Estate planning is probably the most neglected aspect of personal finance because we don’t like to deal with the reality of our own death. Making decisions about who will get what when we die and medical treatments we do or don’t want while dying are not exactly at the top of our “fun” list. But taking the time to deal with these critical issues can save your family and friends a lot of heartache, stress, and even money. There are four main estate documents you’re likely to need: a will, a durable power of attorney, an advance medical directive or living will, and a health care power of attorney.
A will simply states who you want to handle your estate (file the paperwork and make sure things are distributed properly) and how you want your property distributed. Everyone should have a will. Without a will, your estate will be distributed according to the laws of your state and the court will appoint someone to administer your estate. The handling and distribution of your estate could cost much more this way and go against your wishes.
While there are ways to create your own will (like www.nolo.com or Quicken WillMaker), these tools should only be used in very straightforward situations. If your estate exceeds the estate tax exemption amounts, you have a complicated family situation, or you want to distribute your assets in a complex manner, you should consult with an estate attorney. If you even think you have a complicated situation, you should meet with an estate attorney to talk about it.
Durable Power of Attorney
A durable power of attorney gives someone else the power to act on your behalf in a legal or business matter. That person is called your “attorney-in-fact”, and they are required by law to act in your best interest at all times. However, you must still be careful whom you choose for this position as any action they take will be treated as if you had done it yourself. The “durable” part simply means that it remains in effect even if you are incapacitated (e.g., in a coma). This document is useful when you are unable to act on legal or business matters for yourself either because you’re incapacitated or you’re just not available (e.g., out of the country).
It’s a good idea to have a durable power of attorney regardless of your situation. This enables your attorney-in-fact to handle your affairs and sign on your behalf. Having one will make difficult situations a little easier to deal with. These documents can give very broad ranging powers to your attorney-in-fact, so you’ll want to consult an attorney before signing one and carefully consider who you will appoint as your attorney-in-fact.
Advance Medical Directive or Living Will and a Health Care Power of Attorney
All of these documents deal with the health care decisions that must be made when you are unable to make them for yourself. If you’re in a coma or too sick to respond, these documents can guide your family members and physicians in determining your wishes.
An advance medical directive or living will (depending on where you live) will provide specific instructions about the health care treatments you want or don’t want when you’re facing a terminal illness or condition. These can be very specific or very general, depending on what you include. However, they don’t usually address all possible situations and may not be clear enough to provide guidance for critical decisions. They do not give anyone the power to make decisions for you. They just make your wishes known.
A health care power of attorney works just like a durable power of attorney except it is only for health care decisions. You appoint an attorney-in-fact and give them the power to make health card decisions on your behalf. You can include your wishes in this document as well, but unless you’re clear you can run into the same problems as the living will. While this won’t eliminate all possible problems (like family disputes), it does make clear who you want to have the final say about your health care decisions.
The best strategy is to have both of these documents in place. This way you provide some guidance on your wishes but you also give someone else the power to make decisions in scenarios you may not have considered. Be as clear and straightforward as possible so there is no question about your desires.
Again, you can use do-it-yourself tools to accomplish this, but you must be careful to ensure that your documents will comply with state laws. The counsel of an estate attorney will help you consider all possible scenarios. Some states provide free example documents you can use. Pennsylvania offers a combined living will and health care power of attorney that you can fill out. Search for similar resources for your own state.
Review and Update!
The nice thing about getting your estate documents drafted and signed is that you don’t have to do it every year. Once you’ve completed them, you’ll just need to get them reviewed and updated as your situation or state laws change. If you get married, divorced, have children, or experience other major changes, you’ll want to meet with your estate attorney to review and update your documents. Don’t neglect this or you (or your family) could end up regretting it!
Again, if you’re going to use an estate attorney, shop around. Don’t settle for the first quote you get. Talk to several attorneys, stick with the ones who specialize in estate planning, and ask for referrals from your family and friends. You may also be able to get a good referral from your accountant, financial planner, real estate agent, or banker. The most expensive attorney is not necessarily the best, but do your research before you go with the cheapest option.
Finally, don’t put off this important but very unexciting task! It doesn’t sound like fun, but it is essential to having an organized and efficient financial plan. It will also help to ease the stress your family will endure during those painful situations. So get to work and get those estate documents ASAP!
My parents FINALLY… FINALLYYY!! got a will. They got over their superstition, saw a lawyer and got it sorted out
Now that I actually have some assets, I should do the same and make an appointment to get myself a will in place, with a review set on schedule.
FB, it’s really not as difficult as we might think it is. A good estate attorney will be able to easily guide you through the process. If you have a simple situation, it probably won’t take more than a couple hours total. I’m glad to hear your parents took the time to do it, and I hope you’ll be able to do it soon!