Everything You Need to Know About Estate Planning

A family works on estate planning and filling out end-of-life documents together

No one wants to think about end-of-life documents or the transition these documents represent. We don’t want to anticipate sorting through a loved one’s finances after they pass away, or of leaving our own families behind. With the lack of certainty in today’s world, one of the most important things we can do to prepare for unexpected losses is to make sure our documentation and affairs are in order. 

However, recent estimates are that 50-60% of Americans do not have a will or estate plan, creating potential complications for their families if they pass away. While more people have created estate plans since the onset of the COVID-19 pandemic, as many as 62% of Americans are still lacking a will. Many people without a will don’t believe they have enough assets to warrant a will or estate plan, but experts urge adults to have a plan in place regardless.

Losing a loved one is one of the most stressful situations most people endure, and having documentation in order ahead of time can help your loved ones navigate this stress. We recommend consulting with a legal or estate planning professional before starting this process as laws and situations vary. 

The In Case of Death or Incapacitation Folder

One common strategy is to keep an ‘in case of death or incapacitation’ folder or binder, containing necessary end-of-life documents and records for your next of kin and other loved ones. This can be a physical or digital collection or even a mix of both.

In your ‘in case of death’ folder, you’ll want to gather all the documentation your family might need if you’re incapacitated or if you pass away. This includes all the legal documentation recommended for your circumstances and applicable financial and medical documentation. Gathering it in one place will give both you and your family peace of mind, knowing that even if the unexpected happens, you’ve set them up to handle the transition as well as possible. 

Putting some time into organizing your papers is essential. Electronic folders should be clearly named and easy to find. Many people use a binder for their physical papers; we recommend including a table of contents and clear labels. Grief is a stressful time but also a time in which time-critical decisions are necessary. A little time spent now can make things easier for the ones you love. 

You should make sure the binder or folder is easy to find and that your loved ones know where it is. However, since you’ll be including sensitive, private information, make sure physical documents are in a safe place, and any electronic copies are password-protected or on a secure drive.

No matter your age, there are certain end-of-life documents you should have ready. In some conditions, these documents will help your next-of-kin with the aftermath of your departure. In other situations, you may not be able to make decisions for yourself due to medical issues, and documentation may be necessary so your next of kin can make decisions on your behalf. 

This may vary slightly based on your individual situation and applicable state law. Still, we recommend that you have the following documents prepared in case of an unforeseen illness, injury, or death. 

  • Last Will & Testament
  • Trust
  • Power of Attorney
  • Medical Power of Attorney
  • Living Will / Directive to Physicians
  • HIPAA Waiver of Authorization

Let’s look at the purpose of each of these documents and how they fit into your estate plan. 

Last Will and Testament

When you think of estate planning, this is probably the document that comes to mind. The last will and testament establishes who receives your assets after you pass away. If you have children under the age of 18, your last will and testament will also establish guardianship for them. 

Your will goes into effect upon your death. It can be changed, so there’s no downside to drawing one up at a younger age and making adjustments as your life circumstances change. Your will can also establish a trust to manage your assets after death. 

There are many legal websites that can assist you in writing a simple will, but legal experts recommend hiring an estate attorney if you have substantial assets, minor children, or other factors that could make your will more complex.

Generally, your will specifies the following: 

  • Executor: Your executor is the person you designate to carry out the tenets of your will. This is usually either an attorney, a family member, or a close friend.
  • Beneficiaries: Who will inherit your assets. 
  • Personal assets: This includes your home, vehicles, personal property, and any investments or funds you may have after taking care of expenses and debts. 
  • Business assets: If you own a business, your business assets need to be addressed separately from personal assets. 
  • Debts and expenses: This section specifies how your funeral expenses as well as inheritance and estate tax should be paid. 
  • Children: Not only does your will specify what assets go to your children, but it also specifies their legal guardian, or who has responsibility for them after you’re gone. 
  • Other: You can specify anything from who gets custody of a family pet to the disposition of your family home in your will. 

If there are ambiguities, a probate court will determine how to resolve them. The estate will pay the court costs and this can get expensive, so it pays to keep your will up-to-date. 


A trust is a legal mechanism to manage your assets for the benefit of your inheritors after your death. You can establish a living trust during your lifetime or leave instructions in your will to establish one upon your death.

These are very useful if you have children to provide for in your estate planning; a designated trustee manages the trust and can disburse funds for college or other expenses, or when the beneficiary meets specified conditions (such as turning a certain age or graduating college.) 

Power of Attorney

A power of attorney is a document that designates someone to act on your behalf in legal and financial matters. Therefore, it’s crucial that you implicitly trust the person to whom you grant power of attorney, as they can legally act on your behalf and the document and authority granted is binding. 

There are two basic types of power of attorney:

  • Durable Power of Attorney: This becomes effective immediately when signed and is in effect until revoked.
  • Springing Power of Attorney: This type of document is inactive until activated by a specific event, such as the person being ruled mentally incompetent or disabled. 

