Estate Planning Documents Everyone Should Have

Takeaways

• An estate plan is about more than distributing property after death. It also helps someone manage your finances and make health care decisions if you become unable to do so.
• Most people need more than a will. A complete plan may include a will, powers of attorney, an advance health care directive, beneficiary designations, and other documents.
• Joint accounts, beneficiary forms, and online documents do not automatically work together. Coordinating them is essential.
• A plan should be reviewed after major life changes and whenever your family, finances, health, or state of residence changes.

Estate planning is not only for wealthy people or families with complicated finances. It gives you a way to make important decisions before a crisis occurs, including who can manage your money, who can speak for you about medical care, and who should receive your property after you die.

A good plan can also reduce confusion for the people who may need to help you. Without clear instructions, your family may have to rely on state law, court proceedings, financial institutions, or medical providers to determine what happens next.

What Is an Estate Plan?

An estate plan is a coordinated set of legal documents and decisions that addresses what happens to your property and how personal decisions will be made if you become incapacitated or die.

Your estate includes more than a house or investment account. It may include:

• Bank and brokerage accounts
• Real estate
• Retirement accounts
• Life insurance
• Business interests
• Vehicles and personal belongings
• Digital accounts and photographs
• Debts and financial obligations

Not all assets are controlled by a will:

• Retirement accounts and life insurance generally pass according to beneficiary designations.
• Jointly owned property may pass to the surviving owner.
• Assets held in a trust are distributed according to the trust document.
• Property titled only in your name may pass through your will or, if you do not have one, under your state’s intestacy laws.

That is why estate planning is not simply a matter of signing a will. The different parts of your plan need to work together.

Which Documents Belong in an Estate Plan?

The right documents depend on your circumstances and state law, but many adults should consider the following.

Will

A will states who should receive property that passes through your probate estate. It also names the person who will serve as your executor or personal representative.

If you have minor children, a will can nominate a guardian to care for them if both parents die. It can also nominate a trustee to manage property left for a child or another beneficiary who may not be ready to manage an inheritance.

A will does not control every asset. It generally does not override a beneficiary designation, joint ownership arrangement, or trust. It also does not manage your financial affairs while you are alive.

Learn more about the difference between a will and a trust.

Durable Financial Power of Attorney

A durable financial power of attorney (POA) lets you name an agent to handle financial and legal matters if you cannot manage them yourself. Depending on the document and state law, the agent may be able to pay bills, manage accounts, deal with insurance companies, handle real estate, and apply for public benefits if the document grants that authority.

This document can be especially important during an illness, accident, or period of cognitive decline. Without a valid POA, family members may need to ask a court to appoint a guardian or conservator before they can manage your finances.

A power of attorney gives another person significant authority, so the agent should be someone you trust. The document should also include safeguards appropriate to your circumstances.

Read more about durable powers of attorney.

Advance Health Care Directive

An advance health care directive lets you record your wishes about medical treatment and name someone to make health care decisions if you cannot communicate or make those decisions yourself.

Depending on the state, this planning may involve a health care proxy, medical power of attorney, living will, or another type of advance directive. The terminology and signing requirements vary, so use a form that complies with the law where you live.

Your documents are only part of the plan. Talk with the person you choose to make decisions on your behalf about your values, medical preferences, and the types of treatment you would or would not want in different situations.

Trust

A trust is a legal arrangement in which a trustee manages property for one or more beneficiaries. A revocable living trust may help with incapacity planning and may allow assets properly transferred to the trust to pass outside probate, depending on state law.

A trust is not necessary for everyone. It may be useful for people who own property in more than one state, want a private transfer process, have a blended family, need continuing management of assets, or have a beneficiary with special needs.

A revocable trust generally does not protect assets from your creditors or automatically help you qualify for Medicaid. An irrevocable trust may have different consequences and should not be created without individualized legal advice. Learn more about common types of trusts.

Beneficiary Designations

Beneficiary designations are often used for retirement accounts, life insurance, annuities, and some bank or investment accounts. These designations may control who receives the asset, even if your will says something different.

Review both primary and backup beneficiaries. A designation may be outdated after a divorce, remarriage, death in the family, or the birth of a child. Naming a minor, a person receiving public benefits, or someone who cannot manage money may also require special planning.

