Five essential estate planning documents

Estate planning is about crafting a legacy that reflects your values and your life's journey. While a will is often the initial step people consider, a comprehensive estate plan includes additional documents designed to help safeguard your legacy and ensure your wishes are carried out. Regardless of your age, health or wealth, there are five key documents that form the cornerstone of a well-rounded estate plan.

1. Will

Often thought of as the foundation of an estate plan, a will dictates how assets will be distributed to heirs at the time of your passing. Without a will in place, the estate will be dispersed based on state law, which may not be aligned with your wishes.

A will also allows you to name an executor of your estate, which is the person you trust to settle your estate in accordance with your intentions. Without a named executor, the state will appoint an administrator, who may not have been your ideal choice.

Another important benefit of having a will is that it appoints legal guardians for minor children or dependents with special needs. Just as in the case of the executor, if you fail to name a legal guardian, the state will appoint one for you.

Since a will is a legal document, the courts are reluctant to override anything in it. It’s critical that your will is well-written and articulated, detailed and thorough. If you experience any life events or your wishes change, it’s important to update your will.

Key aspects of a will

• Dictates how assets are distributed
• Names an executor to settle your estate
• Names a legal guardian for minors

2. Durable power of attorney

In the event you become incapacitated or unable to manage your own financial affairs, a durable power of attorney authorizes someone to act on your behalf. This document allows you to appoint and authorize someone else to conduct your financial business, such as pay expenses, collect benefits, file taxes and direct investments.

There are two types of durable powers of attorney:

• Immediate: This takes effect immediately.
• Springing: This goes into effect only once you become incapacitated.

3. Advance medical directives

If you are unable to make medical decisions for yourself, there are several documents that allow you to dictate the medical treatment you would want or appoint a representative to make medical decisions for you. Today’s medical technology allows doctors to revive or sustain life indefinitely, which may not align with everyone’s wishes.

There are three types of advance medical directives:

• Living will: This document allows you to approve or decline certain types of medical care, even if death is imminent as a result of the choice. Generally, this document can be used to decline medical treatment that might otherwise prolong your life. In some states, a living will takes effect only under certain circumstances, such as terminal illness or injury. However, you may still want to have a living will as evidence of your wishes.
• Durable power of attorney for healthcare: Also known as a healthcare proxy or healthcare surrogate, this document allows you to appoint and authorize a representative to make medical decisions for you. You can indicate how much power your representative will have.
• Do not resuscitate (DNR) order: A DNR is a document that orders medical personnel not to perform CPR if you go into cardiac arrest or breathing ceases. There are two types of DNRs, one that is effective all the time and another that is only effective while you’re hospitalized.

Every state has different requirements for their advance medical directives. Be sure you understand which documents are accepted in accordance with your state laws. You may need a combination of two or three documents to ensure your wishes are carried out as you intend. You might also need to update your documents is you move to another state.

4. Letter of instruction

Also known as a testamentary letter or side letter, a letter of instruction is an informal, nonlegal document that accompanies your will and is used to share your thoughts and instructions regarding your affairs. It may provide further detail about what’s in the will and other wishes, like burial directions and where to locate critical documents.

It’s important to note that a letter of instruction is not a substitute for a will. The directions you provide in a letter of instruction are not binding, but merely suggestions for the people addressed in the letter. However, a letter of instruction may be the most helpful document in your estate plan for the executor and/or family members.

Unlike your will, the letter of instruction remains private to the public record. It’s an opportunity to get personal and express your feelings.

5. Living trust

A living trust, which is also known as a revocable trust or inter vivos trust, isn’t required for every situation but might be a critical component of many estate plans.

This trust is a separate legal entity you create to own assets, such as your property and investments. As its name states, this trust is meant to function while you’re alive. You control the assets in the trust, including transferring assets in and out of the trust. You can also change the trust terms at any time or end the trust completely.

The main purpose of having a living trust is to avoid probate. Probate can be a complex, lengthy and expensive process, depending on your state of residency. Property in an estate will not be dispersed until probate is complete, which can take months or even years. Property in a living trust can be transferred to beneficiaries much quicker. It’s important to note, though, there are other ways to avoid probate, such as titling property jointly.

Probate can also interfere with the management of assets like a closely held business or stock portfolio. Although your executor is responsible for managing the assets until probate is complete, this person may not have the expertise to make critical management decisions. Transferring the asset more quickly to the intended party with a living trust will ensure a smoother and more effective transition.

You may also want to avoid probate for privacy reasons. Probated documents, like a will or inventory, become a matter of public record. But a trust does not.

Note that while a living trust transfers property as does a will, you should not forgo a will. A trust will not allow you to accomplish certain things a will can, like naming an executor or guardian for minors.

Before creating a trust, you should consult an estate planning professional and tax advisor. There are tax regulations that apply to trusts, and you should understand their limitations as well.

Benefits of a living trust

• Allows someone else to manage your assets if you become incapacitated
• Offers flexibility to add or remove assets from the trust
• Allows assets to avoid probate

Estate planning is personal. And because every path is different, the guidance of a seasoned professional becomes invaluable. Their keen understanding and compassionate approach will help you work through the complexities of the process and ensure your documents create a seamless plan that carries out your wishes.

Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

This material has been created by Raymond James for use by its financial advisors.