Last Updated: June 1, 2010
Regardless of the size of your current estate, you generally should have a minimum of four estate planning tools: a will, a durable power of attorney, a living will and a medical power of attorney.
A will is a legal document that details where you want your estate's assets to go (after debts and taxes are paid) and who is going to oversee the execution of the will. It also may state who is to care for your minor children.
Without a will, the laws of the state will determine what happens to your estate's property. Your spouse, children or other heirs could end up with less than you planned, the assets could be poorly managed, your children might not have the guardian you wished, or your estate could end up paying more in taxes and legal fees than necessary.
Keep in mind that a will does not supersede everything else in your estate plan. For example, if your will lists your wife to receive your entire estate, but your ex-wife is the primary beneficiary of your life insurance policy and retirement account, then your ex-wife would likely end up with the benefits.
Durable power of attorney
A power of attorney is a lifetime document for estate planning. It allows you to designate a representative, such as your spouse or adult child, to perform certain actions for you should you become ill, incapacitated or otherwise unable to manage your affairs. The representative could, for example, pay bills, sell securities or make major financial decisions on your behalf, depending on how broad or narrow you limit the powers. Without a power of attorney, your spouse or other loved ones would have to go through the delay and expense of seeking approval from the court to carry out needed financial transactions.
A living will
A living will is an individual's written declaration of what life-sustaining medical treatments he or she will or will not allow in the event they become incapacitated. For example, the person may request that artificial nourishment be withheld if he or she is terminally ill.
Family members or medical institutions often challenge the meaning or validity of living wills, so take considerable care and be specific when drafting it. States provide standard-language forms, but some experts feel they are too vague.
A medical durable power of attorney (or health care proxy)
This document authorizes a person to make medical decisions on your behalf, ideally to carry out what you've specified in your living will. Talk to the person before appointing them, and be sure they understand and are comfortable with your wishes, and will be strong enough to carry them out even though some family members may object.