Estate Planning 101: Estate Documents Necessary for a Comprehensive Estate Plan

Many people feel intimidated when confronted with the task of planning for their future by creating an estate plan. However, having an up to date estate plan is one of the most loving things a person can do for their family. It can help shelter them from stressful decisions and provide answers when they need them most. By planning ahead thoughtfully and thoroughly, your loved ones can be assured that your wishes will be carried out and your affairs will be settled in an orderly manner when you're gone. Taking legal steps today to plan for tomorrow puts you in control of your assets and the way they will be distributed. This guide helps you begin the estate planning process by providing an overview of the most important estate documents that you should be aware of and consider having as part of a comprehensive estate plan.

Planning For Your Death Using a Last Will and Testament

Where there's a will, there's a way to distribute your estate based on your intentions and not the whims of the court or state law. Simply put, a last will and testament, also known as a will, is a legal document that sets forth your instructions for how your estate (money in bank accounts, assets in investment accounts, cars, jewelry, real estate property, etc.) will be distributed to the people you choose after you die. A will can dictate how much and the type of assets from the estate each person will receive to minimize family and friend squabbles after your death.

What is a will?

A will is the most basic estate planning document there is. For some people, a will is the only estate planning they need or want to do. It is important to understand what a will does and does not cover. In a will, you can specify:

What property you wish to leave to family, friends, and organizations
Who you wish to act as a guardian and manage property for any dependent children
What person should act as a personal representative or executor to manage your estate when you die, pay debts and taxes, and distribute remaining property as you specify
Whether you want to cancel any debts still owed to you at your death
How outstanding debts and taxes should be paid

Preparing a will

A will is not a one-size-fits-all document and when it comes to preparing one, there are some basic things that must be considered. The primary four concerns are the following:

1. Naming a personal representative or executor -- In a will, you can name a person or institution to act as a personal representative, also known as an executor, who will be responsible for ensuring that the will is carried out as written and that the property is distributed as directed. It is also wise to name an alternate in case the first choice is unable or unwilling to act.

2. Naming beneficiaries to get specific property -- Your will can specify separate gifts of property, called specific bequests, including cash, personal property, or real estate. Common beneficiaries for such bequests are children, siblings, and other close relatives, but may also include friends, business associates, charities, or other organizations.

3. Naming alternate beneficiaries -- In making a will, most people assume that the beneficiaries they name will survive to take the property they have gifted to them. The most thoughtful wills provide for what should happen if those beneficiaries don't survive and are unable to take the gift, either by naming a backup recipient or indicating that the beneficiary's spouse or children should take the property in their place.

4. Naming someone to take the remaining property -- If you have opted to make specific bequests of property, a will is also the place to name people or organizations to take whatever property is left over. This property is usually called the "residuary estate."

Benefits of a will

If a person dies intestate, or without a will in place, their property must still be distributed. By not leaving a valid will or trust, or transferring property in some other way, such as through insurance, pension benefits, or joint ownership, it is essentially left to state law to write your will for you. This doesn't necessarily mean that your property will go to the state. This only happens in very rare cases where the deceased leaves no surviving relatives, even very distant ones. However, it does mean that the state will make certain assumptions about where you would like your money and property to go -- assumptions with which you might not agree. These laws vary significantly state by state. To get a full overview of how the laws in a person's state could play out in a situation where they die without a will, hiring an attorney licensed in that state is worth the investment.

For more information about the importance and process of writing wills, please see the guides Where There's a Will, There's a Way: Exploring the Importance of Estate Planning and Will Writing 101: Essential Facts and Features in a Valid Will.

Planning For Your Financial Future Using a Trust

When most people hear estate planning, they think of a last will and testament. However, for many people, a trust can be a useful tool to have instead of or in addition to a will as part of their comprehensive estate plan. There are many different uses of a trust, whether it be to manage the trustor's assets during life or after death, or provide an easier way to transfer estates to a beneficiary. Depending on the terms of the particular agreement, a trust can also provide a way for trustors to benefit during their lifetime as well. Additionally, trusts are often used to manage property, assets, or estates being held for a minor or person incapable of being financially accountable until they have been deemed able to manage the assets themselves.

