Essential Estate Planning Documents You Need to Have

Believe it or not, everyone can benefit from estate planning. If you own a car, a house, furniture, jewelry, or anything of any value, you need to legally arrange for who you want to inherit those items if you should die. Most people are aware they should have a will, but there are quite a few other estate planning documents you may want to take advantage of that can offer tax benefits to you now, as well as help your beneficiaries avoid inheritance and estate taxes when you die.

Wills

Your last will and testament may be the most essential estate planning document you need. It is a document in which you identify the assets you own personally in your name as the sole owner and say who you want to leave each item to. For example, you may want to leave your red Porsche to a favorite niece. You say this in your will. The recipients of your assets are called beneficiaries.

A will is also a way to name who you want to be the guardian of your minor children in the event of your death. Pets are considered possessions, so you also name in your will who you want to be the beneficiary of your pet and how you want that pet cared for.

If you have an heir to whom you want to leave nothing, you must say so specifically in your will. For example, you may say, “It is my intent to make no provision for my adult son [insert name], to whom I intentionally leave nothing.”

To be valid, a will must comply with the rules of the state where the will is executed. For example, in Connecticut, a will must be in writing and signed by the testator (the person making the will) and two witnesses. The witnesses must sign in the presence of the testator. The will does not need to be notarized.

At your death, your will is admitted to probate, where a probate judge oversees the administration of the will to ensure the testator’s wishes are carried out. This often takes time, and there are probate fees that the estate pays.

An estate planning attorney can assist you with preparing a valid will. If you do not have a valid will or other estate planning tools in place, you will have died intestate, and your assets will be distributed according to state law, which may not be your intent.

Trusts

There are several types of trusts you can put in place while you are alive: revocable, irrevocable, special needs, charitable, and others. Trusts do not go through probate, and the property in the trust goes to the beneficiaries exactly how you say you want it to go. The most common trust is a revocable trust.

Revocable Trust

In a revocable trust, you transfer ownership of your property to the trust, and the trust is now the owner. For example, you change the deed on your house from you being the owner to the trust being the owner. In the trust, you say what you want to happen to each piece of property when you die. The property is transferred at your death to your named beneficiary.

You can move property in and out of the revocable trust at will or even dissolve the trust if you decide to. There may be tax advantages to your heirs by receiving their inheritance through a trust as opposed to receiving it by way of your will.

Powers of Attorney

In general, a power of attorney is a document that gives someone you trust the power to make decisions on your behalf when you are unable to make them for yourself. A durable power of attorney is valid and effective even when you become incapacitated. You may want to have several types of powers of attorney in your estate planning toolbox. Some examples are:

  • Medical power of attorney. You name someone you trust to make medical decisions for you when you are unable to make them yourself.
  • Financial power of attorney. You name someone you trust as your representative and give them the power to make legally binding financial decisions for you when you are unable to make them for yourself.
  • Advanced healthcare directive (AHCD). This makes known how you want to be treated medically and is generally used to explain what type of end-of-life care you expect, such as the use or non-use of life-support equipment or an order not to resuscitate.

Your named representative is legally bound to carry out your instructions in the power of attorney exactly as you have articulated them.

Beneficiary Designations

If you name a beneficiary for certain assets, they will automatically transfer to the named beneficiary upon your death without going through probate or any other legal process. Some of those assets for whom you can name a beneficiary include:

  • Checking and savings accounts
  • 401(k) accounts and other retirement and pension plans
  • Life insurance policies
  • Real estate

Do not list any of these items in your will. Even if you do, beneficiary designations take precedence over your will. For example, if in your will you leave your house to your great-aunt Martha, but the deed lists your spouse as joint owner, if your spouse and great-aunt Martha are both alive at your death, your spouse will get the house.

Make sure you keep your beneficiary designations updated and make changes to the beneficiaries if you have any life changes or simply want to change the beneficiary.

Periodic Review

It is recommended you periodically see an attorney at an estate planning law firm to be sure your plan is up to date. This should occur every three to five years if no life changes exist. You should also update your plan if you get married, have a new baby, buy new real estate, or experience any other life change.

You may only need a will. You may find that many of these documents would work for you. Estate planning provides a way to evaluate all the tools available and ensure all your assets are transferred according to your specific wishes.

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