The 7 Essential Documents Every Estate Plan Should Include

The Foundation of a Solid Estate Plan

Statistics show that only 31% of Americans have an estate plan. But every adult needs one. It protects your loved ones, your assets, and your wishes, regardless of your age or income.

We understand that estate planning can be more stressful than taxes and loans. In this guide, we will go over the 7 essential documents for every estate plan, why they matter, and tips to make estate planning easier.

Document #1: The Last Will and Testament

Your will is the fundamental part of your estate plan. It mainly specifies how your assets should be distributed and who should care for your minor children. Without a will, state laws decide who inherits your assets, which could go against your actual wishes.

Key functions of a will

• Names beneficiaries
• Appoints an executor to manage your estate
• Designates a guardian for minors or dependents

The executor is the person (or people) who will manage your estate. They will deal with the will and probate process.

How to create a will

State laws do not require you to have a lawyer when creating a will. Because of this, we highly recommend creating a legally valid will with an online tool like LegalZoom.

You can also opt to write your will out by hand, which is known as a holographic will. Most estate planners do not recommend holographic wills because a hand-written will can have legal mistakes or be difficult to interpret. Probate court may also challenge the validity of handwritten wills, since they can be forged. This can be an unnecessary burden on your loved ones who are already grieving.

Document #2: A Living Trust

A living trust allows assets to pass directly to your beneficiaries without going through probate. You can gain more control over your assets by establishing a trust, though it can be more complex than a last will, which is why not everyone opts for a trust.

The grantor is the person who establishes and funds the trust.

The trustee is the institution or individual responsible for managing the trust and distributing the assets.

There are several types of trusts, common ones being:

Revocable trust: Offers more flexibility. Most trusts are revocable.

Irrevocable trust: For asset protection and estate tax benefits, irrevocable trusts permanently transfer your assets out of your control into the trust.

Business trust: Holds business interests, such as your stakes in a business. Provides various business and tax advantages.

Education trust: Used to fund someone’s educational expenses. Not for everyone since they can be less beneficial than a 529 college savings account.

Benefits

Trusts offer numerous benefits. The main ones are:

• Maintain privacy: keep your wishes out of public records
• Reduce tax burden: trusts can save you money in the long run by reducing tax burdens
• More control: you get more control over the management of assets
• Protect assets: assets can be protected from creditors and lawsuits

Downsides

It’s important to know that trusts are not the right choice for everybody. They can be difficult or expensive to set up compared to wills.

Trusts also have more tax benefits for those with large estates (~$13 million+), so if you don’t need to mitigate tax burdens, they may be unnecessary.

Who needs a trust?

Homeowners, business owners, or anyone wanting smoother/private asset transfers can benefit greatly from setting up a trust.

You can also create trusts for specific purposes, such as a child’s education expenses or special needs support. More specialized trusts, like a spendthrift trust, can also be useful if there are any special circumstances you want to account for.

Document #3: Durable Power of Attorney (POA)

Power of attorney grants someone the legal authority to make decisions if you can’t.

Key decisions that the person with POA might have to make include:

• Managing your bills and debts
• Filing taxes
• Managing property
• Handling investments

It is crucial to give someone you trust the power of attorney. Otherwise, a court may appoint a guardian or conservator to manage your affairs. They might not want to hurt you, but they could unknowingly make decisions that wildly go against your true wishes.

Pro tip: You don’t have to pick a family member for power of attorney. Choose someone you know is responsible and trustworthy, especially with financial matters.

Document #4: Healthcare Power of Attorney

Healthcare decisions still need to be made if you become incapacitated. Giving power of attorney means appointing a trusted person to make medical decisions on your behalf. If something makes you unable to communicate, having healthcare power of attorney is crucial.

Unlike financial POA, a durable POA for healthcare focuses only on healthcare and medical treatment choices. If you get sick and cannot make your own choices (temporarily or permanently), the agent with durable healthcare POA would make treatment choices on your behalf.

The person with healthcare power of attorney might have to make difficult choices, such as what life-prolonging support care you should get (or not get). Carefully consider who you trust to make the healthcare decisions that you want to make, and not let their own opinions influence them.

You can choose an attorney as your agent of healthcare POA. This neutral party can be the most comfortable choice for many people.

Pro tip: Discuss your preferences with your chosen agent before signing. Loved ones may refuse to be your agent of healthcare POA if you two disagree immensely on healthcare choices.

Document #5: Living Will / Advance Healthcare Directive

A living will goes over your healthcare and medical treatment desires. You can outline what medical treatments you do or do not want in case you become incapacitated and unable to communicate.

