7 Estate Planning Documents Everyone Needs-Part 1

12 years ago today, two airplanes collided into the Twin Towers of the World Trade Center in New York CIty, NY.

As I’m sure all of you who are reading this know, America (and the world!) hasn’t been the same since.

As we take some time to remember those that were lost, this event brings up some important questions related to financial planning:

What if you or someone you loved was in one of the towers?

Would you or your loved ones be prepared from an estate planning perspective?

I pray none of you will have to go through the type of tragedy the victims’ friends and families endured in 2001, but the fact remains that all of us are going to die one day and most of us don’t know when or how that will happen.

Part of working with a good fee-only financial advisor involves making sure you have a proper estate plan in place, so that when you become incapacitated or pass away, your financial affairs are in order.

With that in mind, there are 7 estate planning documents that everyone needs, so that things are a little easier for your friends, family, and loved ones in the event of your incapacitation or untimely death.

In part 1 of this 2 part series, we’ll talk about 4 documents related to your financial and personal affairs and in part 2 we’ll talk about 3 documents related to medical and health decisions.

Estate Planning Document List

1. Will

When you die, most of your estate (i.e. money, possessions, etc.) will go through a process called probate, whereby the court determines how your assets will be distributed (exceptions to this rule are typically assets held in a trust and/or assets that have beneficiary designations such as retirement accounts and life insurance, but there may be others).

If you have a will, then the court makes sure your assets are distributed according to the wishes you have outlined in your will. If you die without a will, however, your assets will likely be distributed according to the laws that govern your state.

Would you rather have your vintage jazz record collection go to your nephew who shares your passion for jazz music or your sister who prefers rap music and will sell the record collection for some quick cash?

That’s what I thought.

Where there’s a will, there’s a way…so get one!

2. Durable Power of Attorney

Let’s say you get hit by a bus today while walking across the street.

Wow, talk about the glass being half empty!

Miraculously, however, you survive, BUT you’re in a coma for 2 months.

So, who takes care of your finances and other personal or business affairs while you’re in a coma?

That’s where a durable power of attorney (POA) comes in.

With a durable POA, you designate someone who can act on your behalf regarding financial, real estate, business, and other matters. The “durable” part means that it’s still effective even if you become mentally or physically incapacitated.

With that in mind, you should make sure only to grant these powers to someone with whom you have a high degree of trust, who knows you well, and will honor your wishes.

3. ICE Folder

So, you’re in a coma and you have designated a family member or loved one as your “attorney-in-fact” via the durable POA mentioned above.

How does this person know what bills to pay, how to access accounts, and a myriad of other items that they’ll need to know about when acting on your behalf?

Well, hopefully, you created an “In Case of Emergency” (ICE) Folder.

This folder or file should contain all of the relevant information someone would need in the event of your untimely incapacitation or death. Kind of like an instruction manual, someone could take this file or folder and continue handling your financial, business, real estate, and personal affairs on your behalf without a problem (assuming you have granted them that power using a durable POA).

This file should be stored in a secure, easy-to-access location and the person you have designated in your durable POA should know how to access it.

With that said, whatever you do, DON’T store this file in a safety deposit box at a bank.

Why?

Because your attorney-in-fact will likely need a copy of the durable POA to access your safety deposit box, so if the durable POA is in the safety deposit box, they won’t be able to access it!

4. Personal Letter(s)

Wouldn’t it be nice if we all had the chance to say goodbye to our spouse or loved ones prior to our death?

While it’s true that some of us will have a better idea than others in terms of knowing when we will die (i.e. terminal illness), most of us will not know the day or the hour of our pending death.

Fortunately, if you’re reading this blog post, you DO have a chance to say goodbye!

All you have to do is write a personal letter to your spouse, children, family, friends and anyone else you want to “say goodbye” to. Once you do so, stick copies of these letters in your ICE Folder discussed above.

This way, you can leave your friends and family with some parting last words, even if you die unexpectedly as many people do.

Even if you do have a chance to “say goodbye,” these short letters are still a great chance to leave some parting words that you hope to be remembered by after you’re gone.

Don’t know what to say or think you’ll change your mind later?

No problem.

You can always update these letters as time goes by to reflect changes in your life, but the important thing is that you have one or more of these letters to begin with!

So start writing!

Conclusion

Well that’s it for part 1!

Although there are other documents you might want to consider depending on your situation (i.e. such as a trust), I think the documents listed above are a “bare minimum” for every adult.

Next week, in part 2 of this 2 part series, we’ll talk about 3 vital estate planning documents that you need in relation to your health and medical care.

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Disclaimer: I am NOT an estate planning attorney. The suggestions outlined above are not intended to be legal advice. If you have specific questions about your estate plan and documents listed above, you should contact a licensed, competent estate-planning attorney who will work alongside with you and your financial advisor to put together a comprehensive estate plan that helps you accomplish your personal and financial goals and objectives.