Six Essential Estate Planning Documents You Need to Have

Estate planning is the process of anticipating and arranging for the management and disposal of your estate during your life and after your death. Your estate is the collection of everything you own, such as money, property, and personal belongings. Estate planning is important for everyone, regardless of your age, wealth, or family situation, because it allows you to:

Protect your assets from creditors, taxes, and unnecessary costs
Distribute your assets according to your wishes and avoid disputes among your heirs
Provide for your loved ones’ financial and personal needs
Plan for your own health care and financial decisions in case of incapacity
Express your preferences for end-of-life care and final arrangements

Unfortunately, many Americans do not have a proper estate plan in place. According to a 2020 survey by Caring.com, only 32% of adults have a will or a living trust. This means that the majority of Americans are leaving their estates to the mercy of state laws and courts, which may not reflect their true intentions or best interests.

To avoid this situation, you need to have some essential estate planning documents that cover the most important aspects of your estate plan. These documents include:

A last will and testament
A durable power of attorney
A health care proxy and advance directive
A revocable living trust
Beneficiary designations

This article will explain what each of these documents does, why you need them, and how to create them. However, this article is not legal advice and you should consult an estate planning attorney before taking any action on your estate plan.

1. The Last Will and Testament: Your Final Wishes on Paper

A last will and testament (or simply a will) is a legal document that states how you want your assets to be distributed after your death. It also allows you to name a guardian for your minor children, an executor for your estate, and a trustee for any trusts you create.

Having a will is beneficial because it gives you control over who inherits your assets and how they are managed. It also reduces the chances of conflicts among your family members and saves time and money in the probate process. Probate is the legal process of validating your will and settling your estate.

If you die without a will (or intestate), your assets will be distributed according to the state laws where you reside. These laws may not match your wishes or suit your family’s needs. For example, if you are married with children from a previous relationship, your spouse may not inherit all of your assets or may have to share them with your children. If you have no living relatives, your assets may go to the state.

To make a valid will, you need to be at least 18 years old (or younger if allowed by state law), of sound mind, and free from undue influence or fraud. You also need to sign your will in front of two witnesses who are not beneficiaries or interested parties in your estate. Some states also require that your will be notarized.

You can make a will yourself using online tools or templates, but it is advisable to consult an attorney to ensure that your will complies with the state laws and covers all the relevant issues. You should also review and update your will periodically to reflect any changes in your life circumstances, such as marriage, divorce, birth, death, or relocation.

2. The Durable Power of Attorney (POA): Designating Decision-Making Authority

A durable power of attorney (POA) is a legal document that grants another person (called an agent or attorney-in-fact) the authority to act on your behalf in financial and legal matters. A POA can be general or specific, depending on the scope of authority you give to your agent. A POA can also be effective immediately or only upon your incapacity, depending on the conditions for activation you specify.

A POA is important because it allows you to choose someone you trust to manage your affairs if you become unable to do so yourself due to illness, injury, or other reasons. Without a POA, your family members may have to go through a costly and time-consuming court process to appoint a guardian or conservator for you.

Financial POA

A financial POA gives your agent the power to handle your financial matters, such as paying bills, filing taxes, managing bank accounts, selling property, or investing money. You can limit or expand the powers of your agent as you wish. For example, you can give them access to specific accounts or assets only or require them to report to you or a third party regularly.

You can make a financial POA yourself using online tools or templates, but it is advisable to consult an attorney to ensure that your POA complies with the state laws and covers all the relevant issues. You should also review and update your POA periodically to reflect any changes in your life circumstances, such as marriage, divorce, birth, death, or relocation.

3. Health Care Proxy and Advance Directive: Making Medical Decisions Known

A health care proxy is a person who you appoint to make healthcare decisions for you if you are unable to do so yourself. A health care proxy is also known as a health care agent, surrogate, or representative. You can name your health care proxy in your health care POA document.

An advance directive is a document that expresses your wishes regarding your medical care in certain situations, such as terminal illness, permanent unconsciousness, or irreversible brain damage. An advance directive is also known as a living will, medical directive, or declaration.

There are two types of advance directives: a living will and a health care power of attorney.

Living Will

A living will states what types of life-sustaining treatments you want or don’t want if you are in a terminal condition or a persistent vegetative state. For example, you can specify whether you want to receive artificial nutrition and hydration, mechanical ventilation, cardiopulmonary resuscitation (CPR), dialysis, antibiotics, or pain relief.

