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Key Documents to Consider When Estate Planning

Estate planning is more than just a determination of what will happen to your property or assets on your passing. It is also a determination as to what you want done for you, if you should reach a point when you become incapacitated.

No one should exempt themselves from estate planning. James Gandolfini, Prince, Michael Jackson, Sonny Bono and Aretha Franklin all died with no will or trust in place. This results in delays in distributions to heirs, much higher court costs and potential legal battles among beneficiaries.

Many people may want to avoid creating an estate plan until they're older. By not having a written estate plan, you put your loved ones in a very difficult situation without proper written guidance from you, regardless of your age. (For more, see: Estate Planning: Introduction to Wills.)

To protect your family and yourself, review the following 10 items you should consider in developing a sound estate plan:

Key Documents

Your first step to make things better for your family is to memorialize your intentions utilizing the proper documents. It is highly recommended that you consult with a local attorney who specializes in estate planning. You should keep several copies of the executed documents, either digitally on your computer or physically in your home safe from fire or theft.

Here are the five key documents you will need for a sound estate plan. The first four would apply to everyone age 18 and over. The last would be appropriate for those that had more assets or real estate and you should consult with an attorney to know if it is right for you.

1. Advance Healthcare Directive

As the name suggests, this form dictates your wishes regarding your own healthcare should you not be able to provide verbal directions at the time. It is used only if and when you are unable to communicate your wishes. It clearly lists your preferences to your appointed agent so that your wishes can be expressed at a time when you cannot express them yourself. Without this document, healthcare decisions could be delayed and result in care that you may or may not want.

2. HIPAA Release Form

The Health Insurance Portability and Accountability Act (HIPAA) was enacted in 1996. Under HIPAA privacy rules, you should name the individual(s) who will be permitted to access all of your healthcare related information as well as insurance and who can act on your behalf, if and when you are unable.

3. Power of Attorney

When you sign a power of attorney (POA), you essentially appoint someone to manage your financial affairs for you should you be unable to do so. The POA will specify the areas in which your appointee may assist you. Without a POA document and in the event you are physically or mentally incapacitated, a court may name a power of attorney to act on your behalf and it may not be the person you would have chosen. There are added costs when the court gets involved which can be avoided with a POA. (For more, see: The Importance of Updating Retirement Account Beneficiaries.)

4. Will

A will is the legal document to transfer your property and assets after your death. In the will, you also specify who is appointed to care for your children until they reach age 18. Unfortunately, even if you have prepared a will, your estate may still need to go through the legal process known as probate. Probate can be an expensive and time consuming process where your assets and property are distributed according to your stated wishes. While a will is relatively inexpensive to obtain, it can be costly and time consuming to complete the court approved transfers. There is a better alternative - a living trust.

5. Living Trust

A living trust is the preferred alternative methodology to transfer your assets or property upon your death. It is generally faster and less costly than probating a will. Moreover, your wishes are less likely to be challenged than with a will. In some cases, a living trust may not be an absolute necessity depending on the monetary value and make up of your assets and property. If you do have a living trust, you should also have a will.

Without estate plan documents, you will have made an already challenging time for your heirs even more difficult and complicated upon your incapacity or death. The absence of an estate plan is not only time consuming but costly for your heirs and the put come may not be what you wanted.

5 Additional Key Steps

These five key steps can be critical to helping your loved ones in the difficult days with your incapacity or following your passing.

1. Update Beneficiary Forms

For all life insurance policies, annuities or a retirement plan (an IRA, 401(k), 403(b), etc.), be certain that the listed beneficiaries are correct. This will often be your spouse. But you could also name contingent beneficiaries such as your trust, children or grandchildren, a charity or even good friends.

It is particularly important that you ensure that your beneficiaries are current, especially if you’ve remarried or if you have had other significant changes to your family structure. These types of accounts do not go through probate and are automatically passed down, based solely upon your beneficiary designations.

2. List of Assets

It’s important that the person you will name as your power of attorney, the trustee of your trust, or the executer of your estate should know your assets and where your assets are held. Without knowing this, they are unable to use your assets for your benefit (should you be incapacitated) or properly distribute them as you had intended upon your passing.

3. Keep Record of Digital Assets and Accounts

Much is done online and you should make it easy for the individual(s) whom you have charged to manage your accounts if you are incapacitated or deceased. Keep a record of your online login information (as well as your “offline” documentation) for all the assets or accounts you maintain - e.g. bank or brokerage accounts, credit cards, store cards, bill payer websites, and any other account that you can access online. Don't neglect those accounts that have your credit card information stored with automatic billing, such as media streaming or online subscriptions.

Store this vital information in a secure and well known location - perhaps, with your estate planning documents to ensure that your executor, or designated power of attorney can access your accounts when needed.

4. Make Your Final Arrangements Now

Making your own final arrangements may not be an easy thing to do, but it is far better that you make these choices now than it is for your family to make them at the time of your loss. Your selection of the types of service and arrangements will take that heavy burden off your family. This pre-planning that you do will be greatly appreciated by your loved ones.

5. List People to be Notified of Your Passing

When you die, there are plenty of people to notify and it can be difficult for your heirs to know exactly who all of them are. It is infinitely easier for you to compile a list of the individuals you'd like to be made aware of your passing. In the hectic and emotional hours after your death, it is very possible that your family may neglect to include someone you would have wanted to know.

By creating a sound estate plan, you will help ensure that your wishes are met when you are incapacitated or die, and make things easier for the loved ones you've left behind. Take the time now to properly analyze your situation and have all the legal documentation in place. (For more, see Estate Planning: 16 Things to Do Before You Die.)