Estate Planning 101

What documents comprise a comprehensive estate plan, and how often should you have your plan reviewed? The following considerations will help you analyze your planning needs and ensure that you and your family are adequately protected — now and in the future.

Regardless of how much wealth you’ve accumulated during your lifetime, having a properly executed estate plan is critical in ensuring that your wishes are expressed and honored when you can no longer make decisions on your own. While many consider estate planning only as a way to direct how your assets will be distributed upon your passing, there are a number of other reasons why it’s critical to have a comprehensive estate plan in place.

“When it comes to passing wealth along to your loved ones and ensuring that the proper individuals are in place to make financial and medical decisions on your behalf if you’re unable to do so on your own, you essentially have two options: You can plan ahead and express your wishes in your estate planning documents. Or you can do nothing and allow others to make these decisions for you,” says Andrew Stamper, senior wealth strategist, Wells Fargo Wealth & Investment Management. “Additionally, individuals oftentimes overlook the value an estate plan holds during life and tend to focus solely on the post-death aspects. Creating awareness around this topic is extremely important so that we are protected under any and all circumstances.”

Core components of a comprehensive estate plan

There are, at a minimum, four documents that everyone who has attained the age of majority should consider having in place as part of their estate plan:

1. Last will and testament: Your will is the document through which you appoint someone to administer your estate (your “executor” or “personal representative”) and carry out your wishes upon your passing. In your will, you will also designate to whom your assets will pass and who will provide personal and financial care for your minor children (their “guardian” and “conservator”). A will is a revocable, amendable instrument and is intended to be modified as your goals, objectives, and circumstances change.
2. Durable power of attorney: A durable power of attorney appoints an individual (your “agent”) to make financial decisions if you’re unable to do so on your own due to incapacity, absence, incarceration, or any other reason. This document commonly allows your agent to buy and sell property, oversee investments, pay bills, and file a tax return on your behalf. Please note that these powers expire when you pass away.
3. Health care power of attorney: Also referred to as a medical power of attorney or patient advocate designation, a health care power of attorney grants another individual (also your “agent”) the authority to make health care decisions on your behalf should you become incapacitated.
4. Living will: Also pertaining to medical decisions, a living will (also known as a health care directive or advance directive) allows you to express your wishes regarding end-of-life treatment. This may include provisions pertaining to tube feeding, resuscitation, assisted breathing, and other life-prolonging measures. Please note that many components of a living will are commonly incorporated into your health care power of attorney, and it will not always serve as a stand-alone document.

What happens if I pass away or become incapacitated without an estate plan in place?

If you’ve not yet taken the steps to put an estate plan in place, each state has a default set of rules that will determine who administers your estate, where your assets will pass, who will care for your minor children, and who has the authority to make financial and medical decisions on your behalf during a period of incapacity. For many of us, these may be the same individuals we would choose anyway. But, for others — especially those who aren’t legally married, those who don’t have children, and those with blended families — this option may lead to unintended consequences, infighting among family members, and our true wishes not being honored. For these reasons, and many others, it’s critically important to meet with an attorney to formally express your wishes through an estate plan.

I have an estate plan, but it hasn’t been reviewed recently. How often should I have my estate planning attorney review my documents?

When asked how often an estate plan should be reviewed, Andrew Stamper offers the following: “As circumstances change and you experience major life events, your plan should be reviewed and amended, as necessary, to adjust to these new circumstances. If no major life changes have occurred, a plan should still be reviewed at least every five years to ensure that there have been no changes in law that will impact your plan.” Stamper went on to list a number of life events that may necessitate an estate plan review:

1. Birth or death in the family
2. Major health issues (including with both your own health and the health of those close to you)
3. Change in marital status (including your own marital status and the marital status of your beneficiaries)
4. Relocation to a new state
5. Substantial change in your financial situation
6. Children or grandchildren reaching the age of majority or ages at which they may be able to more aptly handle greater decision-making authority or receipt of an inheritance

In conclusion, Stamper says, “Estate planning is not a point in time; it’s a process.” And while this list is not intended to be exhaustive, it serves as a reminder that as your life changes, your plan should likely change with it.

When you question whether your plan should be reviewed, we suggest that you err on the side of caution and consult your estate planning attorney for further guidance.