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5 Essential Estate Planning Documents and Why They Matter To You


According to LexisNexis, 60% of Americas think everyone should have an estate plan, but only 44% actually have any estate planning instrument in place, such as a will, trust, or durable power of attorney. My guess is that at least half of the 44% with estate plans has outdated documents that they may have put in place when their children were born and now 20, 30 or 40 years later, their family and financial situations have changed entirely.

But why would anyone want to do estate planning? It involves:

  • Thinking about your death.
  • Going to see a lawyer.
  • Making tough decisions about who to appoint to various roles or who will get what
  • Paying a fee that seems too high.
  • Fighting traffic to get to the lawyer’s office.
  • Having to review tedious documents containing a lot of legal verbiage.
  • And how likely are you to die in the next few years? You may as well put it off.

Fortunately, there’s another side to the story:

  1. The estate planning process doesn’t have to be as bad as you may think.
  2. It can even be fun and creative.
  3. It’s as much about life as about death.
  4. Failing to take a few simple steps can put yourself and your family at risk.
  5. And once you’re done, you’ll feel great.

It’s all about the 5 essential documents (though depending on how you count, it may be 4 or 6 or 7).

Here they are in order of importance:

1. The Durable Power of Attorney

The most important estate planning instrument for taking care of you and your family during life, as opposed to after death, is the durable power of attorney. This appoints one or more people you trust to step in and handle your finances and legal matters in the event of your incapacity, whether through illness, dementia or an accident, and whether the incapacity is temporary or permanent. In the absence of a durable power of attorney, family members often must resort to going to court to be appointed conservator. This causes delay, which can be expensive, and legal fees, which are probably unnecessary. It can also cause infighting between family members, since you have not chosen who should step in. All of this would be happening at the same time your family is struggling to deal with your medical care, and perhaps still holding down jobs, raising children, and doing all of the other things that keep people over-busy in this day and age.

All of this said, if you do not have anyone you have confidence in to serve as your agent under a durable power of attorney, a conservatorship may be the next best option because it provides for probate court oversight.

While the concept of the durable power of attorney is simple—”I appoint you as my agent for financial and legal matters in the event of incapacity”—the devil, as always, is in the details. Without getting into the nitty gritty of the language of the document, here are a few decisions to make on your DPA:

  • How many agents should you appoint? You may appoint more than one agent or “attorney-in-fact” and permit them to act separately, so they don’t all always have to sign everything. But if you are going to appoint more than one, make sure that they are able to communicate well with one another.
  • Alternates. You can also appoint alternates in case the primary person or people are unavailable or unable to fill the role. But the document needs to be very clear about when the alternate takes over; otherwise, financial institutions may not accept the word of the alternate. We often advise clients to name two people as joint attorneys in fact rather than one with an alternate in order to avoid this problem.
  • Springing vs. current. Power of attorney can be effective as soon as signed or only when the principal becomes incapacitated, which is known as a “springing” power of attorney. For the same reasons that we avoid alternates when we can, we are even more vehement in advising against springing powers of attorney. While the intent is that the document will not be used until you become incapacitated, to require your agent to prove your incapacity every time she uses the document can make it unusable. In almost all cases where clients trust the person they appoint to serve as attorney in fact, they also trust him not to begin using the document until it’s appropriate to do so. And if they do act while the client has capacity, the client can always revoke the document.
  • Gifting. While it may be counter-intuitive, for tax and MassHealth planning purposes, it’s important that your attorney in fact be empowered to make gifts on your behalf, including to themselves. Often, powers of attorney limit this gifting power to the $14,000 annual gift tax exclusion. This can be a big mistake because federal gift and estate taxes now only apply to about the top 1/10th of one percent of estates – those with more than $5.45 million for individuals and with more than $10.9 million for couples.
  • Trust powers. In addition to gifting powers, durable powers of attorney should permit the agent to create and fund trusts for the grantor. For tax and special needs planning purposes, it is often much better to create the trust than to make an outright gift.
  • Specific financial institutions. Finally, while all financial institutions are supposed to honor duly executed powers of attorney, they are most concerned about potential liability in case of malfeasance by the attorney-in-fact. So, they sometimes find excuses to deny powers of attorney—for instance, if it is more than a few years old, which has no basis in law. Many of these institutions have their own forms that they are more likely to honor. So, in addition to executing a general durable power of attorney, ask the banks and investment houses where you have accounts, if they have their own power of attorney forms, and sign those as well.

2. Health Care Proxy

Like the durable power of attorney, a health care agent steps in for you to make health care decisions when and if you become incapacitated. Unlike a durable power of attorney, it only takes effect when a doctor enters into your medical records her opinion that you are unable to make decisions yourself and you can only appoint one individual to serve at a time. This is so that there will be a single point person dealing with medical professionals and no possibility of disagreement or stalemate between co-health care agents. You can and should name one or more alternates to the principal agent.

At the beginning, I said that there may be more than five essential documents depending on how you count. The main problem with health care proxies is that agents often have no idea or only a vague idea of what decision the patient would make in a particular circumstance if he could express himself. This can be addressed in one or more of these ways: a medical directive, a conversation between the potential patient and the agent, and a number of workbooks. So that at least something exists, we include a general medical directive in our health care proxies that at the client’s choice says either (1) pull the plug if I’m in a vegetative state or irreversible coma, (2) balance the potential benefit and discomfort of any proposed treatment, and (3) do whatever you can to keep me alive.

