5 Essential Documents for Crafting a Good Estate Plan

The Bottom Line

Five essential estate planning documents you need in your estate plan:

1. Will
2. Power of Attorney
3. Health Care Directive
4. Beneficiary Designations (Retirement Accounts & Insurance Policies)
5. Trusts

Estate planning can be challenging with complex legal documents, tax implications, and daunting questions. However, it is an important part of a well-rounded financial plan.

Everything you own—your house, your assets, and your investments—is a part of your estate. Although it may be uncomfortable to contemplate, you need a plan for what happens to your estate when you pass away. A thoughtfully constructed estate plan can help your heirs manage better.

What Are the Five Most Important Estate Planning Documents?

To help shed light on the complicated web of estate planning, we’ve highlighted five key documents you need and answered common questions about each.

1. Will

A last will and testament—typically referred to as just a “will”—is probably the first thing that comes to mind when most people think of estate planning documents. A will ensures your wishes are carried out after you pass. Contrary to popular images of elderly people drawing up wills on their deathbeds, wills can be created at any time. In fact, our estate planning advisors regularly recommend creating a will as soon as you have any significant assets, children, or even pets.

Why do you need a will?

1. It clearly outlines how your assets should be distributed after your death
2. It enables you to name an executor responsible for administering your estate plan
3. It allows you to name who should care of your children and/or pets
4. It facilitates a smooth and efficient process for transferring your estate

Not having a will is dangerous to your estate plan. But it isn’t the only document you need.

2. Power of Attorney

Often abbreviated to POA, power of attorney allows you to designate someone to manage different aspects of your life if you’re unable to. There are a few different kinds of POA: general power of attorney, limited power of attorney, and durable power of attorney.

• General power of attorney designates an individual to take legal actions on your behalf, including contractual rights and financial decisions (like selling stocks or closing a bank account).
• Limited power of attorney designates an individual to act on your behalf in specific matters or events. It typically authorizes specific limited powers and expires at a predetermined time. For this reason, limited POA isn’t commonly used for estate planning purposes.
• Durable power of attorney is a modifier that can be added to either general POA or limited POA, and it means the POA remains valid, even if you become incapacitated. For this reason, the durable general power of attorney is the most widely used variant for estate planning because it provides broad and comprehensive authority to the appointed agent in any circumstance.

Note: POA is especially important for single people because there is no spouse to immediately jump in to serve in this role. If you’re single and don’t have a power of attorney designated, a court will decide on your behalf. In this case, it’s possible that they may select someone you might not think is the ideal candidate.

3. Health Care Directive

Your health care directive is a collection of documents relating to medical care. With these, you appoint someone to make medical decisions on your behalf if you can’t.

There are two main documents in your health care directive: living will and medical power of attorney.

• A living will is a legal document that allows you to express your medical treatment preferences in advance, typically regarding life-sustaining procedures in case you can’t communicate or make decisions about your health care.
• Also known as a health care proxy, the medical power of attorney specifically names someone to make medical decisions on your behalf if you become incapacitated.

Health Care Directive Example: The Case of Terri Schiavo

You may not think a health care directive is necessary, but you need one, regardless of age. The case of Terri Schiavo brought the concept of health care directives into the national spotlight. Following a sudden instance of cardiac arrest at the age of 26, Schiavo was severely incapacitated and could not communicate her wishes. Her family members battled for years about whether or not she should be removed from life support, but because she had no living will, they didn’t know exactly what she would’ve wanted. Because she had not appointed a medical power of attorney, nobody was directly authorized to make medical decisions for her. This high-profile case serves as a reminder that it’s important to get your wishes in writing no matter how old you are.

Whether your family is aware of your true wishes or disagrees about your care, it’s good to have these documents in place to make sure you are cared for as you intend.

4. Beneficiary Designations

Beneficiary designations are official selections made by an account holder or policyholder to dictate who should receive the assets or benefits of that account or policy upon the holder’s death. You’ll find beneficiary designations on many common retirement accounts, like 401(k)s, 403(b)s, and individual retirement accounts (IRAs), as well as on life insurance policies.

The important thing to remember about beneficiary designations is that they actually supersede what’s in your will. So, let’s say you’re married and name your spouse as the beneficiary of your retirement accounts, but you eventually get divorced. You remarry and change your will to leave your new spouse everything. However, if your ex-spouse’s name is still listed as the beneficiary of your retirement accounts, your ex will receive the benefits, regardless of what it says in your will.

Why Beneficiary Designations Help Avoid Probate

Another benefit of naming your beneficiaries is that it may help you avoid probate. Probate is the time-consuming, state-supervised process for distributing undesignated assets after their owner’s death. To help bypass the process, consider naming your beneficiaries and including all of your assets in a will or trust.

It helps to review your designations at least annually as well, especially after significant life events.

5. Trusts

While trusts may not be necessary in every situation, they’re wonderful tools for both distributing assets and reducing estate taxes. A trust is a legal entity (not technically a document) created to hold assets on behalf of an individual or organization.

Here’s how it works: The grantor (the creator of the trust) quite literally “trusts” the trustee (the manager of the trust) with their assets. After the terms of the trust are met, which could include the death of the grantor, the grantee (the beneficiary of the trust) receives the trust assets in some form.

There are three primary types of trusts—revocable, irrevocable, and testamentary—and the grantor can set up their trust to dictate exactly how and when the beneficiaries receive the trust assets. While the details between trusts differ, the general idea is the same: protect and manage your assets, reduce taxes, and avoid probate.

