What estate planning documents do I need?

Summary 

What does estate planning mean? 

Estate planning means deciding how you want your assets to be distributed in the event of your death.  

An estate plan will detail your final wishes, from your healthcare preferences to how you want your investments to be allocated. 

These types of plans can also be useful if you ever become unable to make your own decisions and want things to be done according to your wishes.   

While you may think estate planning is just for the wealthy or those who have multiple assets, those with smaller net worths can also benefit. 

Your estate is made up of everything you own, such as your personal belongings, your home, and your 401(k), so even if you don’t have a considerable number of assets or a high net worth, it is still worthwhile to state what you wish to happen to your assets when you pass away. 

A plan can also allow you to make savvy decisions about how your family will inherit your estate and reduce their tax burden. 

This could prevent your loved ones from dealing with a high inheritance or estate tax bill they might not be prepared for.  

Unfortunately, the majority of Americans don’t have an estate plan. 

According to Caring.com, only 33% of Americans have one or more key estate planning documents. This means 67% of Americans are leaving their final wishes in the hands of others, including the US government.  

40% of respondents said they simply haven’t gotten around to it. 

While estate planning does involve some difficult decisions, the process doesn’t have to be hard. A financial advisor can guide you through the process and make things as easy as possible, working with you to build a plan that works for you and your family.  

What are estate planning documents? 

When putting together an estate plan there are a number of key documents you must have. 

These include a will, trusts, an advance care directive, and power of attorney.   

Let’s look at these in more detail: 

1. A will 

A will is the main component of your estate plan and is the first document most people will think about when embarking on their estate planning journey.  

Your will should state how you wish your assets to be distributed upon your death, stating clearly who should assume ownership of your assets. 

This should be in line with how you have bequeathed assets outside of your will.  

It should also name your estate executor, who is the person you trust to ensure your wishes are carried out. 

Also, if you have children under the age of 18, your will can state who should become their guardian should you and their other parent become unable to care for them.  

Without a will, your estate will go through probate court, and your assets will be distributed according to your state’s intestacy laws.  

2. A trust 

With a trust, you can transfer assets according to your expressed wishes and put conditions on how you want specific assets to be distributed. 

It can hold several different types of assets and can be used to distribute assets over time. Some trusts will also help your beneficiaries reduce estate taxes.  

A living trust can be created during your lifetime. 

Here, your assets are placed into the ownership of a trust. Upon your death, the person you choose to manage the trust – your trustee – can distribute the assets to your chosen beneficiaries.  

Some people also opt to include a trust as part of their planning.  However, with all estate planning, the choice is unique to your needs.  

3. Power of attorney  

This document allows you to choose a trusted individual to handle all your financial and legal matters should you become unable to do so.  

A power of attorney can be customized so you only give this individual control over specific areas of your life and only in specific circumstances, such as making financial or legal decisions.   

If you do not have a power of attorney and become unable to make such decisions, a court may decide the future of your assets. Its decision may not be in line with your wishes.  

4. Advance care directive 

An advance care directive or healthcare power of attorney states your medical wishes and end-of-life care in the event you are unable to communicate them.  

You can express exactly what you do and do not want, as well as name a trusted friend or family member to make healthcare decisions on your behalf.  

This person will essentially have your life in their hands, so it’s worth choosing someone who shares a similar outlook and who understands your wishes completely. 

Similar to a power of attorney, without such a document, your healthcare decisions may be decided by a court.  

In addition to these documents, you may also choose to include other documents depending on your unique situation. 

These can include beneficiary designations, a letter of intent, and guardianship designations. Provisions for insurance products, such as long-term care insurance, can also be included here.  

What estate planning documents do I need? 

When organizing your estate, you can take many different approaches. However, a will, trusts, an advance care directive, and power of attorney are four powerful legal documents that will put you in the best position to plan your next steps.   

What other estate planning documents you need will depend on your unique situation.  

For example, if you have young children, it’s wise to include a guardianship designation. 

While this can be incorporated within your will or trust, not all wills include this. 

Without expressed wishes, a court will rule who your children will live with, which you may not agree with. In contrast, if your children are over 18, you do not need these documents in your estate plan. 

Speak to an expert 

While it’s absolutely worth it, estate planning can be a complex process, so getting professional help from a financial advisor is recommended.  

A good place to start is Unbiased. Here, you can get matched with an independent SEC-regulated, fiduciary financial advisor who can help you navigate estate planning. 

Match with a financial professional today.