What Estate Planning Documents Should Everyone Have in Place?

Sarah thought that by the time she was 55, a lot could have happened to her and to which she and she could happen. Here she was at 34, healthy, newly married to a wonderful husband, and planning for children. No one had ever mentioned estate planning to her. It was something that older, more mature people dealt with, people with unique or special circumstances. Mark, a friend who was only two years older than Sarah, was running one morning when he suffered a heart attack. He spent several weeks in the ICU in critical but stable condition and unable to make any decisions for himself or handle his financial affairs. As he lay in the hospital fighting for his life, his family was consumed by a bureaucratic nightmare that no one had warned them about – a nightmare that could have been easily avoided with a little planning.

Mark learned an important lesson. Most people think you have to be wealthy or very old to do estate planning. But really, planning your estate is about controlling your affairs while you’re alive and then having your wishes carried out after you die. Without appropriate planning and documents, the state will control your affairs, your property and your care in ways you probably won’t like.

Table of Contents

The Foundation: Your Last Will and Testament

A will is typically used to inform others and legal representatives how a person wishes their property and assets to be divided at the time of their death, how to manage the property and assets of any minor children, who will act as the executor of the estate, and other instructions that the person deems necessary. Conversely, in the absence of a will, the laws of the state in which the person was residing at the time of their death will control how property and assets will be divided and distributed, how the minor’s property and assets will be managed, and who will act as the executor of the person’s property and assets. Typically, spouses do not fare well under these laws, and property and assets may end up going to people that the deceased never even associated with.

Every state has its own set of rules and regulations when it comes to the process of determining validity of a will. In most states, two individuals are required to witness the signing of the decedent’s will. Many states also have specific language that must be included in the decedent’s will. While some states recognize handwritten wills, including the will in Estate of Carol Dunn, introducing a handwritten will into evidence can increase the likelihood of a will contest. In order to avoid such complications, it is always best to have the will formally drafted. These documents then simply need to be presented to the court during the probate process.

Many people believe that having a will automatically ensures that everything will be divided and dispersed according to their final wishes. The reality is that some of your assets may be set up with automatic beneficiaries. Retirement accounts, life insurance policies, and IRAs are typically set up with named beneficiaries when the account or policy is opened. These assets will go to those named automatically, potentially overriding what you leave for them in your will. Additionally, property held jointly with another will go to the surviving joint owner. Many people find this out after it is too late.

Managing Your Affairs: Financial Powers of Attorney

Someone will need to be able to pay bills or take care of other financial matters and businesses on your behalf. Powers of attorney for finances will be needed to grant someone the authority to borrow money on your behalf, to sell your real or personal property, to invest your funds, to operate your business, etc. Without these powers of attorney in place, your loved ones may have to go for a guardianship over you which can be time consuming and expensive for all concerned. It could put you or your estate in a very vulnerable position during the time that a hearing and resolution of the matter is pending.

POAs can be Immediate Powers or Springing Powers. Immediate Powers activate when the document is signed. Most lawyers recommend Immediate Powers. In order to activate a Springing Power, evidence of incapacity is required and often involves the involvement of doctors and the courts.

Healthcare Decisions When You Cannot Speak

Advance Healthcare Directives inform health care providers regarding a person’s choices regarding treatment in the event that he or she is unable to express consent for future medical treatment. These documents are typical two-page documents that list a person’s health care power of attorney, or the person designated to make medical decisions on his or her behalf. The documents also list that person’s advance directives regarding end of life decisions.

When completing Advance Directives, it is essential that they inform your healthcare agent of your medical values and preferences, particularly in those difficult circumstances where complicated decisions have to be made by doctors, such as whether to continue life support for a comatose, dying or seriously demented patient. The more you say about your preferences in these situations the better your healthcare agent will be in making a decision on your behalf.

Advanced directives are difficult to talk and decide upon for many people. Someone has to make decisions for you if you are unable to do so – why not you?

Beyond the Basics

HIPAA authorization forms which are used to gain access to an individual’s medical records and information. Naming beneficiaries to receive assets and distribute retirement accounts, annuities, bank accounts, life insurance and other death benefits upon an individual’s death. Naming a backup guardian for minor children and instructions on how to care for them should a parent become disabled or die.

Business owners, even those with partners or heirs, will also need to consider a plan for business succession, and perhaps a buy-sell agreement. Many individuals have property in multiple states, and therefore will need to plan differently in order to avoid having the property possibly go into probate in each state.

You don’t have to be wealthy or have a large and complicated family to have a good plan in place when you die. You simply have to recognise the uncertainties of life and make plans to deal with them.

Making It Official: Storage and Updates

Much of what we store in our desk drawers could and should be destroyed. Store original copies of important documents in a safe but still accessible place and pass out copies to those who need them. The executor of your estate should have a copy of your will. Those you have named as decision makers for health care decisions should have copies of your advance directives (e.g., DNRs, Powers of Attorney for Health Care, Living Wills). Those your have named as guardians of a minor child should have a copy of your children’s estate planning documents (if you have any) and a copy of your children’s health information. There are others who should have copies of your health information. Ask yourself: Who needs this information? Put copies in their files now.

Some banks have their own forms of financial Powers of Attorney that they require to be completed. It is advisable to periodically update all Powers of Attorney. Some examples of major life changes that require updating your document are marriage, divorce, birth, death or acquisition of substantial assets. Laws and regulations change and Powers of Attorney that were adequate years ago may not be current or may not address particular tax related issues.

Estate planning is difficult because it confronts you with your potential disability or death. However, these plans of action can bring a sense of relief and peace of mind to you and your loved ones. Rather than facing anxiety over the unknown, you can rest assured that your rights will be protected and your wishes fulfilled when you are unable to speak or act for yourself. Leaving such matters to chance or to state law is unwise.

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James Hooke