Estate planning is one of the most important things you can do to ensure that your loved ones are able to obtain your assets after your death. There are a number of estate planning documents that can be put in place to make this process easier. Here is a look at five of the most important documents you should discuss with an estate planning attorney and what happens if you don’t have them.
1. Wills and Trusts
The development of wills and trusts are the foundation an estate plan, as the will provides instructions as to how your assets are to be distributed after death, while a trust is a tool that can help limit the tax burden that your beneficiaries face when receiving the assets. Wills and trusts include living wills — which designates the type of care you wish to receive if you are incapacitated and cannot make healthcare decisions on your own — as well as digital asset trusts, which determine what will happen to your digital assets — such as information saved to your computer’s hard drive, digital photos saved in a cloud account, or even administration of your social media accounts.
What Happens If You Don’t Have Your Wills and Trusts in Order?
According to Gallup polls, more than half of adults surveyed do not have a will, and only 14 percent of adults under the age of 30 have one. Failing to have these documents in place can subject your family members to expensive probate court and the court will decide an equitable distribution of your assets between eligible beneficiaries.
2. Powers of Attorney
A power of attorney designates someone to make decisions on your behalf if you become incapacitated and cannot make those decisions on your own. Some of the types of decisions that can be made by a designated individual through a power of attorney include healthcare decisions, business activities, and decisions about your personal or business assets.
The Consequences of Failing to Obtain Powers of Attorney
In order to appoint the individual who will make legal decisions on your behalf or to revoke a previous power of attorney, you must be found to be competent to do so. Without having this document in place when needed, the court will be responsible for making those decisions.
3. Designations of Beneficiaries and Guardians
Life insurance policies, bank accounts, and retirement plans all require you to name a beneficiary — that is, an individual who will receive the proceeds of a policy payout or an account when you die. Typically, these policies and accounts will require not only a named primary beneficiary, who is the first in line to receive the benefits, but also a secondary or contingent beneficiary, who will receive the benefits if the primary beneficiary is deceased, cannot be located, or refuses to accept the assets of the deceased account or policy holder.
What if You Don’t Designate Beneficiaries and Guardians?
Naming a beneficiary is a powerful action, as named beneficiaries on accounts take precedence over any instructions that you have provided in your will. Failing to regularly update your beneficiaries on policies can result in a named beneficiary or secondary beneficiary being unable to accept the proceeds from your account or policy, or those proceeds going to someone who you no longer wish to receive them, such as an ex-spouse.
4. Letter of Intent
Formal documents such as wills and trusts do not always completely satisfy the distribution of your assets. In some situations, there is an asset you want specifically to go to an individual or organization. A letter of intent — while not being the most legally-sound of all of your estate planning documents — does provide you with the ability to make your wishes known regarding your funeral services, and also provides instructions to your beneficiary or the executor of your will as to the method in which you want your assets to be distributed.
Forgetting to Provide a Letter of Intent
The letter of intent helps further inform your beneficiary or executor of your wishes. While forgetting this document will not impact the overall distribution of your assets, it will leave a lot of the decision-making about how to handle your death and your assets in the hands of someone else.
5. Lists of Other Important Estate Planning Documents
You can safely assume that your death is going to be among the most devastating times of life for your loved ones. During this time, you do not want them to have difficulty accessing the documents and information they need to benefit from your assets or to even know which assets are available. You should make sure that you have included a list of the information they need about all life insurance accounts you hold, account information for utilities and other bills you owe that will need to be settled and closed after your death, as well as pensions or retirement accounts, bank accounts, records of divorce, birth, or marriage, deeds from real estate holdings, and information about the stocks, bonds, and mutual funds you hold.
What If You Don’t Let Your Family Know About these Important Documents?
Failing to provide this information can result in your beneficiaries being unaware or unable to access proceeds that you had intended for them, and can create for a less orderly transition in both business and personal matters.