What is a trust?

A trust is an estate planning tool that is a legal entity created by a party, known as the trustor, through which a second party, known as the trustee holds the right to manage the trustor's assets or property for the benefit of a third party, known as the beneficiary. Basically, a trust acts as a financial arrangement between three parties that hold assets for a beneficiary. A trust is composed of three parties as follows:

1. Trustor -- This is the person who grants the trustee control over their assets, estate, or property, and who creates the agreement

2. Trustee -- This is the person responsible for managing the trust that the trustor has appointed them over

3. Beneficiary -- This is the person who receives the benefits of the trust agreement, given the property or assets by the trustee from the trustor according to the terms of the agreement

There are several different types of trusts with different uses and benefits:

A living trust, sometimes known as an inter-vivos trust, is one made by the trustor during their lifetime, with assets or property intended for their own use during their life. The trust provides for payment of income to the Trustor and the distribution of the remaining trust assets once the trustor dies. The person in charge of managing the trust, known as the trustee can be the trustor themselves, a bank, or some other third party that the trustor feels confident will be able to responsibly manage the assets of the trust. Most living trusts provide that the trustor will serve as the initial trustee to manage the assets of the trust until they become disabled, would prefer to have another party manage their affairs, or die. At this time, a new individual, known as the successor trustee will step in to manage the trust and make distributions as necessary and appropriate.
A testamentary trust, also known as a will trust, is an agreement made for the benefit of a beneficiary once the trustor has died and details how the assets must be endowed after the trustor's death. This type of trust is often included in a last will and testament and attended to by the executor who will manage the trust for the trustor's beneficiaries after the trustor's death. This type of trust is often used to care for and educate children if both parents die before their children have reached the age of majority.

It is also possible to make special interest trusts that have a specific purpose in mind. For example, if you would like to create a trust to save money for a child's education that can only be used for that purpose until the child is old enough to manage the funds themselves, you can create an Education Trust Agreement.

Benefits of a trust

While there are many different kinds of trusts with unique features and benefits to each, some of the common benefits of a trust include reduced estate taxes, avoiding court fees and probate, protection from creditors, and quick transfer of assets into the beneficiary's possession. By creating a trust, you are able to protect your assets and financial legacy while also easing the process for your loved ones by helping them avoid the hassle of probate court. Additionally, trusts can be used for privacy, as wills are a matter of public record once they go through the probate court process. Finally, using a trust can help avoid high estate or gift taxes that beneficiaries often need to pay when receiving property through a will.

Trusts have the benefit of privacy and are more private than wills because, under state law, a Will is admitted to a court procedure known as probate where the court determines the validity of the will, deals with potential challenges, and distributes the assets to beneficiaries. As a result, the contents of the will become part of the publically searchable and accessible court records. By contrast, a trust is generally administrated by the trustee without court interference or involvement, and so does not become a part of public record.

Trusts usually cost less to maintain and administrate. When a will goes through probate, it is often tied up in the court process for as long as three years and involves court costs, lawyer fees, executor fees, and other assorted expenses. Since a trust is generally administrated without court involvement, using a Trust can help avoid incurring the expenses associated with a will.

A living trust allows a trustor to name a person or organization to manage the assets they choose to include in the trust if they become unable to do so or no longer wish to do it themselves. In this way, a living trust can be used as an alternative to a conservatorship or a guardianship.

Planning For Your Future Healthcare Using an Advance Healthcare Directive

In addition to a will, it is also prudent to plan for future healthcare and decisionmaking when you no longer have the capacity to make decisions for yourself. This can be accomplished by creating a document known as an advance healthcare directive or living will. A will takes effect after death, while an advance healthcare directive takes effect while you are still alive.

A scenario that would be helped by the presence of an Advance Healthcare Directive: Your father has had his second stroke. After his first stroke left him unable to walk or talk, this stroke has left him in a deep coma. The doctors say he will probably never wake up from this coma and they would like to know what sorts of measures should be used to extend his life in the event his heart stops beating. They could use feeding tubes and life support machines or they could let your father pass away naturally if and when his heart stops beating on its own. You are feeling bewildered and confused trying to make these heavy decisions without any guidance from your father about what he would want. How are you supposed to decide the path forward that would be most in line with your father's wishes were he still able to express them?

