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Estate Planning Documents: What Do You Need?


Estate planning begins with knowing which documents you need and making sure they are up to date. Among the most common such documents are wills, trusts, powers of attorney and designations of beneficiaries. Understanding how each document works and what they’re designed to do can help you figure out what belongs in your estate plan. You can also enlist the help of an experienced financial advisor to make sure your estate plan is set up correctly and that you’ve thought through all of the most important things for your personal finances.

What Is an Estate Plan?

An estate plan is your personal plan for how you want your assets to be managed once you pass away. It’s also possible to specify how you want assets to be managed in your lifetime, including personal and business assets.

You might be wondering whether you really need an estate plan. There are several good reasons to think about your estate, regardless of how much or how few assets you have. For example, estate planning can help you:

  • Specify who your assets should go to when you pass away
  • Make financial and legal arrangements for minor children
  • Take care of outstanding debts you leave behind
  • Make arrangements for end-of-life care
  • Give someone else authority to manage your finances if you become incapacitated
  • Create a legacy of wealth for future generations while minimizing taxes
  • Make charitable donations after you’re gone

How complex your estate plan needs to depends on several factors, including your marital status, whether you have children and how much you have asset-wise. But generally, it’s something everyone needs to at least consider to determine whether their estate is protected.

Essential Estate Planning Documents

The essential estate planning documents represent the most common documents that are needed in order to complete an estate plan. Many people will use these documents to create a “templated” kind of estate plan that makes it easier to get through if they don’t have a complicated financial situation. However, what you decide to include in your estate planning is unique to your situation. But these documents represent the most-often used elements in estate planning.

Last Will and Testament

A last will and testament is one of the most basic estate planning documents you can have. A will allows you to spell out who you want to receive your assets when you pass away. You can also use a will to name legal guardians for minor children and name an executor to oversee your will.

It’s the executor’s job to carry out the terms of the will. That means taking an inventory of your assets and their value, paying any debts owed by your estate, then distributing any remaining assets to your heirs. Of course, there are things an executor may not do, so you should be aware of that, too.

Dying without a will is known as intestacy. If you pass away without a legal will in place your assets are distributed according to the inheritance laws of your state. Having a will can ensure that your assets go where you want them to, not where the state says they should go.

Revocable Living Trust

Revocable trust document

A trust is a little more complex than a will. With a trust, you’re transferring ownership of assets to a trustee during your lifetime. That trustee then manages those assets on behalf of your named beneficiaries, according to the terms of the trust.

A revocable living trust is a type of trust you establish during your lifetime. It’s called revocable because the trust terms can be changed or it can be terminated at any time. Setting up a trust in addition to a will allows you to remove assets in the trust from the probate process. Placing assets in a trust can also help you to minimize estate and gift taxes for your beneficiaries.

Durable Power of Attorney

A power of attorney designation allows someone else to manage your legal and financial affairs on your behalf if you’re unable to do so. For example, say that you’re in a car accident and are severely injured. You’re placed in a medically induced coma for three months.

Having a durable power of attorney in place during that time means someone you choose has the authority to make financial and legal decisions for you. If you’re married, it might make the most sense to designate your spouse for power of attorney. But if you’re single, you could designate a parent, sibling or trusted friend to act on your behalf.

Healthcare Power of Attorney

A healthcare power of attorney works similarly to a durable power of attorney but applies specifically to healthcare decisions. So going back to the previous example, someone with a healthcare power of attorney would have the authority to decide how your care should be managed.

You can also create a separate living will or advance healthcare directive to specify what you want to happen in end-of-life situations. For example, if you’re diagnosed with a terminal illness you can use an advance directive to tell doctors whether you want to receive aggressive treatment or palliative care only if you’re nearing the end of your life.

Beneficiary Designation Forms

Beneficiary designations are an often-overlooked part of estate planning. But these documents are important to have.

When you designate a beneficiary for a specific asset, such as a life insurance policy, investment account or bank account, that person you named is the one who is entitled to receive it.

While you may have other estate planning documents in place, such as a will, beneficiary designations can override those documents. So if you have an asset with a named beneficiary, like an IRA, you can’t use your will to leave that money to someone else.

It’s a good idea to update beneficiary designations any time you experience a major life change. If you get married or divorced, for example, you’d want to make sure your spouse is (or isn’t) named as a beneficiary accordingly.

Other Estate Planning Documents You May Need

Estate planning documentsPlanning your estate means looking at your bigger financial picture to make sure you’re covering all the bases. In addition to the estate planning documents listed above, you may need to include some or all of the following in your financial plan:

  • A document for managing the distribution of digital assets, such as email accounts or a website you own
  • A life insurance policy with a named beneficiary
  • Deeds to the property you own, such as a home or investment property
  • Documents relating to your investments and bank accounts
  • Partnership agreements or articles of incorporation for a business you own

It’s also helpful to create a document that includes contact information for your beneficiaries that you can share with your executor, trustee or estate planning attorney. That can make it easier for the person overseeing your estate to ensure your assets are taken care of if you pass away.

The Bottom Line

Having an estate plan in place can offer some reassurance about what will happen to your assets when you’re gone. Getting the right estate planning documents in place is a step in the right direction. If you’re not sure what you need or where to start, consider talking to an estate planning attorney who can guide you through the process.

Estate Planning Tips

  • Estate plans can be complicated, so it might be wise to consult with a financial advisor with expertise in that area. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goalsget started now.
  • Leaving money behind for an heir can be nerve-racking, especially if they’re new to managing money or have trouble controlling their spending. An estate planning tool that can help you in this situation is a spendthrift trust, which affords a trustee the power to determine how their beneficiary can use inherited funds. If used correctly, this type of trust will allow your assets to last so they can provide for your loved ones for decades.

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