If you ask most people about estate planning, they often think it begins and ends with dividing up their assets.
But it’s actually so much more! Solid estate planning makes sure your family members and other beneficiaries are provided for—and will legally have access to—your assets in the event you become incapacitated.
A will is a great start, but many of those pre-packaged will kits you may have seen don’t cover all of estate planning. Not by a long shot.
It’s important to plan for every situation. Today we’re talking about the six estate planning documents you’ll need to feel confident you and your family are prepared.
1. Wills and Trusts
Even if you don’t feel you have any major assets, a will or trust should be one of the main pieces of your estate planning. Wills help make sure your property is passed down exactly the way you want, while oftentimes helping to cut down on estate taxes and legal mishaps.
Many people don’t realize it’s insufficient to merely have a will and/or a trust. The precise wording is key. It must be consistent with all your other documents in which you’ve designated beneficiaries and spelled out exactly how you’d like your assets passed down.
For example, if you’ve already named your brother as a beneficiary on a retirement account (an asset that normally passes outside of a will to the beneficiary you’ve named), you wouldn’t want to bequeath the same retirement account to your sister in the will. The result will likely be a contested will, which you’ll of course want to avoid.
2. Durable Power Of Attorney
A durable power of attorney (POA) allows an agent or a person you choose to act on your behalf in the event you become disabled.
If there’s no power of attorney and you become mentally incompetent, a court may be left to decide what happens to your assets.
Your POA can be extensive, giving your agent the power to transact real estate, enter into financial transactions and make other legal decisions on your behalf. Once the principal (you) is deemed physically able, mentally competent or passes away, this power is revoked.
Most of the time, it makes sense for husbands and wives to have reciprocal powers of attorney, but depending on your situation you may choose another family member, friend, or advisor.
3. Beneficiary Designations
Many of your possessions can pass to people you’ve designated without being dictated in the will; as we mentioned above, retirement accounts are a common example. Be sure to maintain a beneficiary (and a contingent beneficiary) on each of these accounts.
If you don’t name a beneficiary, your beneficiary is deceased or unable to serve, a court decides who should get your assets. Also make sure each of your beneficiaries is over the age of 21 and mentally competent. Otherwise, the court still may have to intervene.
4. Letter of Intent
A letter of intent is pretty much what it sounds like: it’s a letter you leave for your executor or beneficiary explaining exactly what you’d like to happen to a particular asset after your death. Some letters also include details about the funeral and other specific requests.
The letter of intent itself isn’t always valid in the eyes of the law. But if your will is contested for some reason, it lets a judge know your intentions and may help decide how to distribute your assets.
5. Healthcare Power of Attorney
A healthcare power of attorney allows you to designate your spouse or a family member to make important healthcare decisions for you, should you become incapacitated.
Remember, the person you choose could literally have your life in his hands. Designate someone trustworthy who shares your views and who’d recommend a course of action you’d agree with.
And don’t forget about designating a backup agent, just in case your initial pick is unavailable for any reason.
6. Guardianship Designations
If you have children (or think you might someday), choosing a guardian is incredibly important—yet it sometimes gets overlooked. This is because not all “form” wills or trusts incorporate this information.
Make sure the individual or couple you choose is financially prepared, shares your views, and of course is willing to raise your children. As with all of these designations you’re making, a backup guardian should be named as well.
If this designation falls through the cracks, the court would rule on who your children live with. In the worse case scenario, the court could mandate your children become wards of the state. Don’t forget this document!
Comprehensive Estate Planning Is Key
Solid estate planning of course only comes into play during extremely stressful family events. Knowing your family and loved ones will be provided for during tough times is worth all of the planning and extra work.
These six documents, plus the assistance of a qualified professional, will make sure your estate is distributed to your loved ones exactly as you wish.