4 Essential Estate Planning Documents

A power of attorney manages finances

A power of attorney document authorizes the person you choose to handle financial matters on your behalf if you are not able to. Each state has its own rules regarding power of attorney.

You can set a power of attorney up to become active only if you are incapacitated, or you can create it so that it is effective immediately if you want to use it for convenience, such as when you are out of town.

The power of attorney only applies to the specific types of matters and transactions you authorize in the document. A financial power of attorney does not grant the authority to make medical decisions on your behalf. It is only effective during your lifetime, so it is no longer active once you pass away.

Advance care directives manage your health

An advance care directive, also called a living will, is a document that states what your wishes are for medical and end-of-life care should you be unable to make those decisions for yourself. You can spell out exactly what you do or do not want—for example, ventilators and feeding tubes.

In some states, you can include the person you select to make the decisions for you if you are unable to in this document. In other states, there is a separate document for that, called a healthcare power of attorney.

A living trust is an alternative to a last will

A living trust allows you to take assets you own and place them into the ownership of a trust you create during your lifetime. The trust owns your assets and you manage them while you are alive.

After your death, the trustee—the person you choose to manage the trust when you can no longer do so—distributes the assets to the beneficiaries you have chosen. A living trust is private and typically does not need to go through probate court (unless disputes arise). Your beneficiaries can save the potential cost and time involved in a probate proceeding.