Estate planning 101: An introductory guide
By Kristin Hoppe
November 9, 2021
Estate planning may be one of the most important things you can do for yourself and your family — and also one of the easiest things to keep putting off. In fact, a study by AARP found that nearly 60% of American adults don’t have a will or living trust.
The term “estate planning” itself is already somewhat unclear. How often do you refer to your home, personal property, assets, even digital currency as part of your “estate”? Many families find these foundational legal documents an important piece of their estate, legacy, and end of life plans: a will, a power of attorney document, and a living will (frequently called an advanced care directive or medical directive).
Regardless of how many family members or how many assets you have, every adult should have an estate plan. This guide will walk you through the basics, including a helpful introduction to the language and terms commonly used — plus next steps you can start taking today.
What is estate planning?
Estate planning encompasses many different pieces and documents according to your family, situation, priorities, finances, and the state you live in. This guide covers the foundational documents and information frequently included in estate planning: a will, power of attorney, and living will (also called an advance care directive).
1. Will (last will and testament) – A state-specific, legally binding document that states your wishes and instructions on subjects like who gets what after you die, ownership of financial assets and family heirlooms, and specifics regarding guardians, children, and pets.
2. Power of attorney (POA) – A document that allows you to name people for different roles, such as executive, financial, medical, and digital. You may also name several people in your POA document to handle specific situations, such as college funds or childcare.
3. Living will (advanced care directive) – A legally binding, state-specific document that records your end-of-life wishes about what types of medical care you do (or do not) want if you are unable to speak for yourself.
Why you need an estate plan
Every adult should have an estate plan, regardless of financial status or circumstance. If you die without a will (called dying intestate), the state will step in to make those choices and decisions for you — like who your heirs are and what happens to your assets. This scenario adds time, stress, and increased costs. It also leaves more questions, worries, and potential arguments behind for the family.
Dying without a few basic documents completed makes everything so much harder on everyone around you.
Where to start
Bringing in professionals helps you manage more complex estate needs and also ensures that everything is airtight.
This may especially apply if you:
Own a vacation home or other property in a state other than that of your primary residence
Aren’t legally married to your partner
Have divorce or custody agreements in place
Have remarried or have blended families — especially those with children
Strongly prefer that someone does (or doesn’t) get access to you at the hospital
Are concerned about federal estate and gift taxes*
* In 2021, estates worth over $11.7 million face a 40% tax rate. The same threshold applies to gift taxes.
If you currently use Trustworthy, our concierge team can walk you through the Estate Documents section of your dashboard and help gather paperwork or documents to share with an estate planning attorney. You can add your attorney or advisor to your Trustworthy account to collaborate and securely share files and information through Trustworthy's platform.
Making your estate plan
Regardless of the degree of help you seek out, it's good to have a basic understanding of the type of information you need to gather.
1. Will (last will and testament)
Who gets which family heirlooms? How will your financial assets be divided? Who will take care of your children or pets? These are all crucial answers a will provides for those you leave behind.
Your will covers a lot of important ground. Here is the type of information it should include:
Assets and property - What property and assets are included, from your 401(k) and your house deed to grandpa’s favorite watch
Beneficiaries - Who inherits your property and assets — and when
Custodian/Trustee - If a minor inherits property, an adult custodian is named to manage money on their behalf in a trust account
Executor - Someone to manage your will and close your estate. An executor is also called an administrator or personal representative
Guardianship - Who takes care of your kid(s) and pet(s)
Money and debt - Instructions on finances, distribution of money, and paying debts
Additional funeral or burial instructions - If arrangements are already planned
Gifts - To individuals or charities
Related article:What does your “property” mean?
Choose an executor
Executing a will after someone has died can take dozens of hours and years to complete. This role requires a lot of administration, phone calls, paperwork, and diligence. For that reason, it’s a good idea to choose an executor who has the administrative chops to get things done. That may (or may not) not be your spouse.
Some people choose not to name a close family member as the executor of their will because they understand the emotional pain this task may cause. Whoever you decide, it’s best to inform them of this decision, as it is a big commitment on their end. It’s also a good idea to name someone as a backup, in case your first choice isn’t able to perform the duties.
Make it official
If you die without a legally binding will, what happens next is completely up to the state. It’s probably safe to assume that you don’t trust the state to make many decisions on your behalf — so it’s best not to leave behind that mess for those who survive you. This could also tie up your assets in probate court, and cost more by the time everything is over.
An unsigned will is not sufficient proof, and no guarantee that your wishes will be carried out. Here are the steps you can take to make sure your will is executed as you wish.
Sign - It’s standard procedure to sign your will in the presence of two witnesses, they also add their signatures to your will to validate it.
