Documents that Should be Part of Everyone’s Estate Plans

Planning for your own death is uncomfortable, but being prepared can prevent heartache and financial distress for loved ones and heirs.

“The primary purpose of estate planning is to protect loved ones and to express your wishes on what will happen to you and your belongings,” says Jean-Luc Bourdon, certified public accountant and principal at Bright Path Wealth Planning. “It’s relevant to everyone. Unfortunately, we have to plan for the worst and the worst can happen at any time.”

Estate plans can also help avoid a lengthy, inconvenient and expensive legal process if you become incapacitated, adds Robert Meyring, family law and estate planning attorney in Atlanta. Having the proper documents in place prevents the need for a guardianship, which can cost thousands of dollars.

Depending on your assets, putting together an estate plan can take anywhere from a few hours to months as you think through any issues. Once you’ve finalized the documents, experts suggest having them accessible by keeping copies at home and with your attorney, as well as with your accountant or wealth manager. “It’s good to let your loved ones know where [your will] is,” says Bourdon.

Here are a list of documents that experts suggest including in your estate plan:

Last Will and Testament or Living Trust

Choosing whether to create a will or a trust depends on your financial circumstances. While a will specifies who your money goes to, it doesn’t clear up tax issues. A trust clears up tax and liability issues. “You can have both a will and a trust document— the will recognizes the other,” says Randy Kessler, founding partner of law firm Kessler & Solomiany.

For people looking to minimize any estate tax or who have a special situation, such as a child with special needs, a living trust may be a better option, says Meyring, since it can preserve a larger amount of the estate by minimizing taxes.

What’s in a Will. “The will is for all your stuff that you don’t have anywhere to go—personal property and other assets,” says Kessler. “The will is a catch all.”

If you die in testate, or without a will, your property will be divided according to state law, either between your spouse and children or your extended family if you’ve no surviving spouse or children.

If you’ve children, you can state in a will who you’d like to care for them if there are no surviving parents. “The court will put a lot of weight on your wishes versus another third person if there’s no other surviving parent—the ultimate say is decided by the judge,” says Randy Michel, family law and estate planning attorney in College Station, Texas.

The will doesn’t include all your assets—beneficiaries named in a retirement account, annuity or life insurance policy supersede what’s in a will. “If there’s no name, they’ll look at your will or state law,” says Kessler.

What’s in a Trust. “There are forms of trusts where your money is out of your name and when you die, you transfer the ownership to your heirs and not your money—this protects your heirs,” says Kessler.

Within a will, you can create a testamentary trust to sequester money in an estate for a beneficiary, says Meyring. You can provide specific instructions for money to a child or an adult who needs help with their finances.

Living trusts are active while you’re alive and wills only become active after someone passes away. A living trust can help preserve Social Security benefits to a beneficiary, protect a beneficiary from creditors, give tax credits to a charitable donor or direct a trustee to manage money on behalf of an adult child, says Meyring.

A living trust may avoid probate, which could be time consuming depending on the state, says Bourdon. A living trust can afford some privacy because the probate process makes the will a public document.

A living trust is more expensive to set up than a testamentary trust, but without a trust or will, if beneficiaries of a life insurance policy are under 18 years old, for example, the estate will have to go through probate. The cost to probate the estate can be a few thousand dollars, says Meyring. Regardless of probate, a court-ordered "constructive trust" for life insurance proceeds to a minor would have to be set up, which can cost a few thousand dollars. Planning for these events in your estate plan can help minimize costs.

Incapacity Documents

Having a living will and power of attorney designates a person to handle health care and financial decisions when you’re no longer able to.

Advanced medical directive or living will. This document designates who can make health care decisions for you. These decisions include whether you’d like medical care and how much and when you want to be taken off life support, as well as autopsy, cremation and organ donation choices.

“If you don’t have a medical directive, your relatives will have to make these decisions for you—whether to keep you alive and where, how and if you’ll be buried,” says Kessler.

Once you have medical directives in place, Bourdon suggests providing copies to anyone named in the document.

Durable financial power of attorney. With this document, you can establish who would be able to write checks, manage property and take control of your finances if you’re unable to.

“The only thing they cannot do is write a will or establish a trust,” says Meyring. Since this is a contingency document, the person who signs this must give the other person permission to manage their finances.

Durable means that it will withstand a mental incapacity, says Michel. If this was signed when you’ve no mental or physical issues, it’ll still be effective and legal if you become incapacitated.

Emergency Information

An estate plan should have a list of assets and account numbers to help the executor administer your estate.

“It used to be the survivor found out about the accounts by going through the mailbox, but this becomes difficult with electronic statements,” says Bourdon.

HIPAA Release

Since medical records aren’t released to a spouse, signing a HIPPA form will help make changing physicians or dentists easier if you’ve a guardianship or aren’t physically able to get around.

“The release is a document that you would sign that would allow the hospital and doctors to release your medical records,” says Michel.

The HIPAA release will also cut through a lot of red tape if the cause of death was in dispute.