No one likes to think about death and end-of-life arrangements. However, being prepared for the inevitable is not only a smart thing to do, it’s also a kind thing to do for loved ones. When…
No one likes to think about death and end-of-life arrangements. However, being prepared for the inevitable is not only a smart thing to do, it’s also a kind thing to do for loved ones.
When people don’t have their paperwork in order, “It’s a complete nightmare for everybody,” says Steven Jablonski, a certified financial planner with advisory firm Informed Family Financial Services in Norristown, Pennsylvania. At best, loved ones are left trying to sort through paperwork while dealing with grief. In a worst-case scenario, your heirs may miss out on life insurance benefits and tax deductions, or overlook accounts because they don’t know they exist. That’s why it’s crucial for you to have important documents ready for your loved ones.
Here are the 12 documents you should start preparing now.
A will. When it comes to estate planning, a will is likely the first thing to come to mind. This legal document lets you name an executor to carry out your wishes, heirs for your assets and a guardian for any minor children you may have.
Allison Kade, editorial director for Fabric, a company that lets people make wills online for free, says the process can feel overwhelming. However, the difficult part is choosing who receives your inheritance and who will fill the roles of executor and guardian. Once those decisions are made, the actual process of putting together the document can be completed in minutes.
If you’re using a service like Fabric, rather than turning to an attorney, check your state’s requirements for a valid will. Some states require a notary public or others to witness its signing. For instance, New York requires two witness signatures for a will to be valid.
A letter of explanation. While the will stipulates how assets are to be divided, a letter of explanation can provide the rationale for these decisions.
“If the estate is to be split unevenly between children, my recommendation is to speak with [them],” says Mela Garber, a tax principal at accounting firm Anchin, Block & Anchin LLP in New York City. Knowing why a sibling was chosen to receive a larger share of an estate may help avoid animosity between family members.
A list of financial accounts and beneficiaries. Maintain a list of all your finances, including bank and retirement accounts and brokerage funds. Each of these accounts can have a designated beneficiary or transfer on death provision, known as a TOD. People designated as a beneficiary or TOD designee automatically get ownership of the asset after you pass away.
Jablonski says people commonly forget to update beneficiaries on these accounts, or they assume they don’t need to worry about beneficiaries if they have a will. “The beneficiary supersedes the will,” Jablonski explains. Whoever is named beneficiary receives the asset even if the will says otherwise.
A personal inventory. Most wills distribute personal property in broad terms, such as designating jewelry to one person and household goods to another. To ensure nothing important gets overlooked, it’s also helpful to have an inventory of personal items available.
“For example, if you have antique furniture, people might not realize it’s valuable,” Kade says. The inventory can also list items that may be stored in another location, such as a storage unit, that your family might not know about.
A power of attorney. A power of attorney form isn’t something that will be used by heirs, but it is an important document for your loved ones to have should you become incapacitated because of an illness or accident. The power of attorney will let a designated person make decisions on your behalf. Some people designate one person to be a power of attorney for both financial and health care decisions while others prefer to split these responsibilities between two people.
“You might want to have a copy of your health care power of attorney on your phone, and you might want the agent to have a copy stored on his or her phone as well,” says Dan Prebish, director of Life Event Services with financial firm Wells Fargo Advisors. “If an emergency occurs, it will be available at your fingertips.”
Life insurance policies. People may be missing out on significant life insurance benefits because they don’t realize a family member had a policy or it has been lost or misplaced. Make sure your loved ones get the money they are owed by keeping records of your life insurance plans and storing it with your financial records.
Real estate records. Deeds, assessments, mortgage statements and tax information for real estate should also be included with the documents you’ve prepared for your heirs. Unless you own a significant number of rental units, your heirs will likely already know what property you own, but gathering the records for them in advance will make their lives a little easier.
Tax returns. If you have your taxes done professionally, record the name of your CPA or tax preparer. That person will be able to guide your family through filing final tax returns for your estate. If you file your own returns, don’t forget to print a copy for your files and record any login information for online tax preparation services.
Login information for online accounts. “In today’s world, many people keep their documents electronically,” Garber says. Keep a record of your usernames and passwords for financial accounts, email and social media platforms and store it in a location where heirs can access the information. If you use a password manager, such as LastPass, you may be able to designate a person for emergency access to your account. Include instructions on how to access this feature with your other documents.
A digital estate plan. Given that we spend much of our lives online and on the computer, it’s become increasingly important to have digital estate plans in addition to a traditional will. Some states recognize these plans as legally binding, but even if they are not, they can still be a helpful tool for your friends and family.
A digital estate plan outlines what will happen to your digital assets. Those are your social media accounts, websites, digital photos, intellectual property and other files and documents. Within your plan, you can even designate a digital executor and list those you’ve named as legacy contacts on specific platforms such as Facebook and Twitter.
An ethical will. An ethical will serves as a letter outlining what you’d like remembered as your legacy. “It’s a chance to pass down values,” Kade says.
People may use ethical wills to share favorite memories, express hopes and dreams for the future of their loved ones and impart wisdom gained over the years. It’s intended to provide an opportunity to share stories and lessons that might otherwise be lost in time.
Final wishes. If you’ve made prearrangements for your funeral or cremation, keep that information with your will and other end-of-life documents. If you haven’t made prearrangements but have specific wishes, list those as well.
Your final wishes should also include details about organ donation, care for your pets and who should be notified of your passing. “Perhaps there are friends or colleagues who you don’t see regularly, but whom you believe would appreciate receiving notice of your death,” Prebish says. Alumni, community and professional groups may also need to be notified.