Healthcare directive examples

Points you should consider addressing include your preferences regarding:

• Life support
• Resuscitation
• Feeding tubes
• Organ donation

Why do I need an advance healthcare directive?

A living will is helpful to not just yourself in case of a medical emergency, but also your loved ones because it relieves them from having to make painful end-of-life choices. Imagine you fall into a coma after a severe fire accident and have no healthcare directive. Your partner ends up having to pull your life support. They will end up wondering if they made the right choice for the rest of their life. Make a clear healthcare directive to relieve them of some of that guilt.

Pro tip: Store a copy of your living will with your healthcare provider and your healthcare POA agent. Medical decisions may need to be made urgently within minutes, so knowing the directive in advance is important.

Document #6: Beneficiary Designations

You need to name who is going to receive your policy/account benefits and assets. Naming your beneficiaries is a large part of every estate plan.

Common reasons you need beneficiary designations include:

• Life insurance proceeds
• Retirement accounts
• Bank accounts
• Investment accounts

Note: your official designations for your policies and accounts can override what’s written in your will. Keep your choices consistent. For example, don’t name your son as your beneficiary in your life insurance policy but then say you’re leaving it to your wife in your will.

Beneficiary designations ensure that your assets will directly transfer to your chosen beneficiaries without needing to go through a lengthy probate court process. There is usually a primary beneficiary for an asset, and then a contingent beneficiary as a “backup” in case the primary beneficiary is unwilling or unable to accept that asset.

For accounts, you are able to name multiple beneficiaries for the same account. If you don’t name a beneficiary for something, such as your life insurance or retirement 401(k), then there is usually a default beneficiary (spouse or estate). While this can be convenient, it has two major downsides: 1) the beneficiary is not someone you want to give the asset, and 2) there may be negative tax consequences.

You can also use companies like Ethos to make managing life insurance beneficiaries simple and fast.

Pro tip: Review your beneficiary designations after every major life event. Examples include marriage, divorce, and childbirth. Keep your beneficiaries updated. In some situations, divorce can automatically exclude someone as an account beneficiary, so be aware.

Document #7: A Letter of Intent (and Digital Estate Plan)

Letters of instruction (or intent) are used to provide informal (non-binding), clear guidance to your family and the executor of the Will. It can also be for your trust’s trustee.

Letters of intent typically go over your:

• Funeral wishes
• Passwords and digital accounts
• Personal messages or individual instructions

Letters of intent are not legally binding. However, they are extremely helpful. It’s easy for loved ones to start arguing over what interpretation of your will is correct. Without a letter of intent, there may be conflict or misunderstandings surrounding your last wishes. The letter is meant to reduce confusion and stress. Plus, you can leave useful information about your digital assets, such as your social media passwords, crypto wallets, online subscriptions, and more.

LOI guidelines

Many people choose to explain their life philosophy as well as major asset distribution and executor choices in their letter of intent. Clarifying your reasons can help your loved ones better understand them and reduce conflict.

It can be confusing or overwhelming if you try to include every thought in a letter of intent. In addition, it’s best to avoid contradicting the terms of your trust. For example, if you have an education trust but you encourage your beneficiaries to use the trust money to invest in stocks, that contradiction might be a problem.

Getting the professional help of an attorney can be a good idea because it ensures there are no conflicts or inconsistencies.

Bringing It All Together: How to Organize Your Estate Plan

Organizing your estate plan makes it easier for others to understand it later on. It’s also better for you because after major life events, it is recommended to review and update your estate plan as needed.

Here are useful tips for organizing your estate plan.

Estate Plan Checklist

After completing your documents, here’s what you should do.

Keep originals in a fireproof safe or with your estate attorney Share how to access documents with your executor/trusted loved ones Store digital copies securely in encrypted cloud storage Review schedule: Update every 3–5 years OR after major life changes

You don’t have to use the services of an estate attorney, but it can be valuable if you have a complex estate or any special circumstances.

Conclusion: Peace of Mind in Seven Simple Steps

Just seven documents and you can gain peace of mind forever. The seven parts that form the backbone of estate plans are:

1. Last will and testament
2. Living trust
3. Durable power of attorney
4. Healthcare power of attorney
5. Living will (advance healthcare directive)
6. Beneficiary designations
7. Letter of intent (and digital estate plan)

Take care to protect your wishes and your family. If you’re just getting started, check out LegalZoom for documents and Ethos for life insurance. Give it five minutes and you can get a much better idea of what you want to do and where to begin.