What is an advance healthcare directive?

An advance healthcare directive, also known as a living will, is a way of extending your decision-making rights concerning your medical care to situations that occur when you are unconscious, not competent to make decisions, or unable to communicate your wishes. In an advance healthcare directive, you are able to spell out the medical treatments you would and would not want to use to keep you alive, as well as dictating how long you would like to be kept on life support. Living wills address the life-sustaining procedures you would or would not like to be used if you are terminally ill. They also often address the use of pain management in these situations.

Having a living will takes the emotional burden off of family members from having to make the difficult decisions regarding your end of life medical care. There is no guessing or bickering, as your wishes are spelled out in black and white. It may not be fun to think about dying or needing life support, but the complicated nature of death and dying makes an advance healthcare directive a must-have estate planning document.

What is a healthcare agent form?

A healthcare agent form, also known as a medical power of attorney or health proxy, is either a standalone document or part of an advance healthcare directive. With this document, you can appoint another person, usually known as your healthcare agent, to make healthcare decisions for you if a time should come when you are not able to make them yourself. Your healthcare agent will have the authority to make a wide range of healthcare decisions, such as whether or not you should receive a risky operation, receive certain medications, or be placed on or taken off of life support. The agent, in most states, will also be given access to medical records and given the power to request changes of physicians or other healthcare providers.

Since your healthcare agent will make decisions for you based on what they know about you and your values and wishes, it is crucial to choose someone whom you trust and know very well. It is essential that you have an in-depth conversation to be sure that they are willing to take on the responsibility and have knowledge of your treatment preferences.

Benefits of an advance healthcare directive

Planning for the direction of your future health care is different from planning for the future of your estate. Variations of the scenario described above occur repeatedly and unexpectedly every day. In each of these situations, someone will have to make decisions about your medical treatment when you cannot. Creating a document separate from your will can assist with these issues.

An advance healthcare directive is a document that enables you to influence decisions about your medical care when you would otherwise be unable to do so. This document is part of an estate plan and is often executed at the same time as your will and other estate documents. It is helpful in the following ways:

1. It ensures that your medical care wishes will be honored even if you are unable to communicate.

2. It frees your loved ones from having to make hard decisions without guidance during a time when they may be highly stressed and overwhelmed.

3. It helps to avoid the loss of your financial assets on medical treatments that may only prolong the process of your death without any hope that you will eventually recover.

Final Takeaways

Estate planning can seem scary or overwhelming, but it is a critical aspect of managing your assets and protecting your loved ones. Before beginning to draft documents, it is important to first understand some of the basic arrangements involved in estate planning, the key documents that should be in a comprehensive estate plan, and the protections and assurances those documents can provide.

A last will and testament is often the centerpiece of an estate plan and allows people to direct how their property should be divided and who should get it after they die

A will can also be used to specify who should act as a guardian and manage property for any dependent children
A will names a personal representative or executor to manage the estate, pay debts and taxes, and distribute the property as specified

A trust is an estate planning tool that is used to hold the trustor's property and is managed by a trustee for the benefit of a beneficiary

A living trust is a trust created when the trustor is still living with the trustor receiving income from the trust until their death, at which point the assets are transfered to a named beneficiary
A testamentary trust is a trust created by a will and becomes operative when the testator dies so that the assets are managed by the named trustee and the income from the trust is collected by the named beneficiary until they are able to manage the trust assets themselves
Trusts are useful because they allow for additional privacy and efficiency by avoiding going through probate court

An advance healthcare directive allows a person to plan for their future healthcare by dictating their medical wishes for when they no longer have the capacity or ability to communicate them

A healthcare agent form allows someone to specify who they would like to make medical decisions for them and have access to their health information when they are incapacitated and no longer able to make those decisions

About the Author: Malissa Durham is a Legal Templates Programmer and Attorney at Wonder.Legal and is based in the U.S.A.