I am often asked to name the essential documents for an estate plan. In California, an estate plan should include four or five basic estate planning documents. If your current family and financial situations do not warrant the need for a Revocable Living Trust, then your foundational estate plan based on a will-based estate planning will include the following three important legal documents:
1. Last Will and Testament;
2. Advance Medical Directive; and
3. Financial Power of Attorney.
A will is simply a set of instructions on how to distribute your assets to loved ones and charities upon your death. But it does not cover any specific beneficiary you would have mentioned for any account or savings plan. If such details need to be altered, they need to be done with the said accounts and plans.
Advance Medical Directive
This is a document which gives the medical power of attorney to someone if the physician or court decides that you are incapacitated to make a decision. This allows the person to make health care decisions for you in case of any need. This document also describes your wishes regarding the use of life-sustaining measures in the event of terminal illness.
Financial Power of Attorney
This enables the concerned to manage assets that are titled in your individual name, including retirement plans, and assets titled in joint names as tenants in common. Choose carefully because, in general, this person can buy and sell your assets. In estate planning, the most commonly used versions of the financial power of attorney are:
1. A Durable Power of Attorney, which goes into effect as soon as you sign it; and
2. A Springing Durable Power of Attorney, which only goes into effect after you have been declared mentally incapacitated.
Revocable Living Trust
If you require a Revocable Living Trust, then this document will contains a detailed set of instructions covering three important periods of your life:
1. What happens while you are alive and well;
2. What happens if you become mentally incapacitated; and
3. What happens after your death.
In addition, assets held in the name of your Revocable Living Trust at the time of your death will avoid probate.
This is a brief overview of all the different documents which should be in order for good estate management. To determine which one fits your exact requirement, however, it is mandatory to consult an estate planning lawyer and create these documents as pursuant to the legal requirements of your state.
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