Many people make the mistake of thinking that estate planning is all about inheritances. However, a comprehensive estate plan should encompass more than an ordinary will. An estate plan should protect the testator’s health and wealth and provide critical protections for their friends, family, and other loved ones.
The Six Most Essential Estate Planning Documents
1. Last Will and Testament
A last will and testament is a fundamental estate planning document that determines who shall assume ownership of the grantor’s assets after they pass away.
However, a will serves other purposes. A will allows you to:
- Name an executor responsible for administering your estate and distributing inheritances
- Make end-of-life care decisions
- Designate a guardian for your minor children
Wills are not especially complex documents, although they must still comply with New York law. In general, a will must be:
- Signed and dated by the writer
- Signed and attested by at least two impartial witnesses
Without a valid will, estates risk being thrust into intestacy proceedings—the probate court’s procedure wherein assets are distributed according to a rigid, pre-defined legal formula.
2. Letter of Intent
A letter of intent is a non-legally-binding document that could:
- Detail your desired funeral and burial arrangements
- Provide a full accounting of your financial assets for your executor
- Establish the foundations of your digital estate
Since letters of intent do not serve any particular legal purpose, they are often used to explain the testator’s preferences and inheritance decisions. A letter of intent could be necessary if you plan to disinherit an heir or ask a loved one to care for a beloved pet.
3. Power of Financial Attorney
The durable power of attorney allows you to name an agent who can act on your behalf if you are ever medically, mentally, or physically incapacitated. This financial power of attorney could allow the agent to:
- Pay your bills
- Transact real estate purchases or sales
- Oversee the day-to-day operations of a family-owned business
Since agents are considered fiduciaries, they have a legal responsibility to act in the best interests of the principal.
4. Health Care Proxy
A health care proxy is somebody who can make medical decisions on your behalf in case you are ever incapacitated.
Your health care proxy can:
- Access your medical records and other health care information
- Accept or decline medical treatment on your behalf
- Inform medical personnel of your end-of-life care wishes
5. Beneficiary Designations
Estate plans are often designed to help the testator’s loved ones avoid the travails of probate, the rigorous legal process of formally dissolving an estate. Many assets, including real estate, motor vehicles, and art collections, could be subject to probate unless they are transferred to the care of a revocable living trust.
However, assets that include beneficiary designations—such as life insurance policies and checking accounts with a payable-on-death (POD) designation—are automatically exempted from probate.
While a beneficiary designation could automatically exempt an asset from probate, beneficiary designations do not automatically update. Estate planning professionals typically advise that beneficiary designations be regularly reviewed and updated as needed.
6. Revocable Living Trust
A revocable living trust allows you to transfer assets to the trust’s possession while you are still alive. While trust assets technically belong to the trust, you—the trustor—still retain the right to access and use the trust assets as you see fit.
After your death, your designated trustee or trustees will distribute the trust assets to the beneficiaries you have chosen. Since living trusts are discrete legal entities, trust assets are not subject to probate.
Revocable living trusts afford other advantages. For example:
- You can amend the trust when you are still alive
- You have the authority to transfer assets to and from the trust as needed
- Since trust assets are not subject to probate, trust-based successions are comparably efficient and typically afford families more privacy