One of the most frequently asked questions from potential clients is “What documents do I need in my estate plan?” Another is “Do I need a will or a trust? Wait, why would you say I need both?” Here’s a breakdown of the typical documents in an estate plan, and how they tie together.
- The Will. The will is the most basic part of every estate plan. It tells everyone what happens to your assets (i.e., your money and your stuff) when you die, and who’s in charge of getting it to the appropriate people. If you have children, the will also states who will be their guardian if something should happen to you while they’re still minors.
- The Trust. The trust serves two functions. First, if you have minor children (or beneficiaries who just aren’t ready for a chunk of money), the trust can hold and manage your assets until the children are old enough and/or mature enough to get their inheritance. Second, assets held in trust are not subject to probate. If the bulk of your assets are held in trust, probate is not required for your general estate. That’s why trusts are a very popular method of avoiding the probate process.
(Note: The trust is only in charge of the assets held in trust, similar to how a company is only in charge of the assets owned by the company. Everything not held in trust is governed by the will. That’s why most people want to have both. In the event something important was not in the trust, the will can act as a safety net to make sure it gets there.)
- The Power of Attorney. This document tells everyone who can manage your finances and pay your bills if you can’t do so yourself. It is only effective during your lifetime; after your death, this document is void, and the will is the controlling document.
- The Advance HealthCare Directive. This final document tells everyone who can talk to your doctors and make medical decisions for you if you can’t do so yourself. It also tells your agent what you want, e.g., you can state whether you would want to stay on life support if you were in a coma with little chance of waking up. Not surprisingly, this document is only valid during your life, with one exception: you can authorize your healthcare agent to deal with your remains.
These four documents together make up most people’s estate plans. Some people may need more (e.g., multiple trusts to reduce their estate tax), while some people may need less (e.g., someone with few assets may not need a trust at all), but most of the people I work with will be set with these four documents.
If you have any questions or would like to discuss your own estate plan with me, please feel free to contact me at kaway@kawaylaw.com.
