Retirement

The Three Legal Documents Of An Estate Plan

From a legal perspective, a proper estate plan is accomplished by drafting three essential documents: a Will, an Enduring Power of Attorney, and a Personal Directive.   All other estate planning decisions, such as beneficiary designations and how you own certain assets, must work in concert with these three legal documents.

Will

The most important of your estate planning documents is your Will.  A Will says what happens with all your worldly goods after your death.  A Will may include trusts for your loved ones.  A Will is used to appoint guardians for your minor children. Be careful about the consequences of dying without a will.
In its most basic form, a Will is a document that defines four important groups of people in your estate plan.

  1. Beneficiaries.  Not only does the Will say who will get your assets after your death, but also specifically which assets each beneficiary will get and how and when your beneficiaries should get those assets.
  2. Executor.  The Will must appoint someone who has the responsibility to settle your estate.  Choosing the right executor is not as easy a task as you might think.  This person has a lot of responsibility and should be someone who can handle a difficult task.  Your executor should be someone who has some financial experience.  Ultimately, your executor should be someone you trust.
  3. Trustee.  If you are planning to have any trusts set up in your Will, then you will need to appoint a trustee to manage the trusts.
  4. Guardians.  If you have minor children, it is crucial that you appoint guardians for those children.  This, too, is a big responsibility.  Obviously, you should ask permission before you appoint someone as a guardian in your Will.

You can write your own will or use a will kit but be careful as a Will must be written and signed according to very specific rules that are different in every province.  While this may seem insignificant, there are many stories about people who did not follow these rules and thereby caused problems in the estate settlement process.

Enduring Power of Attorney

The second formal document in an estate plan is the Enduring Power of Attorney.  The Enduring Power of Attorney appoints someone to manage your financial affairs if you are alive but not capable of making financial decisions for yourself.  It also sets out that person’s powers.  The person you appoint is called your attorney.

Personal Directive

The third document essential to an estate plan is the Personal Directive which appoints someone to make health care decisions for you if you are alive but cannot do so yourself.  It may also set out your wishes.  The person you appoint is called your agent.

Other Things To Do

Although these documents are crucially important, there are other strategies for estate planning outside these formal documents.  Other strategies include owning things jointly with other people or naming direct beneficiaries on certain assets like RRSPs, RRIFs and life insurance policies.  It may also mean giving away assets during your lifetime or creating trusts before you die.
As part of the estate planning process, start with these three documents and the rest of your plan will follow accordingly.

Comments

  1. Glenn Cooke

    A note for those trying to cheap out :). Joint accounts are NOT NOT NOT the same as having a power of attorney, say on your aging parents.

    We’re going through this right now and you can’t even cancel a cable bill if all you have is a joint account. Never mind trying to sell a house, manage bank accounts, doing tax returns, cancelling cell phone/newspaper/cable/internet subscriptions, looking after a leased car, etc etc etc. A power of attorney lets you handle the daily affairs of someone unable to do so. A joint account lets you do none of that.

    Get it done now when everyone’s healthy and of reasonably sane mind. We’re using one that’s probably 20+ years old, but I don’t even want to think about what a mess we’d be in without it.

  2. Evan

    I am not sure if you have them in New York, but a Living Will is customary in New York.

  3. Ann Armstrong

    Good Read. It always amazes me how many people, for whatever reason, are not concerned about planning for the fact that they will eventually die, not to discount the large percentage that will get to a point much earlier than that who are not able to care for themselves. The reality is that the people whom they love, and whom love them, with be left with many headaches and legal battles which would have otherwise been avoided if they would have legally prepared and put all their affairs in order years ahead of time.

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