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Estate Planning Checklist: The 5 Essential Documents

For more on estate planning, check out our free resource: Guide to Legacy and Estate Planning.

What is estate planning? Estate planning is a complex process ensuring your final wishes are carried out should something happen to you at any age. We always recommend that people consult a professional estate planning attorney for help with their specific situation.

Why Estate Planning Is Important

Estate planning isn’t just for the ultra-wealthy – anybody with financial assets can benefit from ensuring their finances are properly taken care of after their death. There’s more to an estate plan than simply a will. The following estate planning checklist will help ensure your assets are transferred seamlessly to your heirs upon your death. An important consideration is including provisions that allow your family members to access or control your assets if you become unable to while still alive.

“When I had my brain tumor, I was trying to plan for my wife to take over the finances. With my former wealth manager, I just did not have that sense that everything would be okay. There’s no question in my mind that if that had happened now, that I wouldn’t worry because our advisor knows us. He knows our values. I definitely did not have that feeling before.”

— Rhett M., a Personal Capital investment client who was not paid to give this testimonial

Read More: How Rhett Prepared his Estate Following a Life-Threatening Diagnosis

To get you started on thinking about what you might need to include in your estate plan, here are five documents you should familiarize yourself with.

1. Last Will and Testament

This legal document is the foundation for a successful estate plan. After you embark on your estate planning journey, your attorney will recommend either a will-based estate plan or a trust-based estate plan. With a will-based estate plan, your last will and testament dictate the following:

Who will serve as the executor or personal representative of your estate. This person will be the one to settle your affairs after your death and ensure that the tenants of your will are being accurately followed and attended to.
What power your executor or personal representative will have and what they will be responsible for.
Who your beneficiaries will be and what each beneficiary will inherit. Your last will and testament also defines how and when your assets or property will be transferred to your desired beneficiaries.
Who will be the guardian of children who are minors.

Read More: 9 Things You Need to Know About Creating a Will

2. Living Trust

Also known as a revocable living trust, this is a legal document created during your lifetime that allows for the transfer of assets into a trust for your beneficiaries without needing to go through probate court proceedings. There is no threshold asset size before one can create a living trust. However, it is utilized more frequently by individuals and families with large, complex estates and multiple beneficiaries.

You will transfer property into the living trust but still be able to control and manage the assets while you’re alive. Upon your death, the trustee’s duty is to transfer assets to your beneficiaries according to your wishes. One of the advantages of a revocable living trust is it avoids the cumbersome and time-consuming process of probate.

3. Durable Power of Attorney (POA)

This legal document gives someone else, called your agent, the power to act on your behalf. You can name a primary agent, and then a backup agent if the primary is unable to serve. Spouses are often named as agents for each other. However, you are not limited to naming a spouse or family member as your agent. Being “durable” means that the agency continues even if you are incapacitated and unable to handle matters on your own. In contrast, a general POA would cease to be effective upon becoming incapacitated.

The Durable Power of Attorney can be effective immediately or “springing.” With a springing clause, the POA does not become effective until a medical doctor signs off that you are unable to manage your own affairs.

You can give your agent limited authority for specific transactions, or broad authority. For example, the power could be to perform specific real estate transactions, or broad powers encompassing virtually all your financial affairs. You can revoke a durable POA at any time, but the POA ceases to be valid upon death. 

4. Healthcare Power of Attorney (POA)

Similar to the Durable POA, you name another person to be your agent. You can name a primary agent, and then a backup agent if the primary is unable to serve. Whereas the Durable POA is focused on financial matters, this legal document is specifically related to healthcare decisions. Spouses are often named agents for each other, but you can name someone other than a spouse or family member. Whomever you select, make sure they are someone you have faith will be calm during a crisis, are capable of communicating with medical doctors and nurses, will stand up for you when you are unable to speak for yourself, and finally will honor your wishes even if they are not exactly what they would personally want.  

5. Living Will

Also known as an advanced healthcare directive, a living will is a legal document providing instructions for end-of-life care. A living will is sometimes confused with a last will and testament, but each document serves different purposes.

A living will spells out how life-sustaining medical treatment decisions should be made if you’re incapacitated and communicate them yourself. For example, if you were in a coma due to an auto accident and the doctors said there’s no chance you’ll ever recover, would you want to be kept alive by machines and feeding tubes? This is a decision you should make ahead of time, instead of leaving it up to your grieving family members.

Other Key Considerations

Having a taxable bank or investment account titled as Joint Tenant with Right of Survivor (JTWROS) will avoid probate when the first joint account holder dies. Whether the account is individual or JTWROS, adding a Pay on Death (POD) for bank accounts or Transfer on Death (TOD) for investment accounts will avoid probate. 

For 401k plans, IRAs and life insurance, proper beneficiary designations can expeditiously provide for family and avoid probate. Please note: If you created or updated a will it is imperative to verify beneficiary designations are still accurate. The beneficiary name provided with the 401k, IRA or life insurance company takes precedence over the will.  

Beneficiaries are either primary or contingent. Primary beneficiaries receive the assets first, and contingent beneficiaries receive assets if the primary is deceased. For example, if a spouse is listed as 100% primary and a child as 100% contingent, the child will only receive if the spouse is deceased. Here’s a different scenario. What if I have two adult children listed as 50% primary, but one of the children predeceases? The surviving child would normally receive 100%. If you wanted to make sure a grandchild of the deceased child received his deceased parents’ assets you could add “Per Stirpes” to the beneficiary designation.

Our Take

These are just a few documents you should be familiar with as you start thinking about your estate planning checklist. To explore all of the estate planning documents you will need in your specific situation, we recommend contacting an estate planning attorney.

You can use Personal Capital’s free and secure online financial tools to start organizing your financial accounts for your long-term planning. With our robust financial planning tools, you can analyze your investments and optimize your retirement income. The Retirement Planner allows you to forecast the success of your plan and provides a spending plan for retirement.

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