One of the most frequent conversations we as advisors have with clients is around the importance of getting estate documents in order. A common response is something along the lines of “Yes, I know I need to do that!” but it’s so easy to put off.
Whether it’s avoidance of estate planning attorneys, avoidance of the topic of death, decision fatigue or good, old-fashioned procrastination, estate planning often falls by the wayside.
Estate planning documents: Why is it so important that they’re up-to-date?
Peace of mind
Knowing your affairs are in order can provide peace of mind not only for you, but also for your family and loved ones, reducing stress, and making future tough decisions easier.
Control over your assets
If you die without a will, your assets will most likely be distributed according to your state’s intestate succession laws. This may be simple and straightforward if you’re married in a community property state, but it could also get complicated.
Things can get messy in many different and uncontrollable ways
Almost nobody expects their family members to argue over their assets or to have their own memory start to fade early in retirement. However, the reality is that even tight-knit families with well-intentioned beneficiaries can have disputes arise as they try to sort out what the decedent really wanted.
When you die, your heirs are being handed a lump sum of money and the weighty responsibility of honoring your wishes while in the middle of grieving. It is naïve to expect perfect agreement.
Additionally, you may be lucky enough to pass in your sleep at 95 years old with no prior health complications, but that is not how things typically happen and it’s impossible to predict if and when your own decision making ability will start to deteriorate.
Estate Planning Documents Checklist
Below, we’ll cover an estate planning documents checklist to outline which documents you should be sure to include.
Will
This is the first document that often comes to mind when preparing to meet with an estate lawyer. A will tells the state (and your heirs) where you want your assets to go after you pass, as well as whose job it is to get them there.
In your will you’ll name a Personal Representative (a.k.a. Executor) who will be responsible for administering the assets within your estate. This person will use the will as a (legally-binding) guide on how to distribute your assets.
When preparing your will, you will decide on:
- Guardian(s) – Who cares for your minor children?
- Custodian(s) – Who manages assets inherited by your minor children?
- Special Bequests – Any family heirlooms or other assets you want to give to a specific person, charity, or organization.
- Distribution of Remaining Assets – Do you want things split evenly between your kids or would you like some assets to go directly to your grandchildren? Maybe you’re unmarried but have a partner you’d like to leave a portion to.
- Testamentary Trusts – Will any trusts need to be created upon your death in order to protect your assets from taxes, creditors, or future bad actors? Or maybe you have minor children and you don’t want them to receive their
entire inheritance as soon as they turn 18. Testamentary trusts can help with both of these scenarios among others.
For a deeper look at the structure and content of a will, take a look at Quantum’s blog post on wills.
Powers of Attorney (POA)
Financial
A general power of attorney grants another person the legal authority to act on your behalf in a variety of ways. In a sense, you’re giving a person the keys to your financial life, and you should only do so if you trust them to act according to your best interest. When granted powers of attorney for you, a person can do the following on your behalf:
- Complete transactions – including banking transactions, bill payments, buying or selling real estate, liquidating retirement accounts
- Manage legal affairs – enter into binding contracts, lease a rental property, conduct business in your name, or potentially amend and revoke previously established trusts
- Manage personal affairs – such as ensuring government benefits are received, purchasing insurance policies, coordinating charitable gifts, or arranging your living accommodations if you need long-term care
Healthcare (Limited)
Testators can also grant powers of attorney to another person for the purpose of allowing that person to make healthcare decisions on their behalf. This is typically done with a separate document, commonly referred to as a Medical Power of Attorney or Healthcare Power of Attorney, which grants a person specific authority without giving them the keys to your whole financial life in the event you are unable to make decisions yourself.
When appointed POA in this capacity, a person can:
- Access your medical records and related personal information
- Consent (or withhold consent) to medical treatment for you, including the administration of drugs
- Grant releases of liability required by a healthcare provider prior to treatment
- Choose healthcare personnel to administer treatment
- Make decisions related to end of life, such as consenting to a “Do Not Resuscitate” order
When granting powers of attorney for healthcare decisions, it is best practice to ensure you also have a living will— or healthcare directive— on file to guide your agent on uniquely difficult end of life decisions. See discussion on healthcare directives below.
POA documents are important to have but shouldn’t be completed without careful consideration as the access and authority you are giving someone when naming a POA is significant.
There are also a number of nuances to consider, such as whether the powers granted should be immediate or springing, which means it is only valid after a certain triggering event, such as incapacitation, or whether a POA should be durable or not.
For more on powers of attorney, click here.
Healthcare Directive (a.k.a. Living Will)
A healthcare directive allows a person to document their preferences relating to the prolonging or ending of their life in the event of a terminal or permanent unconscious condition (i.e. a coma).
This helps take some of the burden off your healthcare POA who is having to make extremely difficult decisions about the care you receive on your behalf in the midst of an emotional time should you be in such a condition.
You may wish, for example, not to receive unnecessary treatment if you are permanently unconscious and would rather have your family start moving on than simply prolong the dying process if you are unable to eat, drink, or breathe on your own.
A do-not-resuscitate order (DNR) may also be written into your directive, informing medical staff that they are not to perform CPR in such a scenario.
Other considerations
Beneficiary Designations
When opening a retirement account, such as an IRA, part of the required paperwork is a beneficiary designation form which, like a will, names who is to receive the assets from that specific account when the account owner dies. Keep in mind that a beneficiary designation from a specific investment account supersedes directions from a will as any account with a named beneficiary passes to heirs outside of the probate process.
When you meet with your estate attorney to prepare the above documents, consider discussing the beneficiaries of your retirement accounts and make sure they are up to date in accordance with your wishes.
What about a trust? Or multiple trusts?
A trust is a legal arrangement where assets are transferred from a person (trustor) to a trustee who manages them for the benefit of a third-party beneficiary (or multiple beneficiaries). Trusts are common vehicles for estate planning, and there are many different types designed to accomplish different things.
Additionally, there are various benefits to employing a trust, such as asset protection, increased flexibility and control over asset distribution, privacy, or even avoidance of estate taxes. In some states (looking at you, California!) the probate process is so complicated and expensive that trusts have become the standard practice for estate planners. A good estate planning attorney should offer guidance on if you’d benefit from a trust-based strategy or if a simple will should suffice.
Ultimately, having an up-to-date estate plan is important for many reasons. If you have opinions on what should happen to you or your assets should something unexpected happen, working with a lawyer to get your basic documents in order, including a will, powers of attorney, and other necessary documents can help give you peace of mind while also making life easier for your loved ones in the event of your passing.