A living will does not appoint an agent to make decisions for you. It only provides guidance to your doctors and family members on what you would want in certain situations. A living will does not cover all possible scenarios or treatments. Therefore, it is advisable to have both a living will and a health care POA to ensure that your wishes are respected and followed.

You can make a living will yourself using online tools or templates, but it is advisable to consult an attorney to ensure that your living will complies with the state laws and covers all the relevant issues. You should also review and update your living will periodically to reflect any changes in your health condition, preferences, or values.

Health Care POA

A health care POA gives your agent the power to make medical decisions for you, such as consenting to or refusing treatment, choosing doctors or hospitals, accessing your medical records, or donating your organs. You can limit or expand the powers of your agent as you wish. For example, you can give them specific instructions on what types of treatments you want or don’t want.

You can make a health care POA yourself using online tools or templates, but it is advisable to consult an attorney to ensure that your POA complies with the state laws and covers all the relevant issues. You should also review and update your POA periodically to reflect any changes in your health condition, preferences, or values.

4. Revocable Living Trust: Avoiding Probate and Maintaining Privacy

A revocable living trust is a legal entity that holds and manages your assets during your lifetime and distributes them after your death according to your instructions. A revocable living trust is also known as a living trust or an inter vivos trust.

A revocable living trust has three parties: the grantor (you), the trustee (the person who manages the trust), and the beneficiary (the person who receives the trust assets). You can be the grantor, the trustee, and the beneficiary of your own revocable living trust. You can also name other people as co-trustees or successor trustees in case you become incapacitated or die.

Three benefits of having a revocable living trust are:

Avoiding probate: Probate is the legal process of validating your will and settling your estate. Probate can be expensive, time-consuming, and public. By transferring your assets to a revocable living trust, you can avoid probate and ensure a faster and smoother distribution of your assets to your beneficiaries.
Maintaining privacy: Probate is a public process that exposes your personal and financial information to anyone who is interested. By transferring your assets to a revocable living trust, you can keep your affairs private and confidential.
Providing flexibility and control: A revocable living trust allows you to retain control over your assets while you are alive and competent. You can amend or revoke the trust at any time, as well as add or remove assets from the trust. You can also specify how and when your beneficiaries will receive their inheritance from the trust, such as in installments, upon reaching a certain age, or upon meeting certain conditions.

To create a revocable living trust, you need to draft a trust document that names the grantor, the trustee, and the beneficiaries, and outlines the terms and conditions of the trust. You also need to transfer your assets to the trust by changing the ownership or title of the assets from your name to the name of the trust. You can do this yourself or with the help of an attorney.

You should also have a pour-over will that directs any assets that are not in the trust at the time of your death to be transferred to the trust. This way, you can ensure that all of your assets are distributed according to your trust provisions.

5. Beneficiary Designations: Directing Assets Outside the Will

Beneficiary designations are the act of naming the person or persons who will inherit an asset in the event of your death. Some common examples of assets that have beneficiary designations are:

Life insurance policies
Retirement accounts, such as IRAs, 401(k)s, or pensions
Payable-on-death (POD) bank accounts
Transfer-on-death (TOD) securities accounts
Transfer-on-death (TOD) deeds for real estate

Beneficiary designations are important because they allow you to transfer these assets directly to your beneficiaries without going through probate or being affected by your will or trust. This can save time, money, and hassle for your beneficiaries.

However, beneficiary designations also require careful attention and coordination with your other estate planning documents. Here are some tips to keep in mind:

Review and update your beneficiary designations regularly and especially after major life events, such as marriage, divorce, birth, death, or relocation. If you fail to do so, you may end up leaving your assets to someone you no longer want or intend to.
Name both primary and contingent beneficiaries for each asset. This way, if your primary beneficiary dies before you or disclaims the asset, you have a backup plan for who will inherit it.
Avoid naming your estate as beneficiary for these assets. If you do so, you will lose the benefits of avoiding probate and may incur additional taxes and fees.
Use caution when naming a trust as beneficiary for these assets. Depending on the type of asset and trust, there may be different tax implications and distribution rules. Consult an attorney or tax advisor before making this decision.
Make sure that your beneficiary designations are consistent with your overall estate plan. If you have a will or trust that specifies how you want your assets to be distributed, make sure that your beneficiary designations do not contradict or override them.

