Two-thirds of U.S. adults don’t have any estate planning documents. That’s often because they procrastinate or they don’t believe they have enough money to leave to heirs, according to a recent survey by Caring.com.1
You don’t need to have a big “estate” to do “estate planning.” The truth is, estate planning is more than about money. It’s a fancy-sounding term that simply means taking the time to decide who will receive any assets you own—such as real estate, insurance policies and savings accounts—after you’re gone, and making that designation legally official.
In addition, estate planning can be put in place to help determine who will be the guardian of your young children, or deciding who should be in charge of making financial or medical decisions for you if you’re no longer able to do so.
Plus, having estate planning documents that clearly spell out your wishes will help make things much easier for those who are left behind and grieving.
So don’t procrastinate. Whether you’re doing estate planning for yourself or helping an older loved one to draw up an estate plan, follow this checklist of necessary documents and next steps to get your affairs in order.
Start with an honest and open conversation
The first step is a conversation, especially if you are helping older parents or other loved ones with estate planning. It may be a bit uncomfortable at first, particularly when the subject involves money and mortality. But the discussion is key to learning what your loved ones’ goals are for their estate, their wishes for their medical care, and who they want acting on their behalf.
One way to start the conversation is to share how you’re addressing your own estate planning. That can make loved ones more willing to discuss what, if any, planning they have done so far.
Collect and fill out documentation
The next step is to get the necessary documents to put the estate plan in place so survivors can make sure last wishes are honored.
1. Last will and testament
This key document allows you to spell out how you want your assets distributed. You also can name an executor or personal representative who will carry out your wishes. For parents, a will lets you name your choice of guardian for your minor children.
If you die without a will in place, your assets will be distributed based on state law, which might not be what you or your loved one wants. If you leave behind young children, the court would appoint a guardian for them, without any input from you.
Wills should be reviewed periodically and updated when needed. See our 7 Good Reasons to Change Your Will to get started.
Note: Wills don’t control how life insurance, bank accounts, IRAs and other assets with named beneficiaries are distributed. Those assets are directly transferred to the beneficiaries that you should have named within those specific accounts.
See item #6 below for more information about reviewing your current insurance beneficiaries.
2. Durable financial power of attorney
This document lets you name someone as your agent to make financial decisions on your behalf if you’re incapacitated. It typically gives an agent broad authority to manage finances—from paying bills and filing tax returns, to investing money and selling property. Make sure you choose an agent who is trustworthy and adept at handling money.
Be aware that some banks and brokerages have their own power-of-attorney forms. Check with the institutions that you or your loved one deals with to ensure you complete the correct paperwork.
3. Health care power of attorney
The health care power of attorney allows you to name a person as an agent who can make medical decisions on your behalf if you’re unable to do so. Choose an agent who would be a strong advocate on your behalf and honor your wishes.
Some states prohibit naming more than one health care agent to serve at the same time. Even if your state allows co-agents, it’s recommended to appoint only one for simplicity’s sake. If co-agents were to disagree about your medical care, the dispute might have to be settled in court.
4. Living will
This document lets family members and health care professionals know what life-prolonging measures you want—or don’t want—if you fall into a persistent vegetative state or develop a terminal condition. It also lets you spell out your wishes for pain management or organ donation.
Living wills aren’t just for older patients. Some of the most high-profiled court cases over ending life support concerned patients who were in their 20s when they fell into a vegetative state.
In many states, a living will and health care power of attorney (#3 above) are combined into one form called an “advance directive.”
Your estate plan relies on others to carry out your wishes, from an executor and guardian to agents for your health care and financial powers of attorney. Before naming people to fill these roles, check with them first to make sure they are comfortable taking on the responsibility. Name at least one backup person in case your first choice is unable to do the work later.
6. Beneficiary review
Many assets—such as IRAs, brokerage accounts, life insurance and bank accounts—will be directly distributed to the person named as a beneficiary on the account, no matter what your will says. That’s why it’s important to review beneficiaries periodically to make sure they are up to date with your wishes. Otherwise, your assets could end up going to an ex-spouse, an estranged relative or someone else you no longer want as an heir.
Also, make sure no beneficiary designations are left blank on accounts. Without a named beneficiary, the account will go through probate, which is a court-supervised process for distributing assets. This means your assets will be distributed according to the court’s direction, rather than any wishes you may have had in mind.
Membership perk: Eligible NEA members can get started with $1,000 of no-cost Complimentary Life Insurance. All you need to do is name your beneficiaries. Watch our short video about How to Name Your Complimentary Life Insurance Beneficiaries on neamb.com to claim this valuable membership benefit.
7. Letter of last instruction
This informal document is sometimes called a “road map” for an executor or heirs. Among the items you can include in the letter:
- Where important documents are kept, including estate documents, real estate deeds, vehicle titles, recent tax returns, birth and marriages certificates, and military discharge papers
- A list of all assets, including life insurance, bank, investment and retirement accounts; where they’re held; and the account or policy numbers
- Account details for credit cards, a mortgage or other outstanding loans
- Passwords to online accounts, computers and phones
- A list of professionals you deal with, such as an accountant, doctor, insurance agent and lawyer, and their contact information
- Names and contact information for people you want to be notified of your death
- Information on any advance funeral planning you’ve done, and instructions on what sort of service or burial you’d like
- Instructions on the care of your pet(s)
Keep the letter of last instruction and other estate documents in a very secure place that’s accessible and known only to the people who will need to access them.
Be aware that safe deposit boxes inside financial institutions often are frozen once the owner dies. If no other person is listed as co-owner of the safe deposit box, the executor may have to go to court in order to gain access.
8. Digital estate plan
Don’t overlook your “digital assets,” such as your Facebook page, email accounts, or photos uploaded to the cloud. Heirs might have to jump through hoops later to retrieve data from digital accounts, whose privacy policies vary. But you can take steps in advance to make things easier.
Apple and Facebook, for example, allow you to set up legacy contacts who will be able to access or delete your accounts after your death. Google offers an inactive account manager that lets you decide what information to share with your contacts after your account has been inactive for a certain period or whether the account should be deleted.
Make a list of your digital assets along with their usernames and passwords. Include instructions on how you want those accounts managed after you’re gone. (Do NOT include passwords in a will. Wills eventually can become public record.) And appoint a trusted person to serve as your “digital executor” to carry out your wishes around these matters.
Don’t delay: Start planning today
Gathering the necessary paperwork and drawing up key documents will take time. But doing so will make things much easier for loved ones left behind, and also help to ensure last wishes are honored.
Learn more at Why Everyone Needs Estate Planning.
1 2023 Wills and Estate Planning Study, Caring.com, January 2023.