Estate planning is easily one of the most overlooked aspects of an individual's financial life. It is unpleasant to think about, and therefore, frequently neglected. Oftentimes individuals only see the value in it when something occurs in their life that reminds them to take care of the planning. However, at its core, estate planning is about preparing for unforeseen personal circumstances and honoring the legacy you want to leave to your loved ones.
Estate planning documents provide the legal means by which others can help you with difficult circumstances during life and with your legacy. These documents are fundamental and should be part of the bedrock of everyone’s financial plan. That being said, without proper estate planning, your family and those to whom you want to leave your assets may have difficulty carrying out your wishes. Without appropriate estate planning, your heirs could have trouble:
Tending to your medical and financial needs should you be unable to do so yourself,
Transferring and distributing property,
Incur unnecessary taxes and additional costs, or
Leave minors without an identified guardian leading to one being appointed by a court.
So, here are the essential estate documents that you need:
1. Last Will & Testament
Put simply, your Will specifies who assumes ownership of your property after you pass. You, the creator of the Will (otherwise known as the 'testator'), get to choose to whom your property will be distributed. In this document, you select an 'executor' or the person who will carry out your wishes and ensure the terms of your Will are followed accordingly.
NOTE: while a Will articulates who the assets go to, it does not identify how those assets are dispersed.
If you have dependents or children with special needs, make sure to name a guardian who will take care of them should something happen to you. This is a separate document called a Nomination of Guardian. You may also want to name a 'custodian' who will be responsible for property on behalf of your minor beneficiary.
2. Durable Power of Attorney
A Durable Power of Attorney assigns a trusted person to act on your behalf in managing your personal and business responsibilities in the event you are unable to do so yourself. This individual is known as the 'attorney-in-fact' (sometimes called the 'power holder' or 'agent') and acts in the place of the 'principal' (the grantor of the power, you). Ordinarily, the attorney-in-fact can be any individual legally able to care for and act for themselves; however, the individual must be of a certain age (which varies by state, usually 18 years old in most states) and must be legally competent. Note, that powers of attorney are meant to be used during your lifetime, and therefore, are voided upon your passing.
3. Health Care Directives
There are four primary directives: Powers of Attorney for Health Care, Living Wills, HIPAA Authorizations, and Do Not Resuscitate Orders.
A power of attorney for health care, also known as a 'medical power of attorney' or 'health care proxy,' gives someone the authority to make medical decisions on your behalf if you are unable to do so yourself. A Living Will, also known as an 'advance health care directive,' stipulates your wishes for medical and end-of-life care should you be deemed incapacitated or otherwise unable to make those decisions yourself. A HIPAA Authorization permits individuals to obtain your protected health information for specified purposes.
NOTE: HIPPA is the Health Insurance Portability and Accountability Act of 1996, and it sets the standards for protecting patient health information.
Lastly, a Do Not Resuscitate Order (DNR) sets forth your desire to decline cardiopulmonary resuscitation (CPR) in the event your heart stops.
Final Thoughts
Trusts are not necessary for everyone, especially if your estate is not complicated. Still, it is worth having a conversation with your financial advisor and estate planning attorney to see if a trust is right for you. They are very powerful tools to have in your estate plan when appropriate. A trust is a legal entity in which to put assets managed by an individual or entity (known as a 'trustee') for the benefit of the 'beneficiaries.' 'Retitling' (transferring) your assets into the name of the trust provides several advantages, including: avoiding probate, easing the transfer of assets, and allowing for the management of the trust property by someone you can rely upon. Along with the trust documents, make sure you receive a 'Certification of Trust.' This summarizes the contents of the document and outlines the key provisions without revealing other personal details. Sometimes banks and brokerage firms will ask for copies of the trust to create or make changes to a trust account – instead, you can provide them with a Certification of Trust.
Beneficiary designations should be kept current and therefore reviewed periodically. Be sure to check these whenever you have a significant life event or every few years, whichever comes first.
A side instruction letter also known as a 'personal instruction letter,' is a letter you write to your executor detailing how you want specific tangible possessions distributed, and also outlines your funeral and burial wishes. This letter is not legally binding but serves as instructions for your wishes for specific items and/or actions. This letter should be kept with your other estate planning documents and may contain personal information such as financial account information, location of sensitive items, or outstanding debts, which the executor will use to help with the disposition of the estate.
Lastly, the questions that arise from estate planning often take time to think about and answer. Not everyone has someone that immediately comes to mind whom you will want to act in your stead. Consequently, we recommend that our clients take their time to think about what they want. This does not mean you can put off these decisions, but you do not need to be rushed, either. Also, do not forget that these documents are not permanent and can always be amended if you have a change of heart.
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About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions.