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Investing Specialists

Essential Financial Documents for Every Life Stage

As your life situation evolves, so does your need for various estate planning and financial planning documents.

If you're like many people, you were probably a bit of a minimalist when you were in your 20s--unburdened by a lot of possessions and obligations. But as you moved along in your life--perhaps your career ramped up and so did your family obligations--it's a good bet that you accumulated more stuff, relationships, and duties. Even if you wouldn't have it any other way, you probably found yourself with more to worry about and more to lose.

The financial documents you need at each life stage follow a similar trajectory. While it's possible to make do with a handful of key documents when you're in your 20s, the birth of children, expanding investment accounts, and homeownership necessitate a bit more financial documentation. The retirement years--and related considerations for ensuring that your assets last throughout your lifetime and pass to the right people when you pass away--require a bit more documentation still.

Here are the key financial documents you should have--or at least consider--at each major life stage. 

Early Accumulators (20s)
Beneficiary Designations: If you're a young person just starting out in your career, beneficiary designations might seem like a bit of a head-scratcher, especially if you're single and don't have children. Not only is an early passing unlikely from an actuarial standpoint, but it's also hard to grasp who would really give a hoot about inheriting your still-meager savings. But it's still important to recognize the weight that beneficiary designations carry in the eyes of the law; they supersede any other estate-planning documents that you might create later on. For example, while you might make your parents your beneficiaries with the expectation that they'd distribute your assets to your siblings if something happened to you, in reality they'd be under no obligation to do so unless you made your siblings beneficiaries as well. Don't forget to fill out beneficiary designations for smaller accounts, such as health savings accounts, and keep them up to date as your life evolves.

How to get it done: Beneficiary designations aren't a document per se; you usually fill them out as part of a larger online form.

Where to keep it: Your beneficiary designations should be on file with your financial providers. However, you may want to save them to your computer or print them and keep them in a secure file with other financial documents.

Investment Policy Statement: Even if you're simply dollar-cost-averaging into a target-date fund in a 401(k) plan, having a very basic IPS can help instill discipline in your investment process and set ongoing savings/investment targets.

How to get it done: Here's a basic IPS template; you may want to create a separate one for each major financial goal. Early career accumulators shouldn't get too bogged down with investment selection and process, however, and instead focus on goals and savings. This article discusses how to create an investment policy statement. At a minimum, your IPS should enumerate the following:

  • Your financial goal(s) both short-term (home purchase) and longer term (retirement)
  • Your time horizon and target accumulation/goal amount
  • Your ongoing investment contributions (per month or per year)
  • Your expected return on investment
  • Your target stock/bond/cash mix, factoring in your proximity to the goal

Where to keep it: Your IPS is primarily for your own use to keep your plan on track, so keep this document in a spot where you can refer to it. If you've included personal financial information on your IPS, be sure to encrypt your document or otherwise keep it safe.

Also consider: A will. For most 20-somethings, beneficiary designations can do the heavy lifting to ensure their financial accounts pass to the right people. But if you own assets that don't carry beneficiary designations--for example, if you own a home in your own name and not with a spouse--it's important to create a will to specify who would inherit those assets in case of your death. If you leave behind such assets and haven't created a will, they will pass to your family members according to your state's laws of intestacy--for unmarried people without kids, the assets would typically pass in equal shares to parents and siblings. If that's not the setup you want, you need a will.

If you have minor children, your will should also name guardians for your children in case you die or become incapacitated. (There's more on setting up guardianships in the "Multitaskers" section below.)

Multitaskers (30s and 40s)
Beneficiary Designations: Be sure to revisit your beneficiary designations as life events unfold. While you may have made your original designations when you were a singleton, getting married and having children doubtless changed your views on who you'd like to inherit your financial assets. (Estate planning attorneys love to tell stories about divorced spouses inheriting assets simply because someone passed away without updating the beneficiary designation to reflect the current state of affairs.)

Parents are often motivated to make young children the beneficiaries of their investment accounts but should be aware that their children can't manage those assets until they reach the age of majority--usually 18 or 21, depending on the state. If you don't take pre-emptive steps to establish who will manage those assets prior to the child reaching the age of majority, the court will decide who will do it. Thus, if you'd like to leave assets to a minor, you'll need to name a custodian to manage those assets. The custodian can be the same person as the guardian, or someone else. As with a guardian, a custodian is appointed by a will. When choosing custodians, prioritize people who are responsible, financially savvy, and share your values.

How to get it done: Make reviewing your beneficiary designations with your financial providers a component of your annual portfolio review/maintenance regimen.

Where to keep it: Your financial providers store your beneficiary designations for you, but you may also want to print them and store them in a secure spot with other important financial and/or estate-planning documents.

A Will: Beneficiary designations will go a long way toward ensuring that your assets are distributed in accordance with your wishes after your death. For that reason, younger folks or people with very uncomplicated financial situations may be able to get by without wills. Most other people will want to create a will. In your will, you can spell out how you'd like any assets that aren't passing through beneficiary designations--your car or household possessions, for example--to be distributed. Another key reason to have a will is to name an executor/executrix to handle your financial affairs after your death; if you haven't named one, a judge will appoint one, and it may not be the person you would want to handle that job.

If you have minor children, you also need a will to specify guardians for your children in case of your untimely death. Before appointing anyone a guardian in your will, be sure to discuss the role with that person; prospective guardians should be comfortable with the possible demands of the job. Also consider specifying backup guardians in case the first individuals cannot serve for some reason; this is particularly important if your first-choice guardians are older than you, such as your parents. If your children could inherit financial/investment assets from you, your will should name a custodian to manage those assets until your children reach the age of majority. 

How to get it done: If your situation is very straightforward, you may be able to use online resources to create a will, thereby avoiding hefty legal fees. Just be sure to run the finished document past an estate-planning attorney to get a second set of eyes on it; the final document will also need to be printed, signed by two witnesses, and notarized. If your situation is even somewhat complicated--for example, you're part of a blended family or you have a loved one with special needs--paying an attorney to draft your will and any other estate-planning documents can be money well spent.

Where to keep it: Keep your will in a safe, readily accessible location (like a fireproof box), and let a trusted loved one know how to gain access to it. Your attorney (or online legal service, if you go that route), should also store copies of your will. 

Power of Attorney for Healthcare, Financial: When you create documents specifying powers of attorney, you're naming which individuals you would like to make financial or healthcare decisions on your behalf if you are unable to do so. You can name the same person on both your healthcare and financial powers of attorney, or choose two individuals to fulfill these roles. It's also important to appoint individuals to serve as backups in case your first choices are unavailable for some reason.

How to get it done: As with a will, you can use an online service to help you draft these documents or enlist an estate-planning attorney to draft them. If you use an online service or tool, be sure to run them past an expert for review; these documents must be prepared in accordance with state law, which generally means they'll need to be printed, signed by two witnesses, and notarized.

Where to keep it: Keep these documents in a secure but accessible location; if you used an attorney or other legal service to draft the documents, the firm should also keep documents on file. Be sure to discuss the powers of attorney with those who will act on your behalf; let them know of the existence of these documents and where to find them. Additionally, give your financial agent the lay of the land for your financial situation and tell him where he can find important documents. With your healthcare agents, share your general thoughts about your healthcare, including your views on life-sustaining care. (A living will/advance directive, discussed below, can further help ensure that your wishes are carried out vis-a-vis your healthcare.)

Living Will: Sometimes called an advance directive, a living will enables you to document your wishes for your own end-of-life care, in case you are no longer able to participate in your own healthcare decisions.

How to get it done: You can use an online service to draft an advance directive or an attorney can do it for you. Take the additional step of discussing your views on your healthcare and end-of-life care with your agent for healthcare (as outlined on your healthcare powers of attorney).

Where to keep it: Keep your living will in a secure but accessible location; if you used an attorney or other legal service to draft the documents, the firm should also keep documents on file. Let a trusted loved one--ideally the agent for healthcare that you've named--know of its existence.

Master Directory: At this life stage, you may have started to amass assets in multiple silos: 401(k)s, IRAs, and taxable accounts, for example. You might also have multiple insurance policies--life, disability, umbrella, and so on. As your financial life gets more complicated, it's valuable to maintain a single document that enumerates each of your key financial accounts and relationships. Such a document--which I've called a master directory--can help you keep track of what you have and serve as a blueprint for estate planning. And if you die or become incapacitated, such a document would prove invaluable to your loved ones.

How to get it done: You can use our template to create your own master directory, or create your own in a spreadsheet program. This article discusses how to create a master directory.

Where to keep it: Because your completed master directory contains lots of sensitive information, it's important to keep it secure, either using an encrypted spreadsheet or holding it under lock and key in a safe deposit box. Let a trusted loved one--ideally the agent for financial matters under your power of attorney--know of its existence.

You will also need:

  • Investment Policy Statement (see above)

Also consider: Trusts can be sensible in some situations; for example, if you have a child with special needs, for whom inheriting assets outright could jeopardize eligibility for government-provided benefits. Trusts can also be appropriate if the person inheriting the assets may not be able to manage the money prudently on his or her own--loved ones with addiction or a history of financial mismanagement, for example.

Unlike some of the other estate plan mechanisms discussed above, where an online resource may be able to help you achieve your goals with less cost, trusts fall squarely in the domain of a qualified estate-planning attorney. Such an individual can help you determine whether a trust is appropriate in your situation and draft documents that comport with your goals.

Pre-Retirement and Retirement (50s, 60s, and beyond)
Retirement Policy Statement: In addition to the documents outlined above, a retirement policy statement can be a valuable tool in the years leading up to and in retirement. Like an investment policy statement, an RPS documents your strategy for managing your financial assets in retirement: which investment accounts you'll bring into retirement, what system you'll use for spending from your portfolio, and how often you'll revisit your spending/withdrawal rate. In addition to helping you keep your retirement plan on track, such a document can help you explain your in-retirement strategy to your spouse or another trusted loved one. Pre-retirement, it can help ensure that you're thinking through the key components of your in-retirement financial plan.

How to get it done: We've created a retirement policy statement template that you can use to document the specifics of your retirement portfolio plan. Alternatively, you can create your own document or spreadsheet. This article covers the key components that should be part of your retirement policy statement. 

Where to keep it: Like an investment policy statement, a retirement policy statement is primarily for your own use, so keep it in a readily accessible location. However, if you've included personal information on your RPS, store it in a secure location--use an encrypted file or otherwise keep it safe.

You will also need:

  • Beneficiary Designations
  • Will
  • Living Will/Advance Directive
  • Power of Attorney for Healthcare, Financial
  • Investment Policy Statement
  • Master Directory

Also consider: Trust (see above).