"Three" Essential Estate Planning Documents
Updated: Dec 31, 2020
If you search the internet about estate planning strategies, you may read about the “three most important documents” you need for estate planning: a will, living trust, and durable power of attorney. They're right: you absolutely should have these documents as part of your estate planning strategy to assure that your desires are met and to minimize conflict among your family members or intended beneficiaries in the event of your death or disability, as well as to minimize the delays and expense of probate and tax liability.
Anyone who is married, has children, or has assets that they would like to give to a particular person or charity in the event of their death (i.e., everyone) needs a will. A will (sometimes called a last will and testament) is a legal document that directs how your estate should be distributed, who should raise and care for your children, and other important matters in the event you die. If you don’t have a will, you don’t get to decide—your estate will be distributed according to state law and a judge will decide who raises and provides for your children. A will allows you to decide who will serve as estate administrator, who receives distributions and any specific assets you want to give to particular people or charities, as well as who raises your children and manages their finances until they are old enough to make their own decisions. These are important decisions that only you should make—not state legislators or a judge. Without a will, your estate may pass to a relative you despise, or, if you have no surviving relatives, to the state. If you don’t care, fine. If you do, make a will!
A “Living Will”
A “living will” (also known as a directive to physicians, sometimes confused with a living trust) is a document that provides instruction to health care providers and your family about how you want them to respond if you are critically injured or terminally ill and require extraordinary efforts to save your life should you be unable to do so due to incapacitation. If you wind up brain dead as a result of an auto accident with no reasonable chance of recovery, do you want to remain on life support indefinitely if it means prolonging the financial and emotional burden on your loved ones? You can and should decide while you are alive rather than placing the burden on others, but your decision can only be honored if you put it in writing. Otherwise, your physician or hospital medical personnel may have no choice but to try to save your life, at potentially great financial and emotional expense to your family, who will be powerless to do anything about it. Or a guardian may need to be appointed to represent your best interests, also at great cost and delay. It is best to make your decision now instead of leaving it to chance.
A Durable Power of Attorney
A durable power of attorney designates a person you want to have authority to make financial and/or health care decisions for you if you are unable to do so for any reason. A durable power of attorney is different than a regular power of attorney, because it is effective even after you become unable to make decisions yourself, whereas a regular or “general” power of attorney ceases to be effective if you become legally incompetent to make your own decisions. A durable power of attorney can designate an agent for both health care and financial decisions, but it may be advisable to appoint a different person as agent for financial decisions than the agent appointed for health care decisions (especially if the appointed agent could benefit financially from decisions regarding your medical care), provided they can work cooperatively. A power of attorney can provide broad general powers, or it can provide for limited powers such as paying bills, selling real estate or making other specified actions. A power of attorney can be effective immediately, or it can be effective only when you become unable to make decisions yourself. Without a power of attorney, family members or trusted advisors cannot make important and potentially life-saving decisions for you or that you would want; it would require a court-appointed guardian potentially involving considerable delay and expense to make decisions that you may not desire. Many people are understandably reluctant to turn over control over financial or medical decisions to someone else. However, giving a trusted family member, friend, or professional power of attorney can be enormously beneficial to you and your loved ones if you should become incapacitated or otherwise unable to make your own decisions when important decisions need to be made. Deciding who you can trust with these decisions, and whether you can entrust the same person to manage your health care and financial decisions if you can’t, requires careful consideration. They are definitely decisions you should make before you become incapacitated, that should be discussed with your family attorney, accountant, and physician.
Yes, we did say the three most important documents you need, but there is another document that may be just as important as those three: a notification or letter explaining your wishes in your own words, regarding your asset distribution, whether you wish to be cremated, or any other decision that you make that could be disputed or cause upset to a family member. A letter or notification accompanying your will, living will and durable power of attorney can help your family understand why you made certain decisions about who should receive your assets or make important medical or financial decision in the event you are unable to do so yourself, which may help defray or avoid family disputes or tensions resulting from your decisions. And a letter can help establish that you were of sound mind when you made your will, especially if the letter was prepared by your attorney who can verify that the letter reflects your wishes as expressed at the time the will was prepared.
Okay, there is one more document that many estate planners feel is essential: a trust. Through a living (revocable) trust, you can transfer assets to the trust and allow easier transfer of the assets to your intended beneficiaries without the delay and expense of a probate, with potential tax benefits depending on the size of your estate. Living trusts, if properly executed and implemented, can allow the trustee to distribute your assets to your intended beneficiaries easily and without undue expense and avoid the disputes and expenses inherent in the probate process. Living trusts may not protect your assets from creditors, because they are “self-settled” allowing you to be both trustee and beneficiary, allowing creditors to invade the trust to collect debts you owe. If protection from creditors is desired, creating an irrevocable trust (with spendthrift provisions) is advisable, so that you and your intended beneficiaries are protected from creditor claims. It is important to consult with your family attorney or CPA whenever forming a trust, to be sure that your intended goals are met and trust assets are protected from creditor claims without creating undesired gift or estate tax liability.
Good estate planning involves many factors that should be addressed with your attorney, accountant, and financial advisor to assure that your wishes regarding how your assets are distributed, your children are provided for, and your family’s financial future is secured. Without a will and other important estate planning documents, your estate will be distributed and your children will be cared for according to state law, not your own wishes. While it is possible to create a will inexpensively using online form services, it is important to consult an estate planning attorney first to determine the best approach so that your estate planning goals are met. And to the extent health care decisions are provided for in your estate planning, you should consult with your physician and your family to assure that they all know your wishes and are prepared to fulfill them in the event you are unable to do so yourself.
If you would like to discuss your estate planning needs with one of our attorneys, please contact us at (206) 420-2466 or firstname.lastname@example.org.
This article is for informational purposes only, and is not intended as legal advice. No attorney-client relationship is created or intended by publication of this article. If you desire legal advice or representation regarding the issues discussed in this article, please contact Westwood Law Group PLLC at (206) 420-2466 or email@example.com.