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5 Estate Planning Documents Every Family Needs To Protect Their Finances

Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. American Express is a ChooseFI advertiser. Disclosures.

Most of us don’t like talking about death. Heck, many people even shy away from using that word. They’ll say “he passed away” or “she’s in Heaven now.” If they can’t say the word, how much planning around a death do you think people actually do? Not enough, quite frankly. There are five estate planning documents that every couple needs to protect their money and ensure their heirs are taken care of.

They are:

  • Will
  • Living trust and pour-over will
  • Durable power of attorney
  • Advance health care directive
  • Updated beneficiary documents

1. Will

One of the most basic estate planning documents is a will or last testament. A will is a legal document that expresses how a person would like their assets distributed upon their death. This document does not need to be notarized to be valid. However, having it notarized reduces the potential for dispute.

The process of distributing your assets to beneficiaries and paying off debts by the court is called “probate.” The court charges for handling an estate and may also require the estate to pay for an attorney.

Keep in mind that a will is a public document that is read by the county and handled by the court. If you value your privacy, you’ll want to take a step further and create a living trust for your estate.

2. Living Trust And Pour-Over Will

A living trust is a document that allows the deceased to control how their estate is distributed. It is more advanced than a will and allows for more specialized instructions. For example, you can say that your children get specific amounts at certain ages or upon passing certain milestones, like graduating from college, getting married, or having children.

When there is a living trust, the estate will bypass the courts and probate process. This can save valuable time and money that should be going to your family, friends, and charity instead of the court system.

With a living trust, you will name specific assets and how they should be distributed. A “pour-over will” is used to catch any of your assets that were not transferred to your living trust and ensure that they are distributed according to the rules within your trust.

Some people include a rule that, if the living trust is contested, the people arguing against it will receive a reduced amount. The best way to avoid arguing is to communicate your wishes to your family ahead of time. This will allow you to explain your reasons and allow them to ask questions.

Related: Estate Planning: Wills Vs Trusts

3. Durable Power Of Attorney

Estate planning isn’t just about death. It is also about protecting your family in case you get sick, injured, or otherwise incapacitated. This is where a durable power of attorney comes into play.

The durable power of attorney document designates someone who will make decisions on your behalf when you cannot. There are two types of durable power of attorney documents that you should have – health care and finances.

You should have separate documents for health care and finances for a couple of reasons. First, the health care document will contain more personal information about your health history. And, second, you may choose to have different people handle those decisions on your behalf.

For example, in my family, I’m the numbers guy but my brother is a trained EMT. When my father was in the hospital before he died, I assumed control of the money decisions while my brother used his expertise for medical decisions.

4. Advance Health Care Directive

Another important medical document is the advance health care directive. Yes, you’ve already designated someone to make decisions on your behalf with the durable power of attorney, but they may not share your same opinions on everything.

An advance health care directive spells out the medical care that you do, or do not, want in the event that you are incapacitated.

For example, your family and friends love you and may have difficulty giving the approval to take you off life support when that time comes. And even if they are willing, this removes the burden and guilt of being “the one who pulled the plug” on someone that they love.

When my Dad was getting close to passing away, I know that I would have had trouble telling the doctors that it was time. So, he created an advance health care directive saying that he didn’t want to be placed on life support if his health deteriorated further.

5. Updated Beneficiary Documents

For retirement plans, life insurance policies, and annuities & pensions, it is very important to designate a beneficiary.

I recently read a sad story about a widow with Multiple Sclerosis who had to sell her home because her husband had not updated his pension beneficiary documents.

And you’ve probably seen or heard stories about current spouses or children losing out on expected benefits because the deceased didn’t update beneficiary documents after getting remarried or having additional children.

Per Stirpes vs. Per Capita

If you have children, consider how you want your estate to be divided. Per stirpes means that each child will receive an equal amount. If they should die before you do, then their heirs will split their share.

Per capita means that heirs at each generation will receive the same amount.

For example, with per capita, if your son has two children and your daughter has three, the five grandchildren will each receive 20%. With per stirpes, your son’s children would each get 25% and your daughter’s children would split the other 50% three ways (~17% per child).

Related: Disability Insurance: The Most Important Insurance People Don’t Buy

Do You Need An Estate Planning Attorney?

There are many tools available for people to create their own estate documents. For example, I created a will through Rocket Lawyer ahead of an international vacation that my wife and I took. is another online resource that is popular with the DIY crowd.

Because of the complicated nature of this subject, many people choose to involve an attorney in drafting these documents. This is especially true if you have specific conditions that you want to happen before beneficiaries receive money. Every state has different laws dictating what is and is not acceptable. Check out our interview with estate lawyer Mark Moss.

You don’t want one sentence in your living trust to invalidate your entire estate plan.

Additional Steps To Take

Beyond having these documents, do everyone a favor a have a list of all of your accounts readily available. Before I go on vacation with my wife, we leave an updated list of accounts for my mother-in-law in a red folder. She balks when I hand it to her, but if something were to happen, she’d be glad to know where all of the money is located.

Along those same lines, keep all of your other important financial documents together in one place. Property deeds, vehicle titles, and life insurance policies are good examples of important documents that need to be easily found.

So many of today’s life is online and password protected. You’re hesitant to write down passwords for fear of being hacked. But you have to balance that with ensuring people have access in case you die.

Related: ICE Binder: The Done For You Legacy Binder

Plan Now To Avoid Headaches Later

Ok, I’ll admit it. I don’t have all of these estate planning documents either. But I definitely need to make them a priority. The saying “failing to plan is planning to fail” is very relevant in this situation. And I need to quit talking about it and get these documents prepared.

What steps are you taking to preserve your estate? Will you do them yourself or hire an attorney? Share your strategies in the comment section below.

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5 Estate Planning Documents Every Family Needs To Protect Their Finances

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Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. American Express is a ChooseFI advertiser. Disclosures.
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