What Documents Are Needed for Estate Planning?

There’s no one-size-fits-all template for estate planning. Some financial situations are more complex than others, but even if your estate plan is very straightforward, you probably need more than just a last will and testament.

The best way to build a comprehensive estate plan is to work with an attorney you trust. So what documents are needed for estate planning? These are some of the most important documents your lawyer might suggest including in your estate plan.

Why Estate Planning Documents Matter

The estate planning process can be drawn out and tedious. As a result, many people question whether they really need a comprehensive estate plan.

However, estate planning isn’t just about deciding who receives your assets after death. Regardless of your net worth, having a plan matters. These are some of the main reasons it’s so important to create a solid estate plan:

It ensures your loved ones will clearly understand your wishes
It allows you to make guardianship designations for minors, pets, or both
In some cases, it may help your loved ones avoid probate court
You may be able to minimize estate taxes, legal fees, or both
A clear plan may prevent family disputes
If you become incapacitated, a trusted person will be able to step in and make decisions for you

What documents are needed for estate planning? Your estate planning attorney can help you decide, but many people’s estate plans include the following:

Last Will and Testament

When it comes to must-have documents for estate planning, a will (or last will and testament) is at the top of the list. In many ways, your will serves as a guide to your estate plan. It may include the following:

A list of your assets and their values
Instructions for accessing bank accounts, investment accounts, and/or digital assets (like crypto)
Your choice of executor (the person you want to oversee your estate)
Your choice of guardian and backup guardian for your kids, pets, or both
How you want your assets to be distributed to beneficiaries

When it comes to digital assets, estate planning can be complicated. Your lawyer can help you craft a clear last will and testament to minimize the risk of family or probate disputes after your death.

Like many estate planning firms, we’ve noticed an increase in the number of people relying on last will templates they find online. We strongly encourage anyone drafting a will (or creating other legal documents) to work with a lawyer to create a customized will.

Many websites offering free last will and testament templates keep the wording vague enough that the will could be valid in any state. The problem with this is that the language is often so unclear that the will becomes difficult or impossible for your loved ones to interpret. Sometimes, trying to save a little extra money by using a template can cost your loved ones money and time in probate court.

Living Trusts and Their Benefits

Creating a last will and testament often involves minimal estate planning paperwork. In some situations, just having a will is sufficient. However, wills have one major disadvantage: they must go through probate.

The probate process is when the court evaluates a will to determine whether it’s legitimate. The court will usually oversee the repayment of any debts and taxes from your estate, as well as the distribution of remaining assets to your beneficiaries.

As any estate planning attorney can tell you, probate has several disadvantages:

It’s mentally exhausting (especially if your loved ones are still grieving)
It’s often expensive
Because it’s a matter of public record, your family members have no privacy

Dealing with a court-supervised legal process like probate is challenging even on a good day. Navigating it right after losing a loved one can feel insurmountable.

Fortunately, the right estate planning moves can help you avoid probate court entirely. One of the most common is the living trust.

Many people have heard the word “trust” in an estate planning context, but not everyone understands exactly what it means. A trust establishes a legal entity that can hold or manage assets. Revocable trusts can be easily changed or dissolved by the person who created them, but irrevocable trusts cannot.

A living trust is a type of revocable trust that keeps your assets out of probate. Here’s how it works:

You establish the trust and transfer your assets into it
You name yourself as the trustee
You choose a trusted person to serve as the successor trustee after your death
You still have full access and control over your assets during your lifetime
After your death, the successor trustee distributes assets in the trust according to your wishes

Living trusts come with several benefits. However, like most kinds of revocable trusts, they don’t generally have tax benefits. If you’re concerned about estate taxes, your attorney may be able to help you explore options for revocable trusts.

If you do decide to open a trust, use extreme care when selecting your successor trustee. If a trustee doesn’t respect your wishes, your loved ones may not receive the assets you intended them to have.

Your attorney can help you make a decision if you’re having trouble choosing a trustee. For some people, choosing a bank or other financial institution to serve as a trustee ends up being the best way forward.

Powers of Attorney (Financial and Healthcare)

Powers of attorney (often abbreviated as POAs) are some of the most essential estate planning documents for everyone. Many people overlook them when creating an estate planning checklist because they aren’t related to asset distribution.

However, having an established power of attorney (or more than one) can protect your family, your health, and your finances if you become incapacitated. When you create your power of attorney document, you designate a trusted person (or “agent”) to make decisions on your behalf if you become unable to.

When you establish a financial or healthcare power of attorney (or both), your estate attorney will probably recommend getting a durable power of attorney. “Durable” means that your agent’s decision-making power remains in place if you’re incapacitated.

Having a durable power of attorney means your trusted person can seamlessly step in and start managing your affairs for you. Once you have regained full capacity, your agent will step back and allow you to manage your affairs.

Two of the most common powers of attorney are financial and healthcare. Here’s a closer look at each:

Financial Power of Attorney

If you suffer an unexpected medical event, paying bills and otherwise managing routine financial matters might not be on your mind. A financial power of attorney grants someone you trust the authority to manage your bank accounts, handle business dealings, and otherwise oversee your finances when you’re unable to.

The person you nominate in your financial power of attorney is called your “financial agent.” Before you create and finalize your power of attorney, make sure your chosen person understands what’s involved and accepts the responsibility.

Healthcare Power of Attorney

No one wants to think about being unable to make healthcare decisions for themselves. Even if you already have a health care directive or living will, you might feel better knowing that someone you trust can make decisions for you if you’re unable.

In this situation, the person you appoint to make medical decisions on your behalf may be called a healthcare proxy.

Advance Healthcare Directive (Living Will)

Many people forget that legal documents for estate planning don’t all involve money and asset distribution. Your advance directive (or living will) is one of the most important documents for estate planning.

A living will isn’t quite the same as a healthcare proxy. Generally, a living will is a document where you outline your wishes for end-of-life medical care. You might specify whether you consent to being on life support or not, or receiving pain medication.

Before you create a healthcare directive, it’s often a good idea to consult with a trusted physician. Your doctor can help you understand what’s involved in many end-of-life interventions so you can make informed decisions.

Additional Documents to Strengthen an Estate Plan

The above checklist for estate planning documents can help you get started. However, these additional documents may be able to bolster your estate plan:

Beneficiary Designations

Strictly speaking, your beneficiary designations probably aren’t a separate document. However, you should verify that the beneficiary designations on all of your accounts are up to date. Make sure to check the following:

Retirement accounts like 401(k)s and IRAs
Life insurance policies
Pensions

Regularly checking beneficiary designations is more important than most people understand. In most cases, a beneficiary designation on an account takes precedence over what it says in your will. This means that if you update your beneficiary designations in your will (but not on the accounts themselves), your assets might not go to their intended recipients.

Letter of Intent (Estate Planning)

When you’re creating your estate plan, a letter of intent is optional. However, if your estate is complex or you just want to offer some support to your executor, it could be helpful to add. A letter of intent simply provides additional guidance.

Keeping Your Estate Plan Updated

Having a general idea of what documents are needed for estate planning can be useful. However, because no two financial situations are identical, no two estate plans should be, either.

Whether you need to draft a few basic estate planning documents, update an existing estate plan, or create a complex plan completely from scratch, Horizon Law is here to assist. Give us a call or send us a message online to see how we may be able to help you.