Notarize - Signing your will with your two witnesses and a notary present is a common practice and frequently recommended additional safeguard to ensure your will is legally binding, although in most states it isn’t legally required. You can usually find a free notary service at your bank or credit union. Some mobile notaries will meet you and travel to your office or home for an additional fee.
Share - Give a copy to the person or people you named as executor and/or power of attorney, in addition to telling them where the original will is stored. You may also want to inform the other people named in your will, such as guardians.
Store in a secure location - Keep your original will with your attorney or in a safe spot with other important information. If you use Trustworthy, store the will in your Estate Documents category for safekeeping.
2. Power of attorney (POA)
The power of attorney (POA) document names specific people who will take care of important matters on your behalf while you are alive — such as financial and medical decisions. POA is revoked when you die, and a will becomes effective after you have passed away.
You don’t have to choose only one POA to help take care of your affairs while you are unable or incapacitated to make those decisions for yourself. In fact, it’s recommended to name a backup person for each role in case your first choice isn’t able to carry out the responsibilities.
Different powers of attorney include:
An executive POA takes the lead in managing big decisions on your behalf. If you have several different POAs listed, this person will do their best to ensure your wishes are being carried out by the team of your choosing. If you don’t name POAs for different roles, the executive POA will cover all these roles. Remember, this only applies to making decisions while you are alive. Once you die, the executor of your will takes over managing your wishes.
A medical POA advocates for you when you are unable to:
Advocate for yourself
Communicate your medical preferences
For example, let’s say that you have dementia, or you’re in the hospital due to a severe injury and aren’t conscious. Those are moments in which a medical POA will step in to advocate for you. This does not apply to end-of-life decisions. Designating a medical POA is not the same as completing a living will/advance directive, which we explore further in the third section.
A financial POA manages your personal accounts or includes additional people to provide oversight while you are still alive. Here’s one example: an accountant friend can provide an annual review to manage your bank accounts, or the executive POA can hire a professional to manage your bookkeeping, file taxes, and review statements. Whoever you choose, it’s probably best to go with someone who isn’t afraid of a little organization and paperwork.
A digital POA is granted access to your online and digital accounts to help needed transactions continue to run smoothly. For many, our administrative lives now center around digital accounts. In order to make this more easy and accessible for your digital POA, consider granting access to a password manager so they are able to log into the necessary accounts. For example, if your executive POA has access to your Trustworthy account, they can share your password manager information with your digital POA.
Related article: Why you should consider a family password manager
3. Living will (advanced care directive)
A living will goes by many different terms, including:
Advance care directive
Directive to physicians
However you refer to it, a living will is state-specific and legally binding. It records your wishes around medical care and end of life if you are unable to speak for yourself. Once you actually need a living will, it’s probably too late to create one. Which is why it’s important to make one in advance.
What to include in your living will
A living will should be as specific as possible. Very few medical decisions are cut-and-dried. Whomever you designate as your medical POA will be better able to speak for you when you’ve helped define what quality of life means for you. Clearer guideposts about what kind of medical care you do and do not want will help remove some of the questions and uncertainty about making end of life decisions.
What care do you want to receive or decline? A living will may answer questions like whether you do/do not want:
Invasive diagnostic tests or procedures
Experimental medical procedures
What does your quality of life mean to you? For example, when navigating medical choices, care and options at the end of life, what is most important to you? Even with life-sustaining procedures, you may choose between the following:
Keep me comfortable and allow natural death to occur. I do not want any medical interventions used to try to extend my life. I do not want to receive nutrition and fluids by tube or other medical means; or:
Keep me comfortable and allow natural death to occur. I do not want medical interventions used to try to extend my life. If I am unable to take enough nourishment by mouth, however, I want to receive nutrition and fluids by tube or other medical means; or:
Try to extend my life for as long as possible, using all available interventions that in reasonable medical judgment would prevent or delay my death. If I am unable to take enough nourishment by mouth, I want to receive nutrition and fluids by tube or other medical means.
This only covers a few scenarios. The more specific, the better.
Make it official
A living will requires witness signatures and sometimes notarization, depending on the state. Some states also do not allow the following people to act as your witness:
Someone who may inherit part of your estate
Someone named in your last will and testament
A relative by blood or marriage
As with your last will and testament, you can usually find a notary at your bank, library, county clerk’s office, or through local services.
Trustworthy can help
Planning out your estate is one of the most important things you can do for yourself and your family. Trustworthy helps take out the guesswork and give you a better idea of what to tackle first. We can match you with estate planners, guide you towards helpful templates and tools, and offer a secure location to store, organize, and share your most important information. You can try a 2-week free trial here.