Medical Power of Attorney

A medical power of attorney gives a designated individual the authority to decide on medical treatment and procedures on behalf of another individual. While a standard power of attorney applies only to financial and legal matters, a medical power of attorney applies solely to healthcare and medical decisions. 

Living Will / Directive to Physicians

A living will, also sometimes called a Directive to Physicians, establishes your desires regarding end-of-life care should you be terminally ill, unconscious, in a coma, or otherwise unable to decide for yourself. This can include items such as a ‘do not resuscitate’ directive or when to pull the plug if you’re on life support but have no chance of recovery. While having a trusted person with medical power of attorney gives you an advocate, laying out your preferences in advance takes tough decisions out of their hands. 

HIPAA Waiver of Authorization

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) includes strict requirements for the confidentiality of medical records. While this is important for the privacy and security of individuals, it can have unintended consequences if you’re incapacitated. For example, healthcare providers may not provide your family with information regarding your condition or treatment without proper authorization. Filling out a HIPAA release in advance ensures that your family members can obtain the information they need.

Other Important Papers To Gather

Besides the six legal documents listed above, there are more end-of-life documents to prepare before death that will be useful in a smooth transition for your loved ones. Some of these may not apply to your situation, but it’s worth keeping up-to-date copies of the ones that are.

  • Letter of Intent
  • Authorized User On Financial Accounts
  • Asset Information
    • Account statements
    • Life Insurance Policies and Info
    • Real Estate Deeds
    • Automobile and Other Vehicle Titles
    • Stock, Bond, and Investment Info
  • Business Documents
    • Corporate, LLC, or Partnership Documents
    • Account Statements
    • Contracts and Licenses
    • Tax Returns
  • Prenuptial and Postnuptial Agreements
  • Loan Paperwork
    • Mortgages
    • Home Equity Loans / Lines of Credit
    • Personal Loans
    • Leases
  • Bills
    • Utilities
    • Cell Phone
    • Credit Card
    • Tax Bills
    • Storage Unit
    • Medical Bills
  • Income Tax Returns (Federal and State, for the Last 3 Years)

These items can help your loved ones sort things out in the aftermath of your incapacitation or death with minimal stress. 

Letter of Intent

A letter of intent isn’t a legal document, per se; think of it as a cover letter for your portfolio of end-of-life documents. Your letter of intent is a non-binding personal letter to those you love expressing your desires and special requests. It may include a high-level overview of how you want your assets and belongings distributed, details on your burial or cremation preferences, and personal messages. 

While it is not a binding document, it’s a useful companion piece to legal end-of-life documents, as it can clear up any confusion as to your intent and communicate in plain English with your beneficiaries. 

Authorized User On Financial Accounts

For older adults, it’s often a good idea to add a trusted family member or agent to your financial accounts. This can eliminate a lot of red tape in gaining access to those accounts after death. This can be crucial if you have family or loved ones that are financially dependent upon you, as it ensures they have access to the funds they need to live while your affairs are being sorted out after you pass away.

Asset Information

You’ll want to include copies of recent statements and login information for your bank accounts and other financial assets, as well as retirement and investment accounts. You should also include real estate deeds and the titles to your automobiles or other vehicles.

Business Documents

Suppose you own a sole proprietorship, LLC, or other business. In that case, you’ll want to include all the documentation needed to transfer the legal title and ownership of the business to your designated beneficiary, as well as account statements and titles or other proof of ownership of business assets. In addition, your business licenses and your business’s tax returns for the last three years also belong in this section. 

Prenuptial and Postnuptial Agreements

If you have prenuptial or postnuptial agreements that may impact your estate, those should be placed with your other documentation.

Loans And Bills

Statements and information from your outstanding loans, including mortgages and leases, should be gathered together to settle your accounts after death. You should also include your monthly bills, such as utilities, cell phone, credit card, storage units, and medical bills.

Tax paperwork

In this section, include your last three years’ worth of federal and state tax returns. Also include any gift tax paperwork you may have, such as IRS Form 709, that may apply to federal gift and generation-skipping transfer taxes. 

Death Certificate And Funeral Bills

Many people have a place in their folder or binder for death certificates and funeral bills, even though those won’t be produced until after they have passed away. This way, your loved ones can keep them with all the other documentation needed during this period. Experts recommend ordering 10 original death certificates; they’ll be necessary for settling your estate. 

Peace Of Mind Through Preparing Your End-of-Life Documents

Whether you’re preparing your own end-of-life documents or helping a loved one, planning for death is never a pleasant proposition. It does, however, provide a measure of peace of mind. It’s difficult to navigate the paperwork and details of a loved one’s death even as you try to grieve that death. But, through proper planning and organization, you can make that process immeasurably easier. You can also ensure that what you leave behind is distributed in the manner you wish it to be. 

Good financial planning allows you to live your best life. A little planning and foresight in establishing an estate plan enables your family a good life even after you’re gone. 

Prosper encourages you to consult your own legal and financial advisors as you consider these important matters; Prosper does not provide legal advice.

Read more: How to Financially Prepare for Divorce

The post Everything You Need to Know About Estate Planning appeared first on Prosper Blog.

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