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Key Estate Planning Documents You Need

Estate Planning

There are four estate planning documents you may need, regardless of your age, health, or wealth:

  1. Durable power of attorney
  2. Advanced medical directive
  3. Will
  4. Letter of instruction

Durable power of attorney

A durable power of attorney (DPOA) can help protect your property in the event you become physically unable or mentally incompetent to handle financial matters. If no one is ready to look after your financial affairs when you can’t, your property may be wasted, abused, or lost.

A DPOA allows you to authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, make gifts, watch over your investments, file taxes, etc.

There are two types of DPOAs:

  1. General DPOA: is effective immediately (this may be appropriate, for example, if you face a serious operation or illness or you are frequently out of town and would like your trusted agent to act on your behalf);
  2. Springing DPOA: which is not effective unless you have become incapacitated.

Caution: A Springing DPOA is not permitted in some states and at times they can be difficult to validate.

Advanced Medical Directives

Advanced medical directives let others know what medical treatments you would want, or allows someone to make medical decisions for you, in the event you can't express your wishes for yourself. If you don't have an advanced medical directive, medical care providers must prolong your life using artificial means, if necessary. With today's technology, physicians can sustain you for days and weeks (if not months or even years).

There are three types of advanced medical directives. Each state allows only a certain type (or types). You may find that one, two, or all three types are necessary to carry out your wishes for medical treatment. (Just make sure all documents are consistent.)

  1. Living Will: allows you to approve or decline certain types of medical care, even if you will die as a result of that choice. In most states, living wills take effect only under certain circumstances, such as terminal injury or illness. Generally, one can be used only to decline medical treatment that "serves only to postpone the moment of death." In those states that do not allow living wills, you may still want to have one to serve as evidence of your wishes.
  2. Durable Power of Attorney for Health Care (also known as a healthcare proxy in some states): allows you to appoint a representative to make medical decisions for you. You decide how much power your representative will or won't have.
  3. Do Not Resuscitate Order (DNR): is a doctor's order that tells medical personnel not to perform CPR if you go into cardiac arrest. There are two types of DNRs. One is effective only while you are hospitalized. The other is used while you are outside of the hospital.

Will

A Will is often said to be the cornerstone of any estate plan. The main purpose of a Will is to disburse property to loved ones or charity after your death. If you don't leave a Will, disbursements will be made according to state law, which might not be what you would want.

There are two other equally important aspects of a Will:

  1. You can name the person (executor) who will manage and settle your estate. If you do not name someone, the court will appoint an administrator, who might not be someone you would choose.
  2. You can name a legal guardian for minor children or dependents with special needs. If you don’t appoint a guardian, the state will appoint one for you. VERY important for individuals with minor children.

Keep in mind that a Will is a legal document, and the courts are very reluctant to overturn any provisions within it. Therefore, it’s crucial that your Will be well written and articulated, and properly executed under your state’s laws. It’s also important to keep your Will up to date.

Letter of Instruction

A letter of instruction (also called a testamentary letter or side letter) is an informal, nonlegal document that generally accompanies your Will and is used to express your personal thoughts and directions regarding what is in the Will (or about other things, such as your burial wishes or where to locate other documents). This can be the most helpful document you leave for your family members and your executor.

Unlike your Will, a letter of instruction remains private. Therefore, it is an opportunity to say the things you would rather not make public.

A letter of instruction is not a substitute for a Will. Any directions you include in the letter are only suggestions and are not binding. The people to whom you address the letter may follow or disregard any instructions.

Summary

Any estate planning conversation must also incorporate education on what these documents do and often more importantly, what they do not do. When someone passes, their assets will immediately pass per their beneficiary designation (IRAs, 401ks, Life Insurance, etc.) and asset titling (Transfer on Death (TOD), Joint with Rights of Survivorship (JTWROS), etc.). This is extremely important as many people think their Will directs all of their assets. Pay attention to the titling of your assets and insure they match your objectives. Also, make sure your primary beneficiary is accurate and that you have designated contingent beneficiaries.