A “Simple” Explanation of Estate Planning Documents

The “Purpose” of Estate Planning

“I need a Trust!” “I only need a Will.” “I am not wealthy – I don’t need an estate plan.” These are all things we have heard many times. In some cases, the first two statements are true. But the third statement never is true – everyone needs an estate plan. That’s because an estate plan does more than just dictate how your assets are distributed when you pass away. Estate planning makes sure your wishes are honored and your loved ones are cared for after your passing or in the event of incapacitation. In order to make this happen, you need to have specific estate planning documents in place. Each plays a specific role in protecting your assets, clarifying your intentions, and simplifying the process for those you leave behind. Without them, your family can face unnecessary legal hurdles, confusion, stress, and heartache.

Every client is different and has unique needs and goals, so what works for one may not work for another. Some estates require complex planning while others are more streamlined. All estates deserve care and consideration. Below, we’ll explain a bit about each of the more common estate planning documents. Each document serves an important role in protecting your legacy.

Last Will and Testament: A Last Will and Testament outlines how you want your assets distributed after your death. It appoints an executor to carry out your wishes and ensures your loved ones are provided for according to your instructions. This is also the only document in which you can name a guardian for your minor children and provide instructions about how you’d like them to be cared for. You can also provide burial instructions in your Will.

Living or Revocable Trust: Some clients prefer to create a Living Trust to manage their assets. The assets properly placed into the Living Trust avoid probate, which, in some situations, can be time-consuming and costly (but not always!). These clients who elect to settle a Living Trust also need a document called a Pour Over Will that will transfer assets that were not in the Trust into the Trust when they pass away.

Irrevocable Trust: If you are concerned about Estate Taxes (in other words, your estate is larger than the federal and state estate tax exemption limits) or if you are concerned with long term medical care planning (and want to qualify for programs such as Medicaid), you may consider transferring your assets into an Irrevocable Trust.

Durable Power of Attorney: A durable Power of Attorney grants someone you trust the authority to handle financial matters on your behalf if you become incapacitated. This document is essential for managing your affairs effectively if you are unable to do so yourself.

Health Care Proxy: A health care proxy designates someone to make medical decisions on your behalf if you are unable to communicate your wishes. This ensures that your healthcare preferences are honored and that you receive the care you want, even if you cannot speak for yourself.

Living Will: A living will, or advance directive, specifies your preferences for medical treatment and end-of-life care. It provides guidance to healthcare providers and loved ones about your wishes regarding life-sustaining treatments in critical situations.

Beneficiary Designations: Certain assets, such as life insurance policies, retirement accounts, and payable-on-death accounts, allow you to name beneficiaries directly. These designations override instructions in your will or trust, making it essential to keep them updated.

Letter of Intent: Although not legally binding, a letter of intent communicates personal instructions to your loved ones or executor. This document can include funeral arrangements, personal messages, or additional guidance on asset distribution. A letter of intent adds a personal touch to your estate plan, helping family members understand your wishes beyond the legal documents.

When Should You Start Evaluating Your Estate?

You should not wait to evaluate your estate: it’s a crucial component of financial health at every adult stage of life.

Young Adults: Even young adults can benefit from putting together a basic plan, such as designating power of attorney or making healthcare directives in the event of unexpected incapacitation. Who would make decisions on your behalf if you could not make them yourself?

Life Milestones: Significant life events, such as getting married, having children, buying a home, or even starting a business, introduce complexities and responsibilities that should be reflected in your long term plans.

Regular Reviews: A simple estate plan isn’t a “set and forget” document. It’s important to note that as life evolves, your plan should too. Regular reviews of necessary documents, perhaps every three to five years or after major life changes, ensure your plan remains aligned with your current circumstances and wishes.

Every person’s needs and wishes are unique. Every estate is different and deserves care and attention. At Seward & Seward, we take the time to get to know our clients and their goals. We work with them to carefully craft an estate plan that meets their individual needs and reflects their wishes. We would welcome the opportunity to discuss your estate planning needs.