Back to Basics #4: 
Important Estate Planning Documents

A few months ago, we started a new series of articles called “BACK TO BASICS.”  In each article, we examine one of the basics of financial planning and investing.  This month, let’s look at:

Back to Basics #4:
Important Estate Planning Documents

Many people, young and old, don’t have a will, let alone a broader estate plan. Yet an estate plan is important, even for families who are not wealthy.

An estate plan serves four major purposes: 

1. It directs who will receive your property when you die. 
2. It minimizes probate costs and any estate taxes that might be owed on that property. It’s the estate tax that people tend to think about when they think of an estate plan, and because many people believe they don’t have an estate large enough to be taxed, they don’t bother drawing one up.
3. It provides for care of minors (otherwise the state will become their guardian).
4. It provides for your care if you are unable to provide for yourself. A proper plan ensures that you get to pick the caregivers, not the state. This is critical for young people, singles, and older persons.

You may be thinking, “I have a will so I’m all set.” While having a will is a very important part of your estate plan, it’s not the only part.  A will doesn’t specify how you want to be treated should your health fail.  It doesn’t dictate who will carry out your wishes or handle your financial affairs should you ever become incapacitated.  It doesn’t help your heirs limit their tax burden. 

In other words, it doesn’t cover all of the purposes of an estate plan as listed above. 

To ensure that both you and your loved ones will be cared for, we’ve created a list of four key documents that should be in every estate plan:

Will 

We mentioned that creating your will is an important aspect of estate planning, so let’s cover that first. A will states how you want your belongings divvied up amongst your loved ones after you pass away. Otherwise, the government will determine how to distribute your property, which may even end up belonging to the state if you don’t have an appropriate will stating otherwise.

Power of Attorney 

Another crucial document is your power of attorney, which allows you to appoint someone to act on your behalf to make legal decisions about your property and finances.  That person, usually referred to as an “agent”, could be a trusted friend, a family member, or an experienced, reputable professional.    

Power of attorney is crucial should you ever become ill or disabled to the point where you can no longer make important decisions yourself.  Keep in mind, however, that granting someone power of attorney is a huge decision in and of itself.  Give careful thought before making your choice.  Whomever you select should be trustworthy, reliable, and mature enough to handle the responsibility. 

Advance Medical Directive 

A third document is your Advance Medical Directive.   This catch-all term refers to health care directives, living wills, health care (medical) powers of attorney, and other personalized directives. These documents allow you to legally express your preference for continued health care should you become terminally ill. 

A word of advice.  As you finalize your Advance Medical Directive, make sure you have completed your HIPPA Release Forms as well.  By having this special form completed, you enable the individuals named in your Advanced Health Care Directive to have access to your healthcare information.  This way, they can deal with insurance matters on your behalf at a time when you cannot.  

Letter of Instructions 

Last, but not least, is a Letter of Instructions. This is document gives your survivors information about important financial and personal matters to attend to after your passing.  You don’t need an attorney to prepare it.  Although it doesn’t carry the legal weight of a will, and is in no way a substitute, your Letter of Instructions will clarify any special requests you want carried out after death.  It may include your funeral preferences, people to notify, account passwords, directions regarding certain possessions, or anything else you’d like your survivors to know. 

The four documents listed above are all very important, and every adult should have them in their estate plan. Having each of these important documents prepared ahead of time can relieve your family of needless worry, speculation, and expense.  Keep in mind, however, that while this letter is a good overview of some important estate planning documents, it certainly doesn’t cover everything.  When it comes to planning for your financial future and those of your loved ones, remember that there are many factors to consider. If you haven’t yet completed the documents described above, or if your circumstances have changed and you haven’t updated your estate plan accordingly, it’s high time to do so.  Because when it comes to planning, there’s no such thing as starting too early.   

But there is such a thing as too late. 

Your overall financial plan isn’t just about investments and money. As financial advisors we take a wholistic approach and know that a plan is only as strong as its weakest link. While we aren’t attorneys who can create these documents, we do want to make sure our clients have taken care of this very important part of the overall planning process.

 If you don’t have an attorney and would like an introduction, please let us know. The coordination of all advisors is very important. ​

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