What Estate Planning Documents Are Needed?
Updated: Jun 15
Asking what types of estate planning documents are needed is like asking what kind of medicine is needed. Every person’s property is different, so, the estate planning documents that each person needs are different. But there are common estate planning documents that are often used in planning estates.
These frequently used documents include:
· Joint Tenancies with Right of Survivorship (JTWROS)
· Transfer-on-Death Deeds
· Contractual Arrangements
· Gifts made during your lifetime
· Advance Directives
· Living Wills
· Powers of Attorney
In this post, I’ll discuss some of these common types of documents, and explain the advantages and disadvantages of each.
A will is a document where you direct how your property will be distributed when you die. One disadvantage of a will is that if you write one, the property named in the will must go through probate – that is, your heirs will have to file an action in probate court, and ask a judge to distribute the property. A probate action costs hundreds (often thousands) of dollars and can take several months or even years. So, I often advise my clients to rely on wills as little as possible to plan their estates and use estate planning devices that will keep them out of probate court.
An advantage of a will is that you may write clauses that distribute property that you don’t know about. For example, in your will, you may write, “I leave the residue of my estate to _____________.” Then, if you have property that you don’t know about, the will is legally effective to transfer that property. In many other types of estate planning documents, you must identify an item of property in order to distribute that property.
There is not a person in the United States who can say, with certainty, that they don’t own any property that they don’t know about. I have handled several cases where, after a person dies, the heirs discover property that the decedent owned, but didn’t know about. For this reason, I always advise my clients to create a will, so that they can transfer property they don’t know about.
A trust is a legal entity where one person (the trustee) manages property for the benefit of another (the beneficiary). The trustee is the “legal” owner; the beneficiary is the “equitable” or “beneficial” owner.
Common reasons for creating a trust are:
· You have minor children or children with disabilities, and you want to provide property for these children. But, if the children won’t be able to manage the property themselves, you want to appoint a trustee to manage the property for them.
· You are unable to manage your own property, and you want a trustee to do so. You may also create a trust that becomes effective if you become incapacitated, so that during your incapacity, a trustee may manage your property for you.
· If you create a trust, the property in the trust won’t have to go through probate because after you die, the trust still survives.
· You want to keep the distribution of your property secret. If property goes through probate, the distribution will be a matter of public record, because all documents will be filed in court where they will be available for public inspection. The documents will also be visible online. Also, if you transfer property by deed, you’ll have to file the deed in the county clerk’s office, where the deed will be publicly available. But you often don’t have to file trust documents with any public body.
Deeds that transfer your property into joint tenancy with right of survivorship (JTWROS)
If you and another person own property as “joint tenants with right of survivorship” then, when one owner dies, the other owner can file the deceased owner’s death certificate in the county clerk’s office. Then, the surviving owner automatically acquires interest in the property.
An advantage of joint tenancy with right of survivorship is that it is very inexpensive and takes very little time and effort to obtain a death certificate and file it in the county clerk’s office. So, I often advise clients to place property in joint tenancy with right of survivorship, so their family can obtain the property quickly and cheaply.
A disadvantage of placing property in joint tenancy with right of survivorship is that once you’ve placed property in joint tenancy with right of survivorship, the other owner acquires a partial ownership interest in the property as soon as you sign the deed. You won’t be able to sell the property without the other owner’s consent. Also, if you’ve placed the property in joint tenancy, you can’t revoke that transfer without the other owner’s consent. If you think that the other owner may cause you trouble, it’s best not to place the property in joint tenancy with the right of survivorship.
When you create a transfer on death deed, you state that you want to transfer property when you die. After you die, the transferee can simply file your death certificate with the county clerk, and the transferee automatically obtains the property.
There are several advantages that a transfer-on-death deed has over a joint tenancy. You may revoke a transfer on death deed any time you are alive. Also, if you create a transfer on death deed, the transferee doesn’t gain any ownership interest in the property when you are alive, so, when you’re alive, you may sell the property without the transferee’s consent.
Many financial institutions and insurance companies allow you to make an arrangement where you designate a beneficiary to receive your bank account, IRA, or insurance benefits upon your death. If you want to explore this further, contact your financial institution or insurance company.
Gifts during your lifetime
Many people, when planning their estates, simply transfer property while they are still alive, rather than wait until they pass away.
Advance Directives and Living Wills
An advance directive is a document where you specify what type of medical care you wish to receive if you become incapacitated. You may also specify whether you want (or do not want) food or water. An advance directive where you specify these types of desires is called a living will. In an advance directive, you may also designate a person who will make health care decisions for you if you become incapacitated.
The Oklahoma state legislature has created an advance directive form that you can fill out to state your wishes. The legislature has made this form flexible so that you can specify anything you want.
Powers of Attorney (POA)
A power of attorney is a document where you name another person to manage your property and make financial decisions for you. One popular type of power of attorney is called a “springing durable power of attorney.” A springing durable power of attorney is a POA that goes into effect if and when you become incapacitated. It’s called “springing” because it “springs” into effect upon your incapacity. It’s called “durable” because it continues to last after you become incapacitated.
You may also create a "health care power of attorney" where you name another person to make health care decisions for you in the event of your incapacity.
For more information on powers of attorney, read my earlier blog post here.
Need help with estate planning? Contact the Persaud Law Office
At the Persaud Law Office, we’ve helped many people handle the complex maze of estate planning. If you would like to schedule a consultation, contact us today.
Photo courtesy of https://www.flickr.com/photos/ken_mayer/5599532222. Licensed under Creative Commons License 2.0.