Revocable Trusts vs. Irrevocable Trusts for Estate Planning

Revocable trusts, also known as living trusts, can help your estate avoid probate by designating beneficiaries for the assets in each trust. Revocable trusts are particularly useful for individuals with assets in multiple states—because probate is governed at the state level, having a revocable trust for the assets in each state can prevent multiple simultaneous instances of probate.

Irrevocable trusts are also beneficial for estate planning because they can limit your estate tax exposure. Once assets are loaded into an irrevocable trust, they can’t be removed. Likewise, after establishment, the terms of the trust can’t be altered. In essence, trust assets are taken out of your estate, which can mean they don’t count toward your estate’s value.

It’s also possible to create a trust inside your will, known as a testamentary trust. These trusts are revocable and go into effect upon your death. However, the assets inside a testamentary trust aren’t exempt from probate.

Trusts can get complicated and aren’t appropriate for every situation, so talk to your financial advisor about your specific circumstances before setting one up.

A Comprehensive Plan Designed to Protect Your Estate

It isn’t enough to simply draft these documents and call it a day. You need to understand how each document and action impacts the other parts of your financial plan because everything is interconnected. Review the plan regularly—often every three to five years—and after major changes involving your family, residence, assets, health, representatives, beneficiaries, or applicable law.

While you may be able to complete some planning steps yourself, it’s a good idea to work with an estate planning attorney and an experienced financial advisor. An attorney can help draft and interpret the legal documents under applicable state law, while a financial advisor can help coordinate account ownership, beneficiary designations, trust funding, taxes, and the rest of your financial plan. This coordination can reduce inconsistencies and improve the likelihood that your plan functions as intended.

Other Estate Planning Documents and Actions to Consider

Depending on your situation, your estate planning documents checklist may also include

• A digital asset inventory and authorization addressing online accounts and electronic property. 
• A personal property memorandum, where permitted by state law. Guardianship, special-needs, or beneficiary-protection provisions. 
• Pet-care instructions or a pet trust. Business succession or buy-sell documents. Charitable planning documents. 
• Deeds, assignments, account registrations, and beneficiary forms needed to implement the plan. 
• A letter of instruction containing practical information that may not belong in a legal document.

These items should be coordinated with the core estate planning documents rather than created in isolation. Whether a document is valid, what it can accomplish, and how it must be executed depend on applicable state and federal law.

Frequently Asked Questions About Estate Planning Documents

1. What are the essential estate-planning documents?

The essential estate-planning documents usually include a will, durable financial power of attorney, health care directive or living will, medical power of attorney, and current beneficiary designations. A revocable trust, HIPAA authorization, digital-asset instructions, and other documents may also be appropriate depending on your assets, family, goals, and state law.

Key limitations and state-law caveats:

• There is no universal document package that is appropriate for every person.
• Signing, witness, notarization, and statutory-form requirements vary by state.
• Beneficiary designations, asset titles, and trust funding must be coordinated with the legal documents.

2. Do I need both a will and a trust?

Many people need a will even when they have a revocable trust. The trust governs assets properly transferred to it, while a pour-over will can address probate assets left outside the trust and nominate guardians for minor children. Whether you also need a trust depends on your goals, assets, privacy concerns, and state probate rules.

Key limitations and state-law caveats:

• A trust cannot govern assets that were never transferred to it unless another valid mechanism directs them there.
• A will may still be required to nominate guardians and address property outside the trust.
• Probate procedures and the relative value of probate avoidance vary substantially by state.

3. Does a will avoid probate?

Generally, no. A will directs the transfer of probate assets and is typically submitted to the probate court. Assets may avoid probate through beneficiary designations, joint ownership with survivorship rights, or a properly funded trust. Probate costs, timelines, court procedures, and simplified-estate options vary significantly by state and estate size.

Key limitations and state-law caveats:

• Some states provide simplified procedures for small or uncomplicated estates.
• A will can streamline parts of administration but generally does not eliminate probate.
• Assets passing outside probate may still be included in the taxable estate.

4. Do beneficiary designations override a will?

Generally, a valid beneficiary designation controls the specific account or policy to which it applies, even when a will says something different. It does not override the will for unrelated property. Plan documents, federal law, state law, marital rights, divorce rules, and the designation form itself can affect the final result.

Key limitations and state-law caveats:

• Special spousal-consent rules can apply to certain employer retirement plans.
• Divorce may or may not automatically revoke an ex-spouse’s designation, depending on the asset and governing law.
• If no valid beneficiary survives, the account terms may direct the asset to the estate or another default recipient.

5. What is the difference between financial and health care power of attorney?

A financial power of attorney authorizes an agent to handle financial or legal matters described in the document. A health care power of attorney or proxy authorizes someone to make medical decisions when the required conditions are met. One document does not automatically grant authority in the other area, and state terminology varies.

Key limitations and state-law caveats:

• State law determines execution requirements and when each document becomes effective.
• A financial agent may not automatically have access to medical information.
• A HIPAA authorization grants information access but does not necessarily grant medical decision-making authority.

6. How often should estate-planning documents be updated?

Review estate-planning documents at least every three to five years and after major events such as marriage, divorce, a birth or death, relocation, a significant asset change, or a change in tax or estate law. Beneficiary designations and trust funding should also be reviewed because they can become outdated independently of the documents.

Key limitations and state-law caveats:

• Moving to another state may affect document terminology, execution rules, and available planning options.
• Divorce, marriage, or other events may change appointments or beneficiary rights under state law.
• Documents should be reviewed sooner when an appointed agent, executor, trustee, guardian, or beneficiary is no longer appropriate.

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