In estate planning, which document typically outlines how debts and assets should be handled after death?

The last will and testament is a legal document that provides clear instructions regarding how an individual's debts and assets should be distributed upon their death. This document allows the testator to designate beneficiaries who will inherit their property, specify any obligations related to debt repayment, and appoint an executor who will manage the estate's affairs. The will serves as a crucial tool in ensuring that the deceased's wishes are honored and that the estate is settled according to their preferences.

In contrast, a living trust is used primarily as a way to manage assets during a person's lifetime and can help avoid probate, but it does not serve the same purpose as a will when outlining post-death asset distribution directly. A power of attorney grants authority to another person to make decisions on behalf of an individual while they are alive, particularly in financial or medical matters, but it becomes void upon death and does not deal with estate distribution. Meanwhile, a health care proxy is a document that designates someone to make medical healthcare decisions on behalf of another when they are unable to do so themselves, which is unrelated to the handling of debts and assets after death. These distinctions highlight why the last will and testament is the correct answer for outlining estate planning instructions.