Estate planning documents – when you need them and why

Estate planning is too often thought of as something that only extremely wealthy or very elderly people need to be concerned about. The truth is an estate plan is important for every adult — regardless of your level of wealth or your age – because it covers many different aspects of your life plan.

“Estate planning is much more than taking care of how your assets will be distributed when you die,” says Deborah Lauer, senior wealth planner,  Wells Fargo Wealth & Investment Management. “Just as important, it’s ongoing, lifetime planning to ensure that someone can make health care and financial decisions for you if you’re seriously ill or injured.”

It will take a bit of time initially to create the necessary estate planning documents, but once established, it’s important to regularly review and update your plan. Lauer suggests reviewing your plan every five years or when:

• You experience a major life change (see below)
• There is a significant change in tax laws

The following are some estate planning documents and strategies to consider at different life stages:

For yourself, any time after age 18

• Estate planning considerations: If you’re sick or injured, you may want someone you can trust — your parents, siblings, or a reliable friend or other relative — to make medical decisions on your behalf and assist with financial matters, e.g., paying bills, if you’re unable to. You should also decide who will receive your assets, e.g., house, bank accounts, retirement accounts, or pension, if you die.

• Necessary documents: A will, durable power of attorney for financial matters, health care power of attorney, and living will are the basis of most individual estate plans and are considered the four core estate planning documents. Note: The health care power of attorney and living will are sometimes combined into one document called a healthcare directive.

For people who are married or in a long-term relationship

• Estate planning considerations: You may want to update your health care and financial decision-making documents to appoint your spouse or partner as agent to make decisions on your behalf. It is also important to update your will if you want your assets to pass to your loved one if you die.

• Necessary documents: You’ll need a will, durable power of attorney for financial matters, health care power of attorney, and living will.

For people who have become parents or for people who have pets

• Estate planning considerations: It’s important to name guardians for your minor children in case something happens to you. You can also appoint people to manage financial assets until your children are old enough to access them (age 18 in most states).

In addition, you may want to add your children as beneficiaries or contingent beneficiaries on your financial accounts or life insurance policies. Your attorney may have additional options to consider for young children.

If you have pets — especially ones that may live a long time (birds, reptiles, etc.) or have special care needs — your estate plan can determine if they’ll live with a loved one or go to a rescue organization. You can also set aside money for their ongoing care.

• Necessary document: Consider a will with trust provisions. A will names guardians for your children, and determines the distribution of individual assets that do not have beneficiary designations. A will can contain trust provisions that allow a trust to be funded upon your death (testamentary trust) to hold and manage assets for your children. The trust provisions may allow the trustee to make distributions for expenses such as your children’s schooling or other ongoing needs.

For people who have experienced a major life change, such as a separation, divorce, death or major illness of a spouse or partner, remarriage, or relocation to another state

• Estate planning considerations: In most of these cases, you’ll likely want to update the people you’ve named as your health care and financial decision-makers, executors, and trustees. You may also need to update the beneficiaries in your will and/or trust and on all financial accounts with designated beneficiaries.

When you move to another state, it’s wise to have a local attorney review all of your estate planning documents to make sure they are still appropriately executed, in accordance with local laws.

• Necessary documents: You may need an updated will, durable power of attorney for financial matters, health care power of attorney, and living will.

For parents when each child turns 18 (or the age of majority in your state)

• Estate planning considerations: As a parent, you may want to help your adult child create a health care power of attorney and name you as their health care agent. Doing so allows you to get information from health care professionals and make medical decisions if your child is injured or incapacitated.

Depending on their financial assets and whether they have children, your over-18 child may need to set up their own basic estate planning documents.

• Necessary documents: Your child may need a will, durable power of attorney for financial matters, health care power of attorney, and living will.

When tax laws change

• Estate planning considerations: Depending on the overall value of your estate, any tax law changes could impact how and when you decide to give financial gifts to family or charitable organizations — both while you’re alive and after your death.

Your financial advisor, CPA, and attorney can help you decide whether different estate planning strategies could lower your tax costs.

• Necessary documents: Current net worth statement, and updated estate planning documents as needed.

Remember: Estate planning is not just “death planning.” All of the key documents included in your estate plan can help you navigate lifelong financial and health-related issues, too.

Also, Lauer strongly advises that estate planning shouldn’t be a “set it and forget it” process. Be sure to contact your financial advisor, tax professional, and attorney about your estate plan every five years or whenever one of the above life events comes your way, whichever is sooner.