Estate Planning Documents: What They Are and Why They Matter

Estate planning is about more than deciding who receives your assets after you pass away. A well-designed estate plan can also help protect you during your lifetime, make things easier for your family, and provide clear instructions when important financial or medical decisions need to be made.

While every estate plan is different, there are several documents that commonly form the foundation of a comprehensive plan. Even a well-drafted estate plan can become outdated over time. Your estate planning documents should periodically be reviewed but especially following significant changes in your life, such as:

• Marriage or divorce
• The birth or adoption of a child or grandchild
• The death of a spouse, beneficiary, executor, trustee, or agent
• A significant increase or decrease in wealth
• The purchase or sale of a business
• A move to another state
• Changes in tax or estate planning laws

Coordinating Your Estate Plan

Estate planning often involves several professionals working together. Your estate planning attorney prepares the legal documents, while your financial advisor, tax professional, and insurance professionals can help ensure that your investments, beneficiary designations, insurance coverage, and account ownership are coordinated with the legal plan.

The goal is not simply to have a folder full of estate documents. The goal is to have a coordinated plan that reflects your wishes and helps your family carry them out.

If you have not reviewed your estate documents recently, consider speaking with your estate planning attorney and financial advisor to determine whether your current plan still reflects your goals. Below is a list of documents that should be drafted by an attorney or reviewed as you coordinate your estate plan. 

Last Will and Testament

A Last Will and Testament, commonly called a will, directs how assets should be distributed after your death as well appoints an executor who will be responsible for managing your estate. A will is considered the foundation of any estate plan. For parents of minor children, a will plays an especially important role because it can designate who will be responsible for the care of your children if both parents are unable to do so. One important limitation is that a will generally does not avoid probate. Assets passing through the will may still need to go through the probate process before they are distributed to beneficiaries. 

 Without a will, state law will determine how assets are distributed which may not align with your preferences and wishes. By establishing a will, you can help to minimize your family’s burden. The document will clearly define your intentions and wishes. Whether your estate is basis or complex, it is always recommend to have a will drafted to clearly define your post-life plans.

It is important to keep in mind that a will does not control the distribution of all sets including but not limited to life insurance proceeds or assets held in joint title.

Revocable Living Trust

A Revocable Living Trust is an estate planning tool that can hold and manage assets during your lifetime and direct how those assets should be handled after your death.

You typically serve as trustee of your own revocable trust while you are living and able to manage your affairs. If you become incapacitated, a successor trustee can step in to manage trust assets on your behalf.

After your death, the successor trustee distributes or continues managing the assets according to the instructions in the trust.

A properly established and funded revocable trust may help:

• Avoid probate for assets owned by the trust
• Provide greater privacy than a will
• Simplify asset management during incapacity
• Provide detailed instructions regarding when and how beneficiaries receive assets

Creating the trust document alone is not enough. Assets often need to be properly titled in the name of the trust for the plan to work as intended.

Durable Financial Power of Attorney

A Durable Financial Power of Attorney allows you to authorize another person, known as your agent or attorney-in-fact, to make financial decisions on your behalf should you become incapacitated.

Depending on the powers granted in the document, your agent may be able to:

• Pay bills
• Manage bank and investment accounts
• Handle real estate transactions
• Work with insurance companies
• File tax returns
• Conduct other financial matters

Without a valid power of attorney, family members may have to pursue a court-appointed conservatorship or guardianship before they can manage your financial affairs. This can become a burden and be time consuming. By having the proper documents in place, those you trust can immediately begin handling your affairs to ensure you are taken care of. 

Health Care Power of Attorney

While no one ever expects to be in a health care crisis, sometimes we cannot control our health and the effects it has on us. In a medical emergency, the last you thing you want is for the doctors and medical professionals taking care of you to be unsure of who to listen to. A Health Care Power of Attorney allows you to designate someone to make medical decisions for you if you are unable to make those decisions yourself. This individual becomes your voice when you no longer have one. 

Your health care agent may be asked to communicate with doctors, approve medical procedures, select care facilities, or make other health-related decisions.

Choosing the right person for this role is important. Your agent should understand your wishes and be comfortable making difficult decisions when necessary.

Living Will or Advance Directive

A Living Will, sometimes called an Advance Directive, communicates your preferences regarding certain types of medical treatment if you are terminally ill, permanently unconscious, or otherwise unable to express your wishes.

Depending on the document and applicable state law, it may address issues such as:

• Life-sustaining treatment
• Mechanical ventilation
• Artificial nutrition and hydration
• End-of-life care
• Pain management

While a health care power of attorney names the person who can make decisions for you, a living will provides guidance regarding the types of treatment you would or would not want.

Beneficiary Designations and Titling 

Although beneficiary designations and property titling are not usually thought of as traditional estate planning documents, they are a critical part of an estate plan.

Assets such as IRAs, 401(k)s and other retirement plans, life insurance policies, annuities, real estate and certain bank and investment accounts may pass directly to the beneficiaries listed on the account or policy. 

In many situations, these beneficiary designations take precedence over instructions contained in a will or trust. That makes periodically reviewing them especially important.

Major life events such as marriage, divorce, the birth of a child, or the death of a beneficiary are good reasons to revisit your designations.

Different forms of ownership can produce very different estate planning results. Proper titling should therefore be coordinated with your will, trust, and beneficiary designations.

Letter of Instruction

A Letter of Instruction is generally not a legally binding estate planning document, but it can be extremely helpful to your family.

It may include practical information such as:

• Contact information for your attorney, CPA, and financial advisor
• The location of important documents
• A list of financial accounts
• Digital account information
• Funeral or memorial preferences
• Personal messages to family members
• Instructions regarding personal belongings

Providing this information can make a difficult time significantly easier for the people handling your affairs.

Disclosure: The information provided in this blog post is for educational and informational purposes only and should not be construed as financial advice. While we strive to present accurate and up-to-date information, the financial, tax, and legal landscape is subject to change, and individual circumstances vary. Readers are encouraged to consult with a qualified financial advisor or professional before making any financial decisions or implementing strategies discussed in this post. Our firm does not guarantee the accuracy, completeness, or suitability of the information provided, and we disclaim any liability for any direct or indirect damages arising from the use of this information. Artificial Intelligence was used to assist in the writing of this article. Past performance is not indicative of future results. Any investment involves risk, and individuals should carefully consider their financial situation and risk tolerance before making any investment decisions.