Estate Planning Basics: The Documents Everyone Should Have

Estate planning sounds like something only wealthy people need. In reality, it’s about making sure your wishes are followed and your loved ones are protected if something happens to you, whether you die or become unable to make decisions. Nearly every adult benefits from some basic estate planning, regardless of the size of their assets. Without a plan, state laws and courts may make decisions for you, and your family may face unnecessary stress, cost and conflict.

What estate planning does

Estate planning helps you decide who will receive your property after you die, who will care for minor children, who will manage your finances and make medical decisions if you can’t, and how to minimize taxes, costs and complications for your heirs. It also gives your loved ones clear guidance during an emotionally difficult time.

The core documents

A will is a legal document that says who receives your property after you die and, if you have minor children, who you’d like to be their guardian. A will also names an executor, the person responsible for carrying out your wishes, paying debts and distributing assets. If you die without a will, called dying intestate, state law determines who inherits your property and a court decides who raises your children, which may not reflect your wishes.

A financial power of attorney names someone, called your agent, to handle your finances if you can’t, such as paying bills, managing accounts, filing taxes and handling property. A durable power of attorney remains effective if you become incapacitated. Without one, your family may need to go to court to gain authority over your finances.

A health care directive, sometimes called a living will or advance directive, describes the medical care you want or don’t want if you can’t speak for yourself, such as preferences about life support and end-of-life care. It helps your loved ones and doctors honor your wishes.

A health care proxy, sometimes called a medical power of attorney or health care power of attorney, names someone to make medical decisions for you if you’re unable to. This person should understand your values and be willing to advocate for your wishes.

Some states combine the health care directive and health care proxy into a single document.

Beneficiary designations

Retirement accounts, life insurance policies, annuities and some bank and brokerage accounts let you name beneficiaries, the people who receive the money when you die. These designations generally take priority over your will. If your will leaves everything to your spouse but your retirement account names a former spouse as beneficiary, the account may go to the former spouse.

Assets with beneficiary designations generally pass directly to beneficiaries without going through probate. Keep designations up to date, especially after marriage, divorce, births and deaths, and name contingent beneficiaries as backups.

When a trust may help

Trusts are legal arrangements in which a trustee manages assets for beneficiaries according to instructions you set. A revocable living trust, the most common type for estate planning, lets you keep control of your assets during your lifetime while naming a successor trustee to take over if you become incapacitated or die.

Trusts can help manage assets for children or beneficiaries who aren’t ready to handle money, avoid probate in some states, maintain privacy, since probate records are often public, plan for incapacity, provide for family members with special needs and handle complex family situations, such as blended families.

Trusts aren’t necessary for everyone. Simpler estates may be adequately handled with a will and beneficiary designations. An estate planning attorney can tell you whether a trust makes sense for your situation.

Don’t forget the practical details

Estate planning documents work best when your loved ones can find them and understand your affairs. Create a list of your accounts, insurance policies, debts and important contacts, such as your attorney, accountant and financial advisor. Note where to find your documents, such as your will, powers of attorney and insurance policies. Store originals securely and let trusted people know where they are.

Plan for access to digital accounts and passwords, stored securely, such as through a password manager with emergency access features. Many online services offer tools to designate someone to manage your account after death. Some states have laws governing access to digital assets.

Consider writing a letter of instruction, an informal document sharing your wishes about funeral arrangements, personal items and other matters, along with guidance for your loved ones.

Special considerations for parents

For parents of minor children, estate planning is especially important. Naming a guardian in your will ensures that someone you trust would raise your children. Consider naming a backup guardian too. You can also set up a trust to manage money for your children, since minors generally can’t receive large sums directly. Life insurance can provide financial support for your children if something happens to you.

Keep it current

An estate plan isn’t a one-time task. Review your plan every few years and after major life events, such as marriage, divorce, the birth or adoption of a child, a move to another state, a significant change in assets or the death of a beneficiary, executor or guardian. Laws change too, which may affect your plan.

Get the right help

Laws governing wills, trusts and powers of attorney vary by state. Online tools and templates can work for simple situations, such as a basic will for someone with straightforward assets and family circumstances. An estate planning attorney can help with more complex needs, such as blended families, business ownership, significant assets, special needs beneficiaries or planning to minimize estate taxes. Many attorneys offer flat-fee packages for basic estate plans.

Taking the time to create an estate plan is a gift to your loved ones, providing clarity, protection and peace of mind.