While a last will and testament is an important estate planning document, it likely won't be enough to ensure all your wishes are carried out after you pass away. In addition to a will, most estate plans include a financial power of attorney, a living will, a living trust, and other documents.
Why You Need More Than a Will
A simple will is not enough to provide for what happens should you become incapacitated or when you pass, but getting a will is certainly the first thing to consider in your estate plan. A will can provide for more than the distribution of your assets to your chosen beneficiaries. A will allows you to:
- Select guardians for your children
- Decide who you want as your beneficiaries, including charities, if desired
- Decide what assets your beneficiaries receive from your estate
- Select your executor, who is someone you trust, to administer your estate
- State who will take care of your pets
- Disinherit certain relatives or heirs
- Decide who gets the remainder, known as your residuary estate, after the executor pays all debts, taxes, and creditors
You can prepare a will yourself or have an attorney prepare it for you as part of your estate plan. Make sure to update your estate plan periodically, especially after life changes such as a divorce or a birth in the family.
Why You Need Powers of Attorney
Powers of attorney (POAs) are documents that allow someone to act on your behalf. Powers of attorney involve you, as the principal, and another trusted person to act as your agent. POAs end when you die.
Other types of limited POAs only allow the agent to perform a specific action, such as sell real estate; once the agent performs the action, the POA ends.
In addition to limited powers of attorney, important POAs include:
- A financial power of attorney. This type of POA allows your agent to do your banking, in addition to filing your taxes, paying bills, investing, and any other financial transactions you allow. As with many of these POAs, the power of attorney can allow the agent to act immediately, or you can have a "springing power of attorney," which requires your incapacitation before your agent can act.
- A healthcare power of attorney. This POA allows your agent to act in your best interest when you're unable to make decisions about your health because of physical or mental incapacity. These are not documents that allow the agent to determine any end-of-life treatment, but rather, to make decisions about medical treatment and procedures you may need during your incapacitation.
Why You Need a Living Will
A living will refers to end-of-life choices. A living will or advance directive—as it's called in some states—is a document that permits your agent to make major end-of-life decisions if you're permanently ill or incapacitated.
Because a living will only applies to situations where you're permanently incapacitated, a healthcare POA is broader and applies to more situations than a living will.
Still, a living will is important because your family and doctors need to know what you would want to do in certain circumstances. These include whether you want:
- A Do Not Resuscitate (DNR) or Do Not Intubate (DNI) clause or order
- To be kept alive by artificial means, such as by a feeding tube, oxygen, or dialysis
- Pain medications
- Organ donation
- Hospice or palliative care
- To stay in a hospital or treatment center or be allowed to go home
- The doctors to actively treat you so you might recover
In some states, attorneys prepare living wills and healthcare powers of attorney as one document so that the same agent makes all healthcare decisions when you're unable to.
What Trusts Do For Your Estate Plan
A revocable trust is something to consider as part of your estate plan. Not everyone needs a trust, but it's something to discuss with an estate attorney. Trusts have certain advantages over a will, but together, a will and a trust are often essential pieces of an estate plan.
A revocable living or "inter vivos" trust is a legal document that creates an entity for your use during your lifetime. You must transfer assets into the trust in order to "fund" the trust, or the trust will have no value. Still, you can use the assets during your lifetime as you see fit. The trust becomes the owner of the assets.
You are the "grantor" of the trust, and often the grantor is the trustee who manages the trust. You'll appoint a successor trustee who takes over if you're incapacitated or when you pass.
Trusts are beneficial because they allow the assets in the trust to:
- Avoid going to probate
- Be distributed to beneficiaries much faster than assets in a will
- Avoid being public information; trusts are private
- Be kept in the trust, if you desire, until a minor becomes a certain age before they inherit their trust property
While a trust costs more to set up than a will, it saves money later on by avoiding probate.
Other Documents You'll Need
A good estate plan will have additional documents. These include:
- Life insurance, listing the correct beneficiaries
- Payable-on-death savings and checking accounts
- Titled property held jointly, so the survivor automatically gets the property after one of you passes
- 401Ks, IRAs, and pension plans with updated beneficiaries
- Any other transfer-on-death property or accounts, such as stocks and bonds
- Provisions for funeral expenses
- Funds for education expenses
A comprehensive estate plan needs more than a will, even if you only have a small estate. Consult an estate planning attorney, so you have peace of mind that you've included every document you need in your estate plan.