I am asked numerous times what are the typical estate planning documents someone should have. My answer, like many answers from an attorney is: It Depends. There a number of factors that could push a person to one level or another for estate planning. The foundation for any person’s estate plan is a three-legged stool that a person utilizes to construction the rest of their estate plan. The three-legged estate planning stool represents the first three documents listed below. And, depending on their situation, a person could have need for the last two documents, as well.
- Last Will and Testament: This is the first leg of the stool and directs how the personal representative will divide up your probate estate upon your passing to your heirs and beneficiaries. An effective Will has a number of moving parts that can be seen here, here and here, but provides flexibility in your estate planning that intestate does not.
- Durable Power of Attorney (“DPOA”): This is the second leg of the stool and appoints another person to act in your stead related to financial affairs if you become incapacitated. That person is called your agent or power of attorney. The power can be fairly limited or very broad.
- Advanced Medical Directive (“AMD”): This is the last leg of the stool and authorizes someone, usually called your healthcare agent, to make medical decisions for you in the event you are unable to do so yourself. This document is also called a Healthcare Power of Attorney. You can also dictate instructions to your healthcare agent on what level of care you want.
- Living Will: This legal document goes hand-in-hand with your AMD and can either be a separate document from your AMD or incorporated into your AMD. It could be considered a second part of your third leg of the estate planning stool. A living will allows you to make known your wishes regarding life prolonging medical treatments. If your AMD does not express your desires regarding life prolonging medical treatments, a living will is usually drafted.
- Revocable Living Trust: This would be like adding a back to your estate planning stool to make the stool a chair. There is a sliding scale as to the need for a Living Trust but you can read more about that here. A living trust is a legal document that establishes a quasi-separate entity from yourself to hold the legal title of your assets. By transferring assets into a Living Trust, you can provide for continued management of your financial affairs during your lifetime, at your death and even for generations to come. Your revocable living trust lets trust assets avoid probate and reduces the chance that personal information will become part of public records.
The last bit of advice I caution people is to make sure that you execute all of your estate planning documents and take steps to fund any trusts. If your estate planning documents are not signed pursuant to your state’s requirements, the documents are essentially worthless. And, I have seen many times people create a trust but never fund the trust by transferring assets over to the trust. This negates the entire purpose of creating a trust.