What Are Estate Planning Documents?

Lawyers and financial planners often talk about planning your estate and using the proper estate planning documents. But what does it all mean?

If it seems complicated that’s because many attorneys want you to feel that way.  On top of that, laws shift and things change. Having said all that I  have to admit that it’s not all that difficult. Let me show you how easy this is to grasp.

What Is Estate Planning?

You probably already have a sense of what estate planning is. It boils down to setting up a few documents to direct what happens to your assets once you are incapacitated or dead. See…that wasn’t so bad, was it?

Now, keep in mind that the sooner you create those documents the better. If you wait too long and get sick or die without doing proper estate planning the state will make all your decisions for you. They do this through a very expensive and drawn-out process called intestate probate (in the case of death) or conservatorship (in the case of incapacitation).

Neal’s Notes:  Also, keep in mind that estate planning is important but it doesn’t take the place of financial planning.  They are two different animals completely.

What Are Estate Planning Documents?

You can define estate planning documents very narrowly or broadly. But if you accept my definition of estate planning, then any document that impacts what happens to your assets when you die or become incapacitated is in fact an estate planning document.

I’m not an attorney and you should of course consult with your own legal counsel. But I separate estate planning documents into two different camps. The first group of documents states where you want your money to go once you die and who can make decisions for you in case you can’t. That includes:

• Trusts and/or Wills
• Health Powers of Attorney
• Springing Powers of Attorney
• Pour Over Wills
• Retirement Plan Beneficiary Designation Documents
• Etc..

Neal’s Notes:  Keep in mind that your trust or will doesn’t control all your assets Pilgrim.  This is important.

The second group of documents reflects what is actually going to happen to your stash once you are gone. This is very important. They include:

• Real Estate Deeds
• Property Tax Bills
• Account Statements from Banks and Brokerage Companies
• Life Insurance Policies And Statements

“Hey wait a minute Neal. If I set up the estate planning documents in the first group (a trust, will, beneficiary designations etc) why do I have to worry about the second group of papers?”

This is a good question. Remember, the first group of papers express your intentions. The second group reflects what is actually going to happen. If you read between the lines, you can easily see the problem.

If you don’t play your cards right, you might set up all the proper documents but your intentions may not be honored. The way to make sure that doesn’t happen is to review the documents in the second group of papers. Let me illustrate by way of example.

Let’s say you are very concerned about safeguarding your family so you set up a family living trust. The only problem is that you fail to actually re-title your assets into the trust. If you review your bank statements, account statements and property tax bills and see that the assets aren’t held in the name of the trust, your work isn’t done. You have to re-name the assets. This is as simple as contacting the institution and completing one form.  But if you die before getting those assets re-titled, the fact that you created a trust means nothing.

Lets say you set up a will instead of a trust. Go review your account statements and/or property deeds. If you see a co-owner’s name on those documents your will probably won’t have  any effect on those assets. That might be fine but it might not be. That’s why it’s important to have a good estate planning attorney on your team.  But even if you do, stay alert.

Lawyers often talk about the first group of documents because they get paid to draft them. But some forget about the second group of paperwork and that’s what messes many people up. If you go through the trouble of setting up your estate planning documents, make sure they have been property implemented by studying your account statements, property tax bills and life insurance ownership and beneficiary elections.

Do you have all the proper estate documents in place?  If not, what are you waiting for?