Key Estate Planning Documents

Estate planning is a vital component of every financial plan, regardless of the size of the estate. Unfortunately, it’s also an area that is commonly overlooked. This often results in wasted dollars and emotional hardship that could otherwise be minimized with proper advance planning and action.

Key Estate Planning Documents You Need

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

  1. Durable power of attorney
  2. Advanced medical directives
  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, watch over your investments, and file taxes.

Advanced Medical Directives

Advanced medical directives let others know what medical treatment you would want, or allows someone to make medical decisions for you, in the event you can’t express your wishes 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).

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 heirs 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.

Letter of Instruction

A letter of instruction (also called a testamentary letter or side letter) is an informal, non-legal 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.

More Advanced Techniques

While every estate should have these basic estate planning documents, increased wealth, and the complexity that comes with it, requires more sophisticated estate planning strategies. These strategies may involve techniques such as: Disclaimer Trusts, Bypass Trusts, Marital Trusts, Charitable Remainder Annuity Trusts (CRAT), Grantor Retained Annuity Trusts (GRAT), Irrevocable Life insurance Trusts (IL IT), Personal Residence Trusts and more.  Ownership of a small business also creates complexity that may require Buy/Sell agreements utilizing life insurance to protect the company and the other owners from an untimely death of one of the principals.  Always consult with an attorney specializing in estate planning matters.

About Mark Rioboli

Mark A. Rioboli, CFP®, CFS is Director of Wealth Management for Independence Advisors, bringing over 25 years of experience in the wealth management industry. Have a question for Mark? CLICK HERE TO ASK MARK

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