Welcome Back, Gen Z (+ other!) Planners – now, it’s time to get your documents together!
Before you dive into estate planning, it’s helpful to know that there are myriad types of documents within a comprehensive plan. I’m here to give you an estate planning document breakdown in the simplest terms.
When setting up your estate plan, you’re going to be asked what feels like a million questions – it’ll be helpful if you’re first familiar with the key terms and documents involved in a typical estate plan. This way, you’ll feel feel confident instead of overwhelmed when you start working with your estate planning attorney.
Wills and Trusts — What Are They?
If you’re here, you may be wondering: What is the difference between a trust and a will?
According to Guardian Life, a trust is “a legally binding document that specifies a trusted third party to manage and distribute your assets to a beneficiary on your behalf. That third party is called a trustee, and they have a fiduciary responsibility to act according to your wishes…You can have a trust while you’re alive and it can continue after you’re gone, making them a valuable part of your estate plan.”
In short, a trust is a legal document that lets a third party assist and distribute your funds on your behalf. A trust can be initiated and managed by you when you’re alive.
Additionally Guardian Life states that a will is “ a legal document that expresses your wishes for what you want to happen to your property, assets, and minor children after your death. Your will needs to adhere to the laws of your state, and it won’t affect certain accounts that have beneficiary designation.”
Essentially, a will is a legal document that expresses how you want your property and other assets to be distributed – but, a unlike a trust, a will will likely require probate!
Read more about Wills vs. Trusts…
Why Are There Two Types of Trusts?
Generally, trusts can either be revocable or irrevocable.
A Revocable Trust: “is the most flexible type of trust you can make. With a revocable trust, you can revoke or change your trust at any point during your lifetime as long as you’re competent. For example, you could transfer more assets to your trust, add or remove beneficiaries, or sell trust property.” (via Free Will.)
📌 Takeaway: Revocable trusts can be changed or cancelled (“revoked”). These trusts help you avoid probate + provide flexibility. However, revocable trusts don’t offer you asset protection or creditor protection.
Read more – Revocable Living Trusts
An Irrevocable Trust: “is a type of trust that, once executed, almost always requires court or beneficiary approval to change its terms…Once your assets belong to the trust, you don’t have full freedom to make changes. Edits to an irrevocable trust usually require an agreement signed by the trustee and all of the trust’s beneficiaries, or a judge’s approval.“ (via Free Will.)
📌 Takeaway: You generally can’t revoke an irrevocable trust. However, irrevocable trusts can offer you strong asset protection and/or tax benefits, though you may give up some control.
Other Documents in your Estate Plan…
Durable Power of Attorney (DPOA): This is a legal document where you appoint someone to manage your financial or legal affairs if you become incapacitated. A DPOA is important, even if you have a modest estate!
Healthcare Power of Attorney (HCPOA): Also known as an Advance Health Care Directive, this form nominates a trusted person make medical decisions for you if you cannot.
Living Will: This document allows you to state your wishes for end-of-life care.
HIPAA Authorization: A HIPAA Authorization lets you grant specific people access to your medical information. Make sure your medical provider has your HIPAA form on file, so your trusted family or friends can access your records if necessary.
📌 Pro Tip – Gen Z! Remember, once you turn 18, your parents automatically lose the ability to access your medical records & providers. They are also not able to make healthcare or financial decision for you. It’s important to make sure you get the proper docs in place in case of emergency!
Start Planning Today!
When you start conversations with your estate planner, make sure you understand what each document does! You can’t just sit twiddling your thumbs – all of these decisions are yours and yours alone.
Choose the estate plan that fits you and your young family today. Also, keep in mind that you can update your preferences as life changes!
Author: Mya Skowronski – Law Clerk, Phillips Ballenger Photo by: Becky DeCoite