HIPAA Authorization

A Health Insurance Portability and Accountability Act (HIPAA) authorization allow someone to receive protected health information. It does not, by itself, authorize that person to make medical decisions for you.

Why Is Estate Planning Important if You Have Few Assets?

A small estate still needs a plan. In fact, incapacity documents may be more important than wealth-transfer documents for someone who does not own significant property.

If you become unable to pay bills or manage benefits, someone may need legal authority to act for you. If you are unable to communicate during a medical emergency, your family and doctors may need guidance about who should speak for you.

Estate planning can also help people with modest assets avoid preventable problems, such as:

• A court proceeding to appoint a guardian or conservator
• Disputes over a joint bank account
• Delays locating retirement or insurance benefits
• Confusion about who should pay bills
• Family disagreements about medical treatment
• Property passing to unintended beneficiaries

Why Are Joint Accounts Not a Complete Estate Plan?

Adding a child or another relative to a bank account may seem convenient, but joint ownership can create legal, financial, and family problems.

Depending on the account and state law, the other owner may have access to the money during your lifetime and may receive the account when you die. That result may not match your will or your intention to treat children equally. The joint owner’s creditors, divorce, bankruptcy, or financial difficulties may also affect the account.

A joint account can sometimes be appropriate, but it should be part of a deliberate plan rather than a substitute for one. Explain the arrangement to your family and ask an attorney about alternatives when the goal is simply to help someone pay bills.

What Happens if You Die Without a Will?

If you die without a valid will, you die “intestate.” State law then determines who inherits property that does not pass through a trust, beneficiary designation, or joint ownership arrangement. Those rules may not reflect your wishes, particularly if you have a blended family, an unmarried partner, stepchildren, or a beneficiary with special needs.

How Does Estate Planning Connect to Long-Term Care?

Estate planning and long-term-care planning are closely connected, but they are not the same thing.

A durable power of attorney may allow someone to apply for Medicaid or manage your finances if you become incapacitated. A carefully prepared plan may also address a spouse’s financial security, the family home, and the possibility of needing Medicaid-funded long-term care.

However, transferring assets at the wrong time or using the wrong document can create serious problems. Gifts and other transfers may affect Medicaid eligibility, and a revocable trust generally does not remove assets from your control for Medicaid purposes.

Read more about using estate planning to prepare for Medicaid and Medicaid estate recovery.

When Should You Review Your Estate Plan?

Review your estate plan after major changes, including:

• Marriage or divorce
• Birth, adoption, or death in the family
• A serious diagnosis or change in health
• A move to another state
• Retirement
• A substantial change in assets or debt
• A new business or property purchase
• A change in your relationship with an agent, executor, trustee, or beneficiary
• Changes in Medicaid, tax, probate, or digital-asset laws

Even if nothing significant has changed, periodically confirm that your documents are signed, witnesses and notarization requirements were followed, your agents are still willing to serve, and your family knows where to find the originals.

Do You Need an Estate Planning Attorney?

Some people with straightforward circumstances may begin with basic estate-planning forms. But online forms and general information cannot account for every family, asset, state-law, tax, or public-benefit issue.

Consider consulting an estate planning or elder law attorney if you:

• Own a home or business
• Have a blended family
• Are divorced or remarried
• Have a child or beneficiary with a disability
• Receive or may need Medicaid or other public benefits
• Own property in more than one state
• Have significant retirement assets or life insurance
• Are concerned about financial exploitation
• Want to use a trust or transfer property during your lifetime
• Need to plan for incapacity or long-term care

An attorney can help coordinate the documents rather than treating each one as an isolated form. The goal is not to create the most complicated plan but to create a plan that reflects your wishes and works when your family needs it.

The Bottom Line

Everyone has an estate, even if it consists mainly of a bank account, a vehicle, personal belongings, or a home with a mortgage. Everyone also faces the possibility of becoming unable to manage finances or communicate health care decisions.

An estate plan gives you a chance to make those decisions in advance. It can help protect your independence, reduce the burden on family members, and make it more likely that your property and care will be handled according to your wishes.

For a broader checklist of documents and decisions, see the National Council on Aging’s estate planning checklist and AARP’s overview of estate planning documents and probate.