6. Digital Assets: Addressing the Modern Estate

Digital assets are any online accounts or files that you own or have access to, such as:

Email accounts
Social media accounts
Online banking accounts
Online shopping accounts
Online gaming accounts
Online storage accounts
Digital photos, videos, music, books, etc.
Cryptocurrencies like Bitcoin, Ethereum and others
Blogs, websites, domains, etc.

Digital assets are important to include in your estate plan because they may have financial, sentimental, or personal value for you and your beneficiaries. They may also contain sensitive information that needs to be protected or deleted after your death.

However, digital assets pose some unique challenges and considerations for estate planning. Some of these are:

Access: Unlike physical assets, digital assets may require passwords, PINs, security questions, encryption keys, or other authentication methods to access them. If you do not provide these information to your executor or beneficiaries, they may not be able to access your digital assets after your death.
Ownership: Unlike physical assets, digital assets may not be fully owned by you but rather licensed or leased from a third-party provider. This means that you may not have the right to transfer or dispose of them as you wish. The provider may have its own terms of service or privacy policy that governs what happens to your account or data after your death.
Privacy: Unlike physical assets, digital assets may not be easily discoverable, identifiable, or accessible by your executor or beneficiaries. They may also be subject to different laws and regulations depending on the location and jurisdiction of the provider.

To address these challenges and ensure that your digital assets are properly handled after your death, you need to take some steps to prepare a digital estate plan. A digital estate plan is not a legally binding document like a will, but a record of your various online accounts, logins, and special instructions on how you want these accounts managed when you die.

Some steps to create a digital estate plan are:

Make an inventory of your digital assets and accounts, including their usernames, passwords, security questions, PINs, encryption keys, or other access information. You can use a password manager or a spreadsheet to store this information securely.
Decide what you want to happen to each of your digital assets and accounts after your death. For example, you may want some accounts to be deleted, some to be transferred to your beneficiaries, some to be memorialized, or some to be archived.
Name a digital executor or trustee who will be responsible for carrying out your wishes regarding your digital assets and accounts. This can be the same person as your regular executor or trustee, or someone else who is tech-savvy and trustworthy. You can also name a backup person in case the first one is unavailable or unwilling.
Provide your digital executor or trustee with the necessary information and authorization to access and manage your digital assets and accounts. You can do this by giving them a copy of your inventory, storing it in a safe place that they can access, or using an online service that allows you to share your information securely.
Review and update your digital estate plan regularly and especially after major life events, such as opening or closing new accounts, changing passwords, or updating your preferences.

Leveraging Kubera for Effective Estate Planning

Kubera is a wealth management and net worth tracking software that can help you with your estate planning needs. The platform enables you to consolidate all your financial accounts and assets in one place, including bank accounts, investment accounts, retirement accounts, real estate, cryptocurrencies, collectibles, and more.

It also allows you to track the value and performance of your assets over time using real-time data and market rates. Furthermore, Kubera helps manage your beneficiary designations for each asset, ensuring consistency with your overall estate plan, and lets you organize and update your estate planning documents, such as wills, trusts, POAs, and living wills, securely storing them in the cloud.

Providing access to trusted contacts like family members, friends, executors, trustees, and attorneys, Kubera ensures that these individuals can view and manage your assets and documents in case of emergency or death.

In essence, Kubera is designed to help you organize and simplify your estate planning process while giving you peace of mind that your assets and legacy are protected.

Conclusion

Estate planning is not only for the wealthy or the elderly. It is for everyone who cares about their loved ones and their own well-being.

By having the essential estate planning documents in place, you can ensure that:

Your assets are distributed according to your wishes
Your financial and legal affairs are handled by someone you trust
Your health care decisions are respected and honored
Your privacy and security are maintained
Your digital assets are preserved or deleted as you desire

To create an effective estate plan that covers all these aspects, you need to work with an estate planning attorney who can advise you on the best options for your situation. You also need to review and update your estate plan regularly to reflect any changes in your life circumstances or preferences.

You can also use Kubera as a tool to help you with your estate planning needs. Kubera can help you consolidate, track, manage, and share your financial accounts and assets, as well as your estate planning documents, with ease and security.