Key Estate Planning Documents
Estate planning is the process of managing and preserving your assets while you are alive, and conserving and controlling their distribution after your death. There are four key estate planning documents almost everyone should have regardless of age, health, or wealth. They are: a durable power of attorney, advance medical directives, a will, and a letter of instruction.
Durable power of attorney
Incapacity can happen to anyone at any time, but
your risk generally increases as you grow older. You
have to consider what would happen if, for example,
you were unable to make decisions or conduct your
own affairs. Failing to plan may mean a court would
have to appoint a guardian, and the guardian might
make decisions that would be different from what you
would have wanted.
A durable power of attorney (DPOA) enables you to authorize a family
member or other trusted individual to make
financial decisions or transact business on your
behalf, even if you become incapacitated. The designated individual can do things like pay
everyday expenses, collect benefits, watch over your
investments, and file taxes.
There are two types of DPOAs: (1) an immediate
DPOA, which is effective at once (this may be
appropriate, for example, if you face a serious
operation or illness), and (2) a springing DPOA, which
is not effective unless you become
Advance medical directives
Advance medical directives let others know what
forms of medical treatment you prefer and enable you to designate someone to make medical decisions for you in the
event you can't express your own wishes. If you
don't have an advance medical directive, health-care providers could use unwanted treatments and procedures to prolong your life at any cost.
There are three types of advance medical directives.
Each state allows only a certain type (or types). You
may find that one, two, or all three types are
necessary to carry out all of your wishes for medical
- A living will is a document that specifies the types of
medical treatment you would want, or not want,
under particular circumstances. In most states, a living will takes
effect only under certain circumstances, such as
a terminal illness or injury. Generally, one can be used
only to decline medical treatment that "serves only to
postpone the moment of death."
- A health-care proxy lets one or more family
members or other trusted individuals make
medical decisions for you. You decide how much power your representative will or won't have.
- A do-not-resuscitate (DNR) order is a legal form,
signed by both you and your doctor, that gives
health-care professionals permission to carry out your wishes.
A will is quite often the cornerstone of an estate plan.
It is a formal, legal document that directs how your property is
to be distributed when you die. If you don't leave a
will, disbursements will be made according to state
law, which might not be what you would want.
There are a couple of other important purposes for a will. It allows you to
name an executor to carry out your wishes, as
specified in the will, and a guardian for your minor
will should be written, signed by you, and witnessed.
Most wills have to be probated. The will is filed with
the probate court. The executor collects assets, pays
debts and taxes owed, and distributes any remaining
property to the rightful heirs. The rules vary from state to state, but in some states smaller estates are
exempt from probate or qualify for an expedited
Letter of instruction
A letter of instruction is an informal, nonlegal document that
generally accompanies your will and is used to
express your personal thoughts and directions
regarding what is in the will (or about other things,
such as your burial wishes or where to locate other
documents). This can be the most helpful document
you leave for your family members and your executor.
Unlike your will, a letter of instruction remains private.
Therefore, it is an opportunity to say the things you
would rather not make public.
A letter of instruction is not a substitute for a will. Any
directions you include in the letter are only
suggestions and are not binding. The people to whom
you address the letter may follow or disregard any
Take steps now
Life is unpredictable. So take steps now, while you can, to have the proper documents in place to ensure that your wishes are carried out.
There are four key estate planning documents almost everyone should have regardless of age, health, or wealth: a durable power of attorney, advance medical directives, a will, and a letter of instruction.