4 Essential Estate Planning Documents for Everyone

Whether you’re 18 years old or 78, estate planning is essential. Now at age 78, estate planning should be a no-brainer, but you would be shocked to know how many folks have neglected to complete these essential documents because they thought they were only for the wealthy or because they procrastinated for 60 years. The majority of Americans (64%) still don’t have a will.

Even some of the wealthiest and most famous individuals neglected to complete these documents: Jimi Hendrix, Pablo Picasso, Sonny Bono, Michael Jackson, Prince, Steve McNair and Abraham Lincoln, to name a few. In their defense, it is never pleasant to pay an attorney to plan how to distribute your assets once you’re dead, or to lay out what to do or not to do with your body if you are incapacitated.

We recommend four essential estate documents to all of our clients: will, living will, healthcare power of attorney and financial power of attorney. If you have minor children, you should also name guardians as part of your essential estate documents. (For related reading, see: 4 Keystone Money Habits to Establish.)

Let me provide the clear disclosure: seek advice from a legal professional for your particular situation, and to draft all of the documents we are going to review. Also, understand that each state will have specifics for each of the documents. This article is not a how-to on drafting your estate documents; it is meant to give you a basic understand of a few essential legal documents you might need. I am a financial planner, not an estate attorney. I would have failed miserably at law school.

So what do these documents do?

A Will

The fancy term is “last will and testament.” Most of you have probably heard of this but never completed it based on our stats from above. Your will is also where you would name guardians for your minor children.The primary purpose of this document is to outline who will receive your assets after your death. You will also designate an executor to oversee and carry out your instructions.

Without a will, your assets will have to proceed through probate, which could cost money and time, and at the end of it, a judge will decide how your assets are distributed. I don’t know about you, but that does not sound like an ideal situation. A will allows you to lay out your plan for your assets.

A Living Will

Here is where estate planning becomes vital for everyone at every age. A living will would provide guidance for your loved ones regarding your preferences for end-of-life medical treatments, assuming you can’t communicate or are incapacitated. A living will is not a fun document to complete because you are going to lay out instructions and your preferences for life-prolonging treatments, life support, feeding tubes and do-not-resuscitate orders.

Completing your living will is an unselfish act – imagine how hard it would be for your spouse, parent or children to make these types of decisions for you. With a living will, you provide your family with your wishes so that they don’t have to guess between life or death. Make sure your primary doctor and family members can access this document quickly and easily. We ask our clients for a copy and tell them to notify their family that we have a copy, and it can be sent anywhere when needed at a moment’s notice.

Durable Financial Power of Attorney

This is also referred to as a financial power of attorney. Simply put, a power of attorney grants another person the ability to make financial decisions if you become incapacitated. A financial power of attorney can include everything from paying your bills to calling to liquidate your investments. Some of the more common authorities that are given with a durable power of attorney include: the power to monitor expenses and pay bills; to review and make changes to retirement accounts; to operate your business; and the power to handle banking transactions. Make sure you give this some thought because whoever you name as financial power of attorney will have full control of your financial life if you are incapacitated.

Durable Healthcare Power of Attorney

Take all the information used to define the financial power of attorney above, but instead of dealing with financial decisions, this appointee makes medical decisions while you are incapacitated. Again, make sure your primary doctor and family members can access this document quickly and easily. A healthcare power of attorney allows someone else to make healthcare decisions for you, while a living will spells out your wishes and instructions.  

We call these the four essentials because every person should consider these documents no matter what! Estate planning can get much more in-depth as net worth increases, but these four documents are needed for everyone even if your net worth is $0 (or negative, thanks to student loans).

We recommend that all clients have these documents completed via an attorney, preferably an estate attorney. I know you think you can write your will on a napkin at Chick-fil-A, and as long as you sign it with honey mustard it’s legit, but you are walking a fine line. Even the low-cost online options are failing in some courtrooms across the U.S. You won’t realize how important these documents are until you are incapacitated. Take the time and money to do it right with an attorney; saving a couple of bucks won’t mean anything if your estate documents are not legal.

Ask your family and friends for a referral for an estate attorney, and don’t be scared to shop around. You should be able to call and ask for a flat rate fee to complete those four documents. Once finished, make sure you stay up to date. Every three-to-five years is a good amount of time to review and contact your attorney to confirm no significant legal changes have occurred since the last draft was completed. Any major life events (marriage, divorce, kids, etc.) or major financial events (new home, sold a business, retirement, etc.) are cause for reviewing your estate documents. (For related reading, see: Don't Let Risk Ruin a Good Financial Plan.)