, the trust can be simply part of the will [a testamentary trust] or it can be a separate freestanding document executed simultaneously with the will [sometimes called a revocable trust or an inter vivos trust or a living trust].
2. Durable Power of Attorney
In the event you become incapacitated, a durable power of attorney names an agent to handle your financial affairs until you recover (and take back the handling of your financial affairs) or until your death (at which time the will takes over).
3. Health Care Power of Attorney
A health care power of attorney appoints an agent to make medical decisions on your behalf in the event you cannot make them yourself. Again, that responsibility continues until either you recover, such that you can then make your own health care decisions, or you die.
4. Advance Directive
The purpose of this document is for you to state your preferences as to the use or non-use of extraordinary life-sustaining measures in the event of your imminent death or other similar situations, e.g., you are unconscious with no prospect of waking up or you have lost your thinking capacity with no prospect of regaining it.
This article was first posted on Nov. 1, 2017 and updated on July 21, 2020.