Estate planning is a necessary step in securing your financial future, but for many people it feels overwhelming. TrustandWill.com, one of America’s leading estate planning platforms for basic documents, estimates that 56% of Americans have no estate planning documents at all.
A lack of adequate estate planning can lead to a wide range of problems: increased probate costs, assets that get lost or forgotten, property divided in ways that contradict your wishes, minor children becoming wards of the state or inheriting large sums with no guardrails, unmet healthcare preferences, and an inability for you or your spouse to access assets at critical moments.
If you’d like to avoid these issues but aren’t sure where to start, the checklist below outlines the essential estate planning documents and what each one accomplishes.
Estate Planning Checklist at a Glance
- Health care directive (living will) and health care proxy
- Last will and testament
- Guardianship designation for minor children
- Durable power of attorney
- A catalog of assets and liabilities, with beneficiary designations in place
- Trusts, where appropriate
1. Health Care Directives and Health Care Proxy
A health care directive, also known as a living will lays out your wishes and preferences for medical treatment in the event you become incapacitated and cannot articulate them yourself. It typically specifies which lifesaving and life-sustaining treatments you would or would not want, such as breathing machines or feeding tubes.
A health care proxy is a trusted person you designate who has the authority to make medical decisions on your behalf should you become incapacitated.
Both documents are essential to ensure that the care you receive during incapacity or at the end of life is appropriate and consistent with your wishes.
2. Last Will and Testament
A last will and testament is the estate planning document that spells out your final wishes. It typically outlines how your property should be divided and names an executor, the person responsible for managing your estate and ensuring assets are distributed according to your instructions. Most importantly, if you have minor children, a will is where you can appoint a guardian to look after them in the event of your passing.
While a last will and testament is essential to any estate plan, it is often not the most efficient way to pass assets to heirs. Assets transferred through a will generally must go through probate, a process that can be slow, expose your estate to creditors, and create friction among heirs.
3. Guardianship for Minor Children
If you have children, establishing guardianship is non-negotiable. The most common way to do so is through your last will and testament. If you don’t name a guardian, your minor children may become wards of the state and possibly enter the foster care system.
4. Power of Attorney
A power of attorney is a legal document naming someone who can make decisions on your behalf. There are several types, including the health care proxy described above, but any thorough estate plan should also designate someone who can make financial decisions for you if you become incapacitated.
The most common way to accomplish this is with a durable power of attorney, which remains in effect, or springs into effect, upon your incapacitation.
5. Cataloging Assets and Liabilities, and Attaching Proper Beneficiaries
Maintaining a comprehensive list of everything you own and owe is an enormous help to you, your future heirs, and your executor.
Just as important is confirming that your assets have current beneficiary designations attached. Retirement accounts, bank accounts, brokerage accounts, and in some states real estate can pass directly to your heirs through a transfer-on-death (TOD) designation, bypassing probate entirely. Review these designations periodically, especially after a marriage, divorce, birth, or death in the family.
6. Trusts
Trusts come in many forms and serve a wide array of estate planning purposes.
- Revocable trusts are commonly used to avoid probate, allowing assets to pass directly to heirs.
- Irrevocable trusts can shelter assets from creditors, and in some forms reduce exposure to estate taxes.
- Trusts with distribution provisions can protect heirs from themselves, useful if you’re concerned a beneficiary is too young or may mismanage a large inheritance.
Why Estate Planning Matters at Every Asset Level
Estate planning is vitally important for everyone, regardless of net worth. Without a proper plan, your family may face probate costs, guardianship uncertainty, unnecessary stress, and an inability to cover expenses if you become incapacitated.
If you haven’t completed an estate plan, or haven’t reviewed yours in several years, it is wise to meet with an attorney who specializes in estate planning to make the necessary updates or put one in place.
About the Author
Aaron Belletsky, CFP® is a Certified Financial Planner® and an associate financial advisor with Landmark Wealth Management, LLC, a fee-only SEC registered investment advisory firm. He works with individuals and families to develop comprehensive financial strategies to achieve their long-term goals.