Must-Have Estate-Planning Documents

A proper estate plan can be as simple, or as complex, as it needs to be. But there are some key documents that every estate plan can benefit from.

These documents can ensure your assets easily pass onto your designated beneficiaries. And they can also provide you with backup in the event that you are no longer able to manage your own finances or make important healthcare decisions.

So let’s take a closer look at some must-have estate-planning documents.

Last Will and Testament

This can serve as the backbone to any estate plan. It clearly outlines how you want your assets to be distributed upon your death.

You can easily set up a will by simply writing one or using software. Moreover, you can appoint an executor to ensure your wishes are met as outlined in the will. This individual can be anyone such as a knowledgeable relative or an estate-planning attorney.

But keep in mind this is a living document. You should review it periodically and update it when necessary. It’s especially important to review this document after major life events like a marriage or birth of a child.

Additionally, some wills also go beyond asset transfer. Your will can also outline what you’d like to happen to your body after you pass away and what type of funeral arrangements you’d like.

And importantly, your will can also establish guardianship for your children.

But it’s also important to clear one common misconception. A will does not avoid probate. This is the process in which the court transfers title to property to beneficiaries upon your death. In many cases, the court would use your will as a guide in its decisionmaking.

However, there are other estate-planning tools that help you avoid probate altogether. One example is a trust.

Trust

A trust is a legal entity that can hold various types of assets for the benefit of another or others. As the creator of the trust or its grantor, you can manage it yourself or appoint a trustee to do so. You can also appoint a co-trustee to take over should the trustee become unable to manage the trust.

A trust gives you more control over how your assets are distributed. You can set conditions around these transfers. For example, you can set it up so that a certain beneficiary gets a specific asset at a certain age or upon meeting a specific requirement.

There are many types of trusts out there. But there are two main categories. A revocable trust gives you complete control. You retain ownership of the assets in the trust in your lifetime. And you can amend the trust document or dissolve it at any time without anyone else’s consent.

With an irrevocable trust, you give up control of assets in the trust. And it’s extremely difficult to amend the trust or terminate it once it’s up and running. But if managed properly, an irrevocable trust can shield you from estate taxes and protect your assets from creditors.

But before you decide if you need a trust, which can be costly to set up, you should seek the guidance of an estate-planning attorney. This professional can help you choose the trust that is right for you.

In any case, however, a trust shouldn’t replace a will. If you’re opening a trust, it can work hand-in-hand with your will.

Durable Power of Attorney

A durable Power of Attorney (POA) is a legal document that allows someone to manage your finances and make financial decisions on your behalf should you become incapacitated or declared mentally incompetent.

But while that may sound extreme, there’s flexibility. As long as you’re of sound mind, you can place restrictions on your agent’s responsibilities and even designate someone else as your durable POA agent if you deem it necessary.

Healthcare POA

A Healthcare Power of Attorney (POA) is a legal document designating someone eligible to make healthcare decisions on your behalf should you become incapacitated.

This is an immensely important role. Your healthcare POA agent should be someone you trust and who understands your needs. You should have regular conversations with this individual while you’re healthy in order for them to better understand your wishes moving forward. For instance, you should discuss your end-of-life care preferences.

Digital Asset Inventory and Authorization

In today’s ever-growing digital landscape, you probably have a lot of assets that exist only in cyberspace. This can include social media accounts, emails, digital content libraries, intellectual property, and more.

So it may help to develop a digital asset inventory and authorization document that allows your executor access to these assets, as well as directions on how to use them. This can be part of your overall digital estate plan.

Beneficiary Designations

Many financial accounts can come with beneficiary designations. These allow the easy transfer of assets within those accounts to designated beneficiaries.

When it comes to retirement accounts such as a 401(k) or IRA, you often designate a beneficiary when you open the account.

Other types of accounts may require an extra, but simple step. You can contact your bank to set up a payable-on-death designation to bank accounts such as checking accounts, savings accounts, certificates of deposit, and money market accounts.

A transfer-on-death designation is similar. But it applies to brokerage accounts and other types of accounts that hold securities like stocks, bonds, and exchange-traded funds.

The Bottom Line

When it comes to estate plans, there are certain must-have documents that can make the process run smoothly. These include a last will and testament, an appropriate trust, a durable POA, a healthcare POA, a digital estate plan, and beneficiary designations.

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