What You Need to Know About Estate Planning Documents

Introduction

There’s a difference between having a plan and putting words into action. You may have your estate plan worked out in your head, but until your plan finds its way onto paper it’s just an idea. In order for your estate plan to be legally binding, you’ll need to formalize it with the proper estate planning documents.

What Estate Planning Documents Do I Need?

Estate plans should be tailored to an individual’s unique needs and situation, so every plan will be slightly different. That said, the core documents at the heart of every estate plan are the same. Whether you’re planning for yourself or a large family, divvying up a million dollars or a million pennies, your estate plan will likely include the following documents: 

1. Durable power of attorney
2. Living will
3. Healthcare power of attorney
4. Letter of intent
5. Last will and testament

Durable Power of Attorney

A durable power of attorney is a legally binding document that authorizes an agent (referred to as your attorney-in-fact) to handle your affairs when you’re unable to handle them yourself. Your agent may receive the authority to act right away, or the transfer of power could be contingent on a medical diagnosis of incapacitation. Most powers of attorney convey unlimited authority to handle all personal affairs, though you have the right to limit the agent’s actions to certain tasks if you wish to retain control of certain aspects of your estate.

Why is a power of attorney so important? Consider what would happen if you were in a car accident that resulted in your being placed in a medically-induced coma while you recover. If you’re under sedation for a month, who would be able to access your bank account to pay your bills? Your spouse can access joint accounts, but they would not be able to access any individual accounts (like a retirement account or insurance policy) unless they have a power of attorney allowing them to do so.

Powers of attorney are also popular with aging parents who want to let their adult children handle the more complicated aspects of their affairs, like managing investments or collecting rent from tenants. In these cases, a limited power of attorney is a great option to preserve the aging parent’s right to handle most of their own affairs, while leaving specific duties and functions to a trusted agent.

Living Will

Don’t confuse your living will with your last will and testament — the former applies while you’re still alive, while the latter doesn’t take effect until you pass away. Sometimes referred to as an advance healthcare directive (or shortened to advance directive), a living will dictates your preferences regarding medical care and treatment. Its purpose is to convey your treatment and end-of-life preferences to healthcare professionals and family members in case you’re unable to communicate with your doctors.

Some of the topics commonly addressed in a living will include resuscitation (i.e. a do-not-resuscitate order), life support, chemotherapy, organ donation, and palliative care (treatment to alleviate pain and suffering). Keep in mind that your living will only applies if you become incapacitated and cannot communicate directly with your doctors. As long as you’re able to communicate, you’ll retain full decision-making authority. 

Healthcare Power of Attorney

Some people dispute the value of a healthcare power of attorney when you have a living will that clearly lays out your healthcare preferences, but the reality is a living will can’t plan for every contingency. In the end, it helps to have someone by your side who understands what you’d want to do and has the legal authority to communicate those desires with your doctors.

In some cases, you be be able to convey healthcare authorization with a standard power of attorney, while other cases may require a separate document. You may even be able to designate a healthcare proxy in your living will. Check with your attorney to determine the best course of action based on your situation.

Letter of Intent

The best place to lay out your funeral and burial plans is in a letter of intent. Many people mistakenly place this information in their last will and testament, which becomes problematic when the will isn’t opened and read until after the funeral (as is custom in many families).

To avoid unnecessary confusion and ensure your surviving family members are aware of your plans, all you need to do is write them down in a formal letter of intent. Attach any receipts or confirmation pages that show you’ve purchased a grave plot or prepaid for funeral services, and include relevant account information if you intend to pay for these services with life insurance proceeds.

Last Will and Testament

Your last will and testament serves several important purposes. First, it should name an executor to serve as your estate’s personal representative from the time you pass away until the estate is closed. Like your attorney-in-fact, the executor will have the authority to act on your behalf and perform all of the necessary duties to probate your estate.

Second, your last will and testament should name a guardian to care for your minor children (if applicable). It’s a good idea to check with your intended guardian ahead of time, as a guardian named in a will is not obligated to accept the nomination when you pass away. On that note, you’d be wise to name one or more backup guardians in case the primary guardian refuses or passes away before you.

Finally, your last will and testament should identify your assets that are subject to probate and name beneficiaries for these assets. Assets that are typically subject to probate include individual financial accounts (bank accounts, savings, investments), real estate that’s owned individually or as tenants in common, and personal property (vehicles, jewelry, art, collectibles, firearms, furniture, etc.).

Note that not all assets are required to go through probate. In fact, with proper planning, most assets can be positioned to transfer to your beneficiaries outside of probate, saving a significant chunk of time and money. These assets typically include a joint owner or designated beneficiary, such as a joint bank account, retirement account, life insurance policy, annuity, trust, or real estate owned in joint tenancy.
Call our Estate team at (480)467-4325 to discuss your case today.