It is never too early to prepare essential estate planning documents, but it can be too late. So many people do not have estate plans and many more who do have expired documents. There are essentially four documents it is recommended that every adult have: A will, a durable power of attorney, an advance directive and a letter of instructions.
A will is a legal document that tells who will manage your estate, who will receive your possessions, and, if applicable, who will be the guardian of your minor children or other disabled family members after you pass away. In the event you pass away without a will and the state makes all decisions. Unfortunately, this is often at an added cost to your loved ones.
Wills & Living Trusts
A living trust grants the power over your estate to a successor trustee. The successor trustee manages your financial affairs according to your instructions for as long as necessary. Another advantage of a Living trust is that they may allow assets to be passed to heirs without going through the process of probate. Avoiding probate will normally save substantial costs (often estimated at 4%-8% or more of your estate's value), time, and maintain privacy (Court proceedings are public record. Family can be exposed to disgruntled heirs, and unscrupulous solicitors. Revocable living trusts are not public record. Your family can take care of your financial affairs privately). Both living trusts and wills can also be used to plan for unforeseen circumstances such as incapacity or disability, by giving discretionary powers to the trustee or executor of the estate.
After the death of the trustor (who is the person who created the trust), certain steps must be taken to comply with state law, to preserve the federal estate tax exclusion amount, and to change title to assets. This is called "trust administration," and the complexity of the administration depends on the number and type of assets, their total value, and whether the trust includes tax planning provisions.
Durable Powers of Attorney
A legal document that enables an individual to designate another person, called the attorney-in-fact, to act on his/her behalf, even in the event the individual becomes disabled or incapacitated. An "advance directive" (sometimes called a "healthcare directive") combines a living will and durable power of attorney, either in one document or two separate ones.
Advance directive is a catch-all term that refers to health care directives, living wills, medical powers of attorney, and other personalized directives. All of these documents allow you to express legally your preference for continued healthcare should you become too ill to express your desires.