Important Estate Planning Documents Everyone Should Have
Estate planning can be complicated. Regardless of the size of your estate, you should consider adopting these five important estate planning documents:
1. Last Will and Testament
Your Last Will and Testament is a critical document to every estate plan. Why? In most cases (except for trust-based plans, see below) it sets out how you want your property distributed at death. It also serves the crucial function of appointing someone to raise and care for your minor children. You will also name a personal representative in your Will who will administer your estate, which includes gathering your assets, opening a probate, paying your creditors and final taxes and distributing your property pursuant to your Will.
2. Health Care Power of Attorney
This document allows the person you name to make your medical decisions and access your protected health care records should you become ill or incapacitated and unable to do those things yourself. Adopting a Health Care Power of Attorney while you are well can save your family thousands of dollars should you ever become ill or incapacitated since they will not have to go to court and spend thousands of dollars to have the court appoint someone to make those decisions for you.
3. Durable (Financial) Power of Attorney
In your Financial Power of Attorney, you name someone to handle your day-to-day affairs, including managing your finances, should you become ill or incapacitated and unable to do so yourself. Your agent under this Power of Attorney can do anything that you could do if you were able. This includes signing legal documents, using the money in your bank account to pay the mortgage, manage your business and more.
4. Living Will
A Living Will states your wishes about life prolonging procedures if you are in a persistent vegetative state or have an incurable illness. Although you can specifically state what kind of procedures you would like to be done in those types of situations, many Living Wills state that the person who made the Living Will does not want any extraordinary measures taken or to have their life artificially prolonged when they are in a terminal condition.
5. Revocable Living Trust
A Revocable Living Trust serves a number of important functions. First, it states how you want your property distributed at death. The difference between a Last Will and Testament and a Revocable Living Trust is that with a Trust, you can state how and when you want your property distributed (for example, distribute 1/2 at age 25 and 1/2 at age 30). With a Will, the assets will be distributed to your heirs outright as long as they are over the age of 18. In addition, a Trust also protects your privacy because if it is properly funded it will avoid probate. Trusts also plan for incapacity where a Will does not. If your assets are in Trust and you become ill or incapacitated, your successor trustee can manage your assets just like you could. Since a Revocable Living Trust is revocable, you can make changes and/or revoke it during your lifetime.