Estate Planning 101

What It Is, Why Everyone Should Have an Estate Plan and What Basic Estate Planning Documents You Should Create

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Estate Planning Documents Everyone Should Create

Estate Planning is a term broadly used to describe a variety of end of life planning issues.

The term Estate refers to the whole of your assets and debts – your house, accounts, possessions, obligations, everything (not just your home) and Estate Planning can cover:

  • A detailed description of what you want to happen when you die – a plan for your internment and for the disbursement of your assets and property.
  • The opportunity to manipulate your assets for tax efficiency and maximum wealth for both you and your heirs.
  • Creating instructions for what you would like to happens if are living but can not care for or make decisions for yourself.

A properly executed Estate Plan gives you the satisfaction of knowing that your financial affairs are in order and organized for wealth retention and will be properly dispersed when you become incapacitated or die.

The Four Estate Planning Documents Everyone Should Create

  1. A Will – also known as Last Will and Testament
    Anyone who cares about what happens to their assets upon their death should have a will. Without a will it is the state who decides what will be done with your assets and it is unlikely that they will do exactly what you would choose.

    A will should say how you would like your property and assets distributed upon your death, name an executor of your estate and provide for payment of any costs incurred in settling the estate.

    This document can be created using software programs, guidance from books or the web or with the guidance of a lawyer or advisor.

    It is very important to treat your will as a living document and to keep it updated.

    • Power of Appointment: Power of Appointment is a term used to describe the selection of a person who is given the authority to dispose of certain property under the will. The person who has the Power of Appointment differs from the trustee of a trust in that the Power of Appointment has no obligation to manage the estate to generate income – just distribute it.

  2. Advance Directives
    Advance Directives are documents that direct your medical and end of life care should you become incapacitated. Most people have two documents to insure that their wishes are fulfilled:

    • Living Will: A Living Will is a legal document that outlines specific instructions for your medical treatment if you can not make those decisions yourself. It often specifies whether or not you would like to use life sustaining medical devices, feeding by tubes and sometimes specifies the use of pain medications.

      It is often used in cooperation with a Medical Power of Attorney.
    • Medical Powers of Attorney – Also Known as a Health Care Proxy: Powers of Attorney generally refers to an ability you have to legally designate a person to act on your behalf in case you can not make decisions for yourself.

      A Medical Power of Attorney is an authorization of a designated person to make health care decisions on your behalf. It enables you to specify someone to work with your health care provider to give you the care you would like to receive.

      Without a Medical Power of Attorney, your health care decisions are exclusively in the hands of your health care providers when you are not able to make decisions yourself.

  3. Power of Attorney / Financial Power of Attorney
    Perhaps more important to your well being than a will or trust is the designation of a Financial Power of Attorney. A Financial Power of Attorney will make designated financial decisions on your behalf if you are unable to do so while still alive.

    It is important to remember that aging is a process whereby a large percentage of people loose cognitive or physical functions that impair their ability to make or act on necessary decisions. Your designated Financial Power of Attorney can be given the authority to do any legal act you might do yourself. You can give your agent access to bank accounts, stock accounts and responsibility for managing real estate or other assets. It may be prudent to enable them to file income tax returns or apply for benefits on your behalf and more.

    Family members, friends, advisors, lawyers or others can have your Power of Attorney.

    Having a Power of Attorney can give you peace of mind that your affairs will be managed according to your wishes and it can save your family a potentially expensive and time-consuming court action to appoint a guardian or conservator if you are suddenly incapacitated.

  4. Letters of Instructions
    A Will informs the state and your heirs how you want major property distributed.

    A Letter of Instruction is a more informal document that usually covers:

    • Funeral Wishes: Any beliefs or ideas you have for your funeral should be expressed and documented. If you have arranged for your own burial or cremation, be sure to provide details and contact information on your preparations. Feel free to also specify whatever details that are important to you: who you would like to officiate, what songs should be played, specify a charity to receive donations in your honor and more.

      It would also be thoughtful for you to also provide information on who should be notified of your passing.
    • Financial Details: It will be extremely useful to your family or estate administrator to have a complete list of all of your accounts – pension plans, bank accounts, brokerage accounts, retirement plans, insurance policies, etc. – as well as contact information for attorneys, financial planners, stock brokers or other agents.

      The location of other official papers like Social Security cards, marriage certificates, birth certificates, etc. would also be useful.
    • Plan for Your Personal Property: Everyone seems to have a story about family disagreements related to dividing up personal items – jewelry, furniture, photos and other objects.

      You can help mitigate these quarrels by specifying a process for disseminating your property – you might let your eldest choose something first and then go on through the family for example. Or, you can name individual objects for particular people.

In general, include as much detail in your plans as possible and consider sharing them with family members in advance of any illness or death.

Additionally, Make Sure Beneficiary Designations Are Up to Date

"Beneficiary Designation" refers to the persons you have specified as being the beneficiaries on 401ks, life insurance policies and other accounts.

It is very important that you keep these designations up to date as they can supersede what you may have written in your will or trust.

Investigate Any Potential Property Ownership Issues

As part of your Estate Planning process, you should probably investigate how your home is owned. Ownership can be in different forms and it impacts whether your property is actually included in your Estate. If your ownership is not in the right form it can impact whether the property is put into probate and how it is dealt with upon your death.

Some ownership forms include:

  • Joint tenancy with rights of survivorship: This term refers to a home that is owned by one or more people in which survivors automatically gain complete ownership when one of the others dies.

    This is the most frequent type of home ownership and guarantees that the home stays in a surviving spouse's possession without having to go through probate.
  • Tenancy in common: Tenancy in common defines a way for two or more people to own property in unequal percentages. Each owner has an interest in and right to use the property as well as the right to leave their interest upon death to their chosen beneficiaries rather than the other owners.
  • Tenancy by the Entirety: Tenancy by the Entirety is similar to joint tenancy but is only for married couples. It is not a legal designation in all states but where applicable the survivor automatically gets title to the property without probate.

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