There are five basic estate planning documents that make up a thorough estate plan. These include a will, beneficiary designations for insurance policies and retirement accounts, power of attorney (POA), trusts, and health care directive.
Planning your estate can be difficult as it involves intricate legal paperwork, financial complexities, and tax considerations. Nevertheless, an estate plan is a crucial part of protecting your legacy and family.
While it might be unsettling to think about, having a strategy for your estate after death is essential. All your possessions, from your home to bank accounts and other assets, make up your estate.
While estate planning can be complicated, it’s not as stressful as you think when you hire an experienced attorney. Our estate planning lawyers serving Rockford, IL, are here to help you understand the basics. Below, you’ll find more information on what is included in an estate plan.
Estate Planning Documents Checklist
As stated above, the most important legal documents that make up a thorough estate plan include five essentials:
- A Last Will and Testament
- Beneficiary Designations for Retirement Accounts and Insurance Policies
- Power of Attorney
- Trusts
- Health Care Directive
Now that you know what these documents are, let’s dive into exactly what they do and how they protect your estate.
1. A Last Will and Testament
Your will is what allows you to choose who inherits your assets after your passing. It’s possibly the most important part of an estate plan. In your will, you can also choose a guardian for children or pet(s) and name an executor to make sure that all your wishes are carried out properly. Named beneficiaries can inherit everything from real estate to financial accounts and stocks.
Wills can be created at any stage of life. In fact, you should make a will as soon as you become a legal adult. The second best time to draft a will is when you acquire any significant assets or dependents. Key milestone events can include getting married, buying a home, having kids, or becoming a grandparent.
2. Retirement Account and Insurance Policy Designations
Your estate plan isn’t complete without carefully considering all beneficiary designations. This includes determining who will receive your retirement accounts and insurance policies after your passing. These specific designations carry significant legal weight.
They specify who should receive the assets from your:
- Retirement plans, like 401(k) accounts, 403(b) accounts, pensions, and Individual Retirement Accounts (IRAs)
- Life insurance policies
One of the most important aspects of such beneficiary designations is that they actually override your will. This means that the person named as a beneficiary on the designation form for that policy or account will inherit, regardless of whether your will says differently.
Benefits of Proper Designation
When you maintain up-to-date beneficiary designations, you can:
- Ensure money goes directly to your intended beneficiaries
- Maintain control over specific account distributions
- Simplify the distribution process for your executor
We recommend reviewing your beneficiary designations at least once a year or after major life events, such as:
- Marriage or divorce
- Birth or adoption of children
- Death of a named beneficiary
- Significant changes in relationships
3. Power of Attorney (POA)
A power of attorney for an estate names someone to make decisions for you should you become incapacitated. This might include your spouse, a family member, or close friend.
The POA agent oversees and manages financial concerns, such as transactions or property matters. They are also in charge of ensuring that the estate’s financial obligations are fulfilled. Their decisions must be in line with your desires and best interests.
Choosing a POA allows you to have peace of mind that your affairs will remain in order even if you’re unable to manage them for a while. This can also potentially save your loved ones time and stress during an already difficult period.
4. Trusts
A trust is a versatile legal document that can offer greater control over how your assets are managed and distributed, both during your lifetime and after. Trusts offer unique benefits that go beyond what a will alone can provide.
A trust creates a legal entity that holds assets on behalf of your beneficiaries. When you establish a trust, you (the grantor) transfer assets to a trustee. The trustee manages them according to your specified instructions for the benefit of your chosen beneficiaries. You yourself can be the trustee until your passing or a pre-specified time.
Once the conditions of the trust are met, the grantee (the trust’s beneficiary) receives its assets.
Including a trust in your estate plan offers several advantages:
- The assets in the trust will avoid the probate process, saving time and money for your beneficiaries.
- Trusts help to maintain privacy, unlike wills which become public record.
- They provide detailed instructions for asset distribution.
- They help protect assets for minor children or beneficiaries with special needs.
- They can potentially reduce estate tax liability.
- Trusts allow you to create flexible arrangements for complex family situations.
5. Health Care Directive
A health care directive spells out your medical care wishes and names someone to make medical decisions on your behalf. It is a set of documents that includes two key parts, a living will and medical power of attorney.
Living Will
This document tells your doctors and family the medical care you want if you become too sick to speak for yourself. It covers important decisions like:
- Whether you want life support
- Your wishes about pain management
- Choices about feeding tubes or breathing machines
- Other end-of-life care preferences
Medical Power of Attorney
This document names a trusted individual (your health care proxy) to make medical decisions for you if you’re unable. This person should:
- Know you well
- Understand your values
- Respect your choices
- Be able to make difficult decisions under pressure
- Live close enough to help when needed
It’s wise to have both of these tools in your estate plan because they technically address different needs.
Your living will guides your care when you can’t speak. A medical POA names someone who makes decisions on things not covered in your living will. Together, they give clear instructions to your doctors and family. They also help prevent confusion and family disagreements about your medical treatment.
Contact Crosby Law Firm
If you’re ready to start your estate plan, contact our estate planning lawyers today. We will help you complete this complex process step by step. Call (815) 397-2006 now to schedule a free initial consultation!
