Life is unpredictable. No one can determine exactly how their life might end or be drastically altered, but we can prepare for how we’d like certain aspects to go after we’re gone. Estate planning is the legal means by which someone can arrange and manage their estate (belongings, possessions, and properties) during their life, in the event of their incapacitation, and after their death.
Many people assume a “solid” estate plan consists of a simple will or trust, but this isn’t the case for most people. If you want to be certain that your estate is handled exactly the way you intend after you’re gone, then there are no less than five essential pieces of estate planning documentation you need to have in place:
- Will and trust
- Power of attorney
- Beneficiary designations
- Letter of intent
- Guardianship designations
Keep in mind: These aren’t the only estate planning documents out there. There are dozens of great options related to insurance, long-term care, lifetime annuities, and many more. But if you have any kind of legacy you want to leave, these five documents should be first on your list.
Wills and Trusts
A will, a trust, or both should be the main component of every estate plan, even if you don’t believe you have substantial assets. When drafted correctly, a will ensures property is distributed according to your wishes. Without one, it can be hard to say exactly what happens to you, your belongings, or your family after you’re gone or unable to continue caring for them yourself.
Even if you don’t have substantial assets, trusts and wills can help limit taxes or other legal challenges your beneficiaries might face. But that can only be the case if the wording of the document is accurate. A will or trust needs to be written so that it’s consistent with the other ways you may have bequeathed assets outside of the will. For example, if you have named your brother as a beneficiary on your retirement account, you need to be sure you don’t assign that same asset to your sister inside your will or trust. That can lead to contest between the two, or worse, contention. This is why it’s so important for your will and/or trust to be thorough, accurate, and correctly composed.
Power of Attorney
Your power of attorney (POA) is an agent or person you assign to conduct action on your behalf when you’re unable to do so for any reason. That could be in the event of your death, or if you need someone to make medical decisions on your behalf due to your incapacitation. If you don’t appoint a power of attorney, the court system may be left to determine what will happen to all your assets or yourself physically. And the court’s decisions may be very different than what you want or intend.
A proper POA can give the person or agency of your choosing the power to do things like transact real estate negotiations, enter into financial agreements, and make other legal decisions on your behalf. They will follow the proper documentation you set forth, just as though you were making these decisions yourself. Many times, spouses appoint each other as their POA, but this is not a necessity. Your POA is entirely up to you. Just be sure to choose someone you can trust to act adequately on your behalf and carry out your wishes as you would have liked them.
Many of your possessions can be passed to your heirs without being specifically dictated inside your will or trust — for example, your 401(k) assets. So if you would like either your entire will or just certain assets to pass to certain people, it becomes very essential to designate those beneficiaries on all your accounts.
If you don’t name a beneficiary, or if the beneficiary you do name is deceased or unable to serve as a beneficiary any longer, once again, a court could be left to decide what happens to your possessions. And a judge who is unfamiliar with you or your situation is unlikely to make the designations you want. It’s not only necessary to name beneficiaries, but to also name contingent beneficiaries for all your accounts as viable backup options.
Letter of Intent
This is an important document that is written to the executor of your estate, power of attorney, or your beneficiaries. Its purpose is simple but can be very powerful. It defines, in your own written words, exactly what you would like to be done with a particular asset of yours after your death. It can even designate specific funeral and burial details you would like for yourself.
Your will or trust will still be the most legally powerful point of reference when it comes to designating where and how your assets are passed along. In some cases, a letter of intent may have no valid legal authority. But if something should go wrong or be unclear in your will, this is when a letter of intent can be so monumentally necessary. This letter could help a probate judge learn more about you and your intentions, ultimately helping to distribute your assets the way you want them distributed.
Some wills and trusts incorporate a guardianship clause, but many don’t. If you have minor children, it’s so important to make sure you have this document. Whether you currently have children or are considering having them, picking a guardian is critical. Absent your specific designations for who should care for your children in the event of your death, a court may rule your children live with a family member you wouldn’t have selected. In some cases, your children may even become a ward of the state. That’s an uncertain fate no parent wants for their kids.
The guardian you select for your children should be someone who shares your views, is financially stable, and most importantly, genuinely wants to raise your children. And as with all legal designations of any kind, a backup guardian should be named as well.
Creating Your Estate Plan
These five important documents make it clear there’s a lot more to proper estate planning than just writing a will, as many people assume. But creating a useful estate plan is about much more than divvying up assets; it’s about making sure your family members and beneficiaries are provided for and that the process isn’t burdensome for them.
If creating all these documents and designations seems overwhelming, don’t worry — they don’t have to be. The Whisler Law Firm has estate planning experts ready to help you put the proper plans in place and give you the peace of mind you need. Call our office at 833-529-5677 or contact us online to schedule an appointment with estate planning experts who care about your legacy just as much as you do.