Former Boston Globe columnist Ellen Goodman has started what she calls The Conservation Project to get people talking about their health care wishes. On their website at, you can download their starter kit to get the conversation going.

Part of the problem with giving guidance to one’s agent is that it’s hard to predict situations that may occur and treatments that may be available. A number of organizations have developed workbooks to provide more detailed guidance than simply “keep me alive at all costs” or “do nothing.” They include:

3. HIPAA Release

In addition to a health care proxy, everyone needs a HIPAA release. The HIPAA law bars medical practitioners from releasing medical information to anyone, even to the spouse of a patient, without a release. You may well ask why a heath care proxy isn’t sufficient. There are a few answers: First, the health care proxy is “springing” in that it doesn’t get activated until or unless the patient is declared incapacitated. Second, while the health care proxy may only name one person at a time, you may well want a much broader group of people to communicate with medical providers. The agent may not always be available or may not be the first person on the scene.

All too often, we have seen medical providers hide behind HIPAA to avoid having to deal with family members, sometimes to great harm to the patient. Especially in emergency situations, family members often have vital information about the patient, whether it’s the mediations he is taking, allergies he may have, or his usual physical and mental health. HIPAA does not say that medical personnel cannot listen to this information, but it can be misconstrued in that fashion. It’s best to eliminate the whole issue by having a HIPAA release signed and available in case it’s ever needed.

4. Your Will

Your will says who will get your stuff when you die and who will be in charge of paying your bills, filing your tax returns, gathering your stuff, and distributing it according to your instructions.

But here’s the irony: although the will gets all the recognition and there’s a whole set of laws governing the so-called “probate” process, these days, most assets pass outside of probate, which means that what the will says does not apply in many situations, including: joint accounts pass to the other joint owners; retirement plans and life insurance policy go to designated beneficiaries, property in trust passes to the beneficiaries named in the trust document. Only what you own in your own name alone passes under the will addition, while the will requires a lot of formality—two witnesses and a notary all signing at the same time—these other forms of passing on property usually require only the signature of the owner, or sometimes simply filling out a form online.

That said, wills are important in terms of distributing your tangible personal property – stuff you can touch, such as furniture, jewelry, tools, clothing, boats, and cars. Your will appoints your executor or personal representative who is in charge of carrying out your wishes. This can be very important to avoid squabbling among children. And your will can be used to appoint guardians for minor children. Your will permits you to make charitable or other specific bequests. Finally your will can serve as a failsafe in case other means of passing on property fail.

Here’s a story on that last point:

We had a client come to us whose uncle had recently passed away. We got a court order to permit us to drill his safe deposit box and found a revocable trust that he had prepared himself. (I’ll talk more about revocable trusts in a little bit.) Under the terms of the revocable trust, everything he owned was to pass to a niece, the sister of our client. But the uncle had not transferred title to any of his accounts to the trust. As a result, they were all a part of his probate estate and in the absence of a will, they passed under the term of “intestacy” (state laws that say who gets property when there’s no will or other governing document). Under these rules, property passes to the closest relatives by blood (or marriage in the case of a spouse). One of the nieces was our client’s sister who was supposed to receive everything. The other was their cousin who lived in Oregon and had no contact with the uncle. However, under the intestacy rules, she received half of his estate and our client and his sister split the other half. The sister ended up receiving a quarter of her uncle’s estate when he appeared to want her to receive everything.

There are a couple of morals to this story. First, always execute a will just in case. Second, beware do-it-yourself estate planning because you don’t know what you don’t know.

5. Revocable Trust

The four (or five) documents listed above may be enough, but over the years I’ve become more and more a proponent of the revocable trust,  which is sometimes called a “living” trust. A trust is a construct under which one or more people (the trustees) manage property or investments for the benefit of one or more people (the beneficiaries). In a revocable trust, typically at the start, the same person acts as the creator of the trust, the grantor or donor, as trustee and ad beneficiary. Not much changes in their lives after they set up the trust. But it avoids probate by naming successor beneficiaries after the initial beneficiary passes away. While probate is not the worst thing that can happen, avoiding it can save heirs time and trouble.

But more importantly, a trust is a terrific tool for intervening in the event of incapacity. I mentioned earlier that some financial institutions have become resistant to accepting durable powers of attorney. They appear to be more comfortable with trusts when a successor trustee is named. But it works even better when a parent names one or more children as co-trustees. The parent then does not give up any rights or autonomy, but permits the child to begin participating in financial management. Even if the child does nothing, he can view accounts and step in immediately if a problem arises. This can be especially important in the event of dementia or scams. Seniors are the primary victims of scams and having a trusted family member with access to accounts can help identify scams and permit intervention to limit any potential effect.

In addition to probate avoidance and incapacity protection, trusts are infinitely flexible in terms of how they are drafted. They can state any number of specifics on who receives property when, for instance, permitting its distribution over time to children and grandchildren. The options and opportunities for creativity are limitless.

As you can see, most of these documents are about life, not death. Of course, they’re still about planning for an unwanted event—incapacity of some sort. It’s like insurance making sure you and your family are taken care of if an unfortunate accident occurs.

Related posts:

4 Steps to Protect Your Digital Estate

Don’t Let the Perfect Plan Get in the Way of a Good One

Why You Don’t Need to Review Your Estate Plan Every Five Years (Unless You’re Over 60)

Why We Don’t Plan: Prunes

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