Estate planning isn’t just for the rich and famous. All adults need certain legal documents to make their wishes known. However, a majority of Americans don’t even have a basic will, let alone other essential planning documents.
Only one-third of adults have a will or living trust, according to a Caring.com survey. Just 18% of adults 55 and older have all three essential estate planning documents: a will, healthcare directive and durable power of attorney, according to a survey by Merrill in partnership with Age Wave. However, these documents are essential for all adults.
If you don’t put your wishes in writing, you can create all sorts of problems for yourself and your family. To prevent turmoil over handling your finances, managing your care and distributing your possessions, make sure you have essential estate planning documents.
Why you need estate planning documents
If you answer “Yes” to any or all of the questions below, you need estate planning documents:
- Do you want to be the one who decides what happens to your belongings when you die?
- Do you want to choose who will manage your finances if you can’t?
- Do you want to have a say in who makes medical decisions for you if you are unable to yourself?
- Do you want to have some control over the end of your life and your legacy?
- Do you want to relieve the burden on your loved ones when you’re gone?
If you don’t have certain legal documents in place, you leave most of these decisions up to state laws and a judge. Lengthy, expensive legal proceedings might be necessary to appoint someone to make financial and healthcare decisions for you if you become incapacitated, to determine whether you should be kept on life support or to distribute your property when you die.
“The advantages of thorough preparation are significant for people at all income levels,” according to the Merrill/Age Wave report. “They include more control over both your legacy and your late-life arrangements, including medical treatments and costs, as well as more financial security for yourself and your heirs. Being prepared gives you the simple and satisfying peace of mind of knowing that you’ve done what you can to organize your life, shape your legacy and leave your family with a roadmap of your preferences.”
Essential estate planning documents
There are several estate planning documents you need to make your wishes known. You can find free and low-cost versions of these documents available online. However, it’s best to work with an estate planning attorney to ensure that these documents comply with your state’s laws and are tailored to your situation.
Also, these documents must be drafted and signed while you still are mentally competent to be valid. They cannot be created if an accident or illness has already left you incapacitated.
Will or trust
A will allows you to specify who gets your assets when you die. If you die without a will, your state’s intestacy laws will determine how your property is distributed—and it might not go to the people you want to receive it. Even if you have a will, your estate will likely have to go through probate, the legal process of distributing property. Some assets—such as life insurance policies and retirement accounts with beneficiaries named on those accounts—can bypass probate.
A will also allows you to name an executor to act on your behalf after you die. The executor oversees the distribution of property, closes accounts, settles debts and files final tax returns. And a will allows you to name a guardian for minor children.
A living trust is similar to a will in that it allows you to spell out who gets what when you die. However, it can be more detailed than a will about how and when beneficiaries will get assets. Also, assets transferred to the trust while you’re living will avoid the probate process and pass directly to beneficiaries when you die.
A living trust also can be used for long-term care planning. The trustee you name can manage assets in the trust if you become incapacitated. Plus, by sheltering assets in a trust, you might be able to qualify for Medicaid to cover certain long-term care costs.
Learn: Why You Need a Will or Trust
Durable power of attorney
A power of attorney document allows you to name one or more people you trust to make financial decisions for you if you cannot. For example, if you had a stroke or developed dementia, your loved ones wouldn’t be able to access your accounts to pay your bills unless they were joint account owners or had been named your power of attorney. Without this legal designation, they would have to go through a lengthy, expensive court process to be named your conservator to manage your finances.
The power of power of attorney can be limited to certain transactions or can be springing to take effect in circumstances. However, it’s best to have a general durable power of attorney to give your agent broad powers that take effect immediately and remain in effect if you become incapacitated.
It’s also best to name just one person as your power of attorney to eliminate logistical issues that can arise if you name several agents. If you do name more than one agent, give them the power to act independently.
If you’re worried about giving someone this much power while you still can manage your finances on your own, put the document somewhere safe and let your POA know how and when to access it. Your agent must have the actual document to provide to your financial institutions as proof—he or she can’t just call your bank, for example, and claim to be your POA to access your account.
See: The Ultimate Guide to Financial Power of Attorney
Advance healthcare directive or living will
An advance healthcare directive allows you to spell out in advance what sort of end-of-life medical care you would or would not want. A living will is a type of advance directive. With this document, you can specify whether you would want tube feeding, ventilation, life-prolonging treatment or comfort care to alleviate pain.
An advance directive also allows you to name a healthcare power of attorney, surrogate or proxy to make medical decisions for you if you cannot. A healthcare power of attorney doesn’t have the power to override directives in a living will but can make any decisions you haven’t already made. So it needs to be someone you trust to make decisions that align with your wishes.
A healthcare power of attorney also can admit you to the hospital, speak with your doctors about your treatment and gain access to your medical information that otherwise would be protected by the Health Insurance Portability and Accountability Act (HIPAA).
You can name a healthcare power of attorney in a separate form if you don’t want a living will. It’s especially important if you don’t spell out end-of-life wishes to name a healthcare POA to make these decisions for you so your loved ones don’t end up in court fighting over whether to keep you on life support or so a judge doesn’t have to appoint a guardian to make medical decisions for you.
Read: Why You Need an Advance Directive and Healthcare Power of Attorney
A letter detailing your final wishes isn’t a legal document, but it’s good to put certain information in writing so there’s no confusion about how you want matters handled when you die. It can include the following:
- What to do with your remains (burial, cremation, etc.)
- Type of memorial service you want, including music you want played, people you want to speak, etc.
- List of people to be notified of your death
- Information for your obituary
- Arrangements for pets
- Location of your will
- List of life insurance or prepaid funeral policies
- List of accounts and assets (with usernames and passwords)
- Wishes for how you want inheritance to be used
Sign and date the letter and put it somewhere it can be easily accessed, such as a home safe or filing cabinet. A safe deposit box isn’t ideal because it might be difficult to access immediately after your death. Be sure to let loved ones know where to find this letter.
Putting your wishes in writing and having estate planning documents in place gives you control over end-of-life issues and makes it easier for loved ones to know what you want in a time of crisis.
Keep Reading: Emergency Planning Guide for Seniors and Their Caregivers