Five Key Estate Planning Documents: Not Just for the Rich
A will isn’t enough
Your life is full of ways you protect yourself. Own a home? You’ve got homeowner’s insurance. Own a car? You’ve got auto coverage. If you’re smart, you’ve also added a personal liability policy. And if anyone’s relying on your income, you have term life insurance, right?
Which makes it sort of odd that when it comes to protecting yourself as you age and protecting your family when you die, you’re likely dropping the ball. Many people don’t have a basic will, nor the other legal documents crucial to navigating old age and mortality.
A will kicks in once you’re dead, and it has some logistical drawbacks (more on this in a sec).
Given increasing longevity, you should be even more motivated to create a few documents now that will ensure that while you are alive your financial and healthcare needs can be overseen by someone you trust.
If you have a very simple financial life – minimal assets, no blended family or special needs children – you may find an online estate planning package, such as Nolo’s Will Maker Plus, can be a cost-effective option to create your estate documents. But spending $1,500 to $2,000 or so to work with an estate planning attorney can be smart to ensure you’ve got all the angles covered. If friends or colleagues don’t have good leads, check out the online search at the National Association of Estate Planners & Councils.
Here’s what you want to get in place:
Advance directive: Also known as a living will. This is where you spell out the level of care you want (and don’t want) if you become unable to express those wishes directly to your caregivers. You can easily DIY this. Download a copy of your state’s advance directive at Caring.com.
Healthcare agent/proxy: This document appoints someone you choose to be your advocate if at some point you can’t speak up and remind your caregivers what’s in your advance directive.
Durable power of attorney: This appoints someone you choose to be able to step in and handle your finances if you ever become unable to oversee bills and investments. Once you have a DPOA document, share it with the banks and any financial institutions where you have investment accounts. You want to confirm that your DPOA passes their inspection. Some financial institutions are very picky about this and may ask you to follow their rules. Better to know that now.
A revocable living trust: This has nothing to do with how much money you have. This is about saving your loved ones time, money and headaches. If you only have a will, your state’s law may require that the will get court approval, which is called probate.
Going through probate can be a burden on your heirs. It also is a public filing. If your state law will push your family into probate court, you might want to consider creating a living revocable trust. When you die with a trust, the transfer of your assets to your beneficiaries is seamless and private. No court approval needed.
And don’t worry. You are in charge of everything. While you are alive, you can be the trustee of your trust. That means you are in the driver’s seat. You can add or remove assets from the trust and make changes any old time. That’s the “revocable” part; nothing is written in stone here. When you create the trust you will also name a successor trustee. That’s the person who takes over when you die and simply follows whatever you have laid out in the trust.
One important caveat: A trust is like an empty file folder. It has to be filed with your assets. That’s called “funding the trust” and requires changing the title on assets – a home, a boat—or the beneficiary on an investment account. If you create a trust and don’t go through this process, your loved ones are going to end up in probate, though eventually your wishes spelled out in the trust will be followed.
A will: This is where you can spell out who you want to be given certain treasured items – the china, jewelry, etc. If you have minor children, it’s also where you appoint a guardian. If you have a trust you still want to have a will too. A “pour over” will complements a trust. It ensures that any assets you didn’t get around to formally transferring to your trust when you were alive, will be disbursed according to what you’ve laid out in your trust, once you die.