Personal Finance

What Are Estate Documents

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 6 minute read

Creating an estate plan isn’t high on most people’s to-do lists, but it is essential. It will help your loved ones cope with what is sure to be a difficult and confusing time, and it will give you peace of mind knowing that your affairs are in order and your wishes are understood.

Estate planning isn’t as difficult as it seems, despite appearances to the contrary. In reality, it consists of a small number of basic texts that can be understood with little effort.

You Should Have Estate Planning Documents

There is a function for each estate planning document. While it’s true that not every estate planning document is necessary for every set of circumstances, the odds are good that at least a few of them apply to you.

Make sure your desires are carried out and that you have some control over the management of your affairs after your death or incapacity by tailoring your estate plans to your specific financial situation, assets, beneficiaries, and preferences. The most frequent legal instruments for estate planning are:

  1. Wills and Testaments

In a final will and testament, you name the people and organizations who will get your property and other assets after your death. It is in this document that you appoint an executor to carry out your final instructions and settle your estate.

If you specify in your will that a certain family member is to get a priceless artifact, for instance, it is the responsibility of your executor to make sure that this happens.

After your death, a will is employed by your estate attorney, executor, and loved ones.
A final will and testament is essential for anyone with strong feelings about the distribution of their possessions upon death.

  1. Living Trust (Revocable)

To assign responsibility for the care of certain assets, you can create a revocable living trust as part of your estate plan. Real estate, stocks, and bank accounts are just some of the assets that might be placed under the care of a trustee.

It serves a purpose both in life and in death. A revocable living trust allows you to designate a successor trustee to handle your estate after your passing. You always have the option to revise or alter your living trust, and the trustee has complete control over all trust assets.

A legitimate revocable trust allows your estate to bypass probate court and allows you to name a trustee to manage the trust’s assets after your death.

If you want to avoid probate and have someone else handle your assets while you’re alive and after you’re gone, you should set up a revocable living trust.

  1. Beneficiary Preferences

Assets such as life insurance plans and 401(k)s require beneficiary designations to be filed (IRAs). You can use them to name a beneficiary for your assets in the event that you are no longer able to do so after your death.

When making a beneficiary designation, it is customary to go via the asset manager, such as a life insurance company or a financial institution where you have an account. However, a beneficiary designated in a will is another option for passing on your wealth.

If you want a certain person to be able to access your accounts after your death, you should make sure that any assets you own that are kept or managed by a third party have a completed beneficiary designation.

  1. Instructional Letter

A letter of instruction is a legal document used for estate planning that:

  • Provide access instructions to your assets.
  • List your assets and liabilities.
  • Specify where to locate essential papers such as property deeds and marriage certificates.
  • Specify your funeral or burial wishes
  • Document online account and password information.

A letter of instruction aids your estate planning attorney, executor, and loved ones in carrying out your wishes, but it is not a legal document. Your final wishes might include everything from your social media passwords and a list of memorial gifts to be made in your name to the inscription you want on your tombstone.

A letter of instruction is useful for virtually everyone since it may be used to offer instructions and direction to the people who will be settling your estate after you pass away.

  1. Health Care Power of Attorney

An advance health care directive may have two sections depending on the state in which you reside. The first describes your wishes for medical treatment in the event of your incapacitation. This could include information like whether or not you want to be revived or kept on life support. It’s termed a “living will” when used in this context.

The second option allows you to appoint a legal proxy to make and carry out your healthcare directives. A health care proxy or medical power of attorney is another name for this document.

An advanced health care directive, in contrast to other estate planning instruments, exclusively addresses medical decisions and does not affect the transfer or administration of your assets.

Only valid for your lifetime, it provides instructions for doctors and nurses to follow in the case of an emergency in which you are unable to speak for yourself.

In the event of a major accident, for instance, your advance health care directive can be used by first responders and doctors to guide your care. Making an advance health care directive is a good idea for someone with strong medical preferences.

  1. Power of Attorney

Having someone else (the “attorney-in-fact”) take care of your property, company, and bank accounts is a lot easier when you have a power of attorney (POA).

You can grant your attorney-in-fact broad or narrow authority depending on your needs. You can give your attorney-in-fact broad authority over your assets, such as the ability to sell or donate your possessions, or you can give them narrow authority, such as the ability to pay checks in your name but not remove the money.

There are two primary kinds of power of attorney used in estate planning: durable and non-durable. Even if you lose mental ability in the future, your durable power of attorney will continue to be valid.

In the event of your incapacity or death, a power of attorney that is not “durable” will be rendered null and void.

When someone has durable financial power of attorney over your firm, for instance, they can continue to do so even after your death. If, on the other hand, you just granted them “general” or “non-durable” power of attorney over your finances, their authority to act on your behalf would expire when you did.

You should include provisions in your will for appointing a power of attorney if:

  • Having been given a fatal or life-threatening diagnosis,
  • It’s time for your operation.
  • You’re in a potentially harmful line of work.
  • You’re looking for a certain individual to handle your money.
  1. Guardianship Designations

The process of appointing legal guardians for minors is referred to as “guardianship designations.” You can do this through a will or a power of attorney, but you may also create a separate document to appoint guardians. Should you pass away without naming a guardian for your minor children or other dependents, the law requires that a suitable individual be appointed by the court.

Pets, if you have any, can have their caretaker named as well. If you have small children, pets, or dependents and you have not made provisions for their care in your will or power of attorney, you should utilize a guardianship designation.

Bottom Line

You should plan for more than just the transfer of property when creating an estate plan. It covers a wide range of choices, including who will raise your children and what kind of care you want should something happen to you.

Your estate plans, whether drafted by an estate attorney or a web-based service like Trust & Will, should be tailored to your specific needs and goals. Once you’re satisfied with your estate plan, make sure all the paperwork is secure yet easy to reach by doing the following:

  • It is important to let your executor, attorney-in-fact, and estate counsel know where you have kept your important documents.
  • Regularly evaluating and revising your estate plan following any big life changes
  • Putting a duplicate of the papers somewhere safe, such a safe deposit box or the office of your attorney

The less stress you cause your loved ones by making thorough and detailed estate planning now, the better.

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