The following article comes from the U.S. News ebook, How to Live to 100, which is now available for purchase.
More than half of adults do not have a will, according to a 2011 phone survey conducted by Harris Interactive for online legal service Rocket Lawyer, and 92 percent of adults under age 35 do not have one.
Many people assume their family will automatically inherit any assets they leave behind, but without a will, those assets are usually held in probate court and distributed according to their state's law. "The price that your family pays financially and emotionally to go through the probate court is much higher [than paying for a will], " says Danielle Mayoras, an estate planning and elder law attorney, coauthor of Trial & Heirs: Famous Fortune Fights!, and cofounder of the Center for Probate Litigation.
In addition to the distribution of assets, estate planning should also name the people who should make financial or medical decisions on your behalf should you become incapacitated. Here are the three main documents experts recommend:
• Will: Experts recommend creating a will as soon as you start acquiring assets or start a family. Assets can be left outright to beneficiaries or through a trust, which is explained below. A will also names executors, who manage the assets until they're distributed to inheritors. A digital executor (who could be the same person managing your assets or a different person) would have the authority to manage your online accounts after you die.
If you have children, your will should designate guardians in case both parents pass away. "You want to name a guardian who really has the ability and life expectancy to survive the youngest child to the age of 18," says Russell Fishkind, a trust and estate lawyer and professor of estate planning in New York University's Certificate in Financial Planning program.
• Durable power of attorney: This document grants your spouse or other party the power to make financial or legal decisions on your behalf if you become incapacitated, which Charley Moore, a lawyer and founder and chairman of Rocket Lawyer, refers to as "the vice president rule."
• Healthcare proxy: Also called healthcare power of attorney, a healthcare proxy grants the power to make medical decisions, including end-of-life decisions if you are incapacitated and unable to communicate those decisions yourself. Without a healthcare proxy, family members could make some healthcare decisions depending on the state. "But there will be the considerable cost of going to court and the related legal matters that arise from that," adds Jonathan Blattmachr, a former estate planning attorney and a director at wealth advisory firm Eagle River Advisors. "Also, determining you are incompetent will be a matter of public record."
In some cases, it may make sense to create a trust for your assets instead of leaving them outright, because trusts offer more control over who receives your money and the way in which they receive it. For instance, if you left money outright to a spouse who later remarried, that money could flow through the second marriage and may or may not find its way to your children.
Various types of trusts accomplish different goals. A QTIP (Qualified Terminable Interest Property) trust, also called a marital QTIP trust, provides for the marital deduction and ensures that a spouse cannot use assets to benefit a future spouse or nonmarital children. A special needs trust provides for a special needs child without jeopardizing his or her access to government benefits, while an age-terminating trust for minor children would distribute portions of the inheritance at predetermined ages. A pet trust would provide care for your pets after you die.