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Estate Planning

4 Estate Planning Documents for Everyone

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Estate planning is the process that helps you manage and preserve your assets while you’re alive and conserve and control how they get distributed after your death. When you set up an estate plan, the complexity depends on what you have and how you want your belongings handled. However, at the foundation, there are four key estate planning documents that most adults should consider, regardless of age, health or wealth.

Four Estate Planning Documents to Have
  1. A durable power of attorney

  2. An advanced medical directive

  3. A will or trust

  4. A letter of instruction

Let’s examine each document, why it may be necessary and what purpose it serves. Work with an estate planning attorney to set up or review a current plan. And remember, it’s not just for older adults or the very rich—you can plan your legacy regardless of your age or economic status. If you’re just starting to think about a plan, you’ll also want to know the basics of estate planning.

1. Durable Power of Attorney: Assign Someone to Act for You

A durable power of attorney allows you to authorize a person of your choice to act as your agent for financial matters if you physically or mentally can’t. A power of attorney typically empowers that person to perform various activities on your behalf, some of which may include:

  • Pay bills and expenses

  • Watch over your investments

  • File your taxes

This is the financial side of having someone act on your behalf. There is also a health care power of attorney, discussed below. It’s important to know why these durable powers of attorney are important for your estate plan.

2. Advanced Medical Directive: Manage Treatment Wishes

Medical directives let others know what treatments you would or not want if you can no longer express your wishes. If you don’t have a directive in place, medical care providers will prolong your life using artificial means—even if you would not want to have the procedures. They are obligated to do so. Advance directives may include a:

  • Living Will A document that states which kinds of health care treatments you wish to refuse or accept, for example, cardiopulmonary resuscitation (CPR) if your heart stops.

  • Healthcare Proxy Another term for a health care power of attorney, this document states who has the power to make medical decisions for you should you become incapable of making them for yourself.

  • Do-Not-Resuscitate Order (DNR) A document that tells your family and health care providers that you do not wish to receive resuscitative treatments, such as (CPR) DNR orders are typically appropriate only for individuals with terminal medical conditions or the very elderly.

Rules vary by state. For example, the state of Texas requires you to execute both a living will, which is called a Directive to Physicians and Family or Surrogates, and a medical power of attorney (also called a health care proxy) before either document become effective.

3. A Will: Direct Where Your Assets Go

The purpose of a will is to distribute property to your heirs after your death, according to your wishes. In your will you can name an executor whom you wish to manage and settle your estate and a legal guardian to care for your minor children. A will is a formal legal document that is filed with the court and eventually becomes part of the public record in a process known as probate.

Wills & Trusts

Some people choose to utilize a living trust instead of a will to direct who receives their assets after they pass. There are some definite differences between wills and trusts, and reasons why you might choose one over the other. Compare wills and trusts to know which might be right for your situation.

Probate is the legal process for distributing assets after a person dies, and it may occur with or without a will. It’s important to have an idea about how probate works so you can potentially avoid pitfalls for you loved ones later on.

4. Letter of Instruction: Express Your Wishes

A letter of instruction is an informal, non-legal document that goes with your will. You use it to express your directions in addition to the will. It may include other things that are important to you, such as personal thoughts, burial wishes or the location of important documents. A letter of instruction may be the most helpful document you leave your family members. Unlike your will, it remains private.

Do You Need These Documents?

Whether you have all four or some of the documents listed above is a personal decision and one you may want to make with an estate planning attorney and in conjunction with your family.

Whatever you decide, talk to family members about your plans so they know and understand your wishes. Your loved ones may have an easier time—and less stress—when you have the appropriate documents in place.

Understand the Relationship Between Your Estate Plan and Your Financial Plan. Let’s Talk.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.