Four Documents You Need

Nobody plans to get crippled by an accident or immobilized by a terrible illness, but these sudden life-changing events do happen. In estate planning there are three particular documents individuals need to ensure they have a say in who manages their finances and health care should they become incapacitated. Failure to secure these documents could significantly reduce the amount that eventually goes to your loved ones or even break a family apart. Here we outline some problems that result from poor estate planning and demonstrate the importance of 1) a durable power of attorney, 2) medical power of attorney and 3) a living will.

 

 

Avoid Estate Depletion

Here's what you can do to avoid putting yourself or your loved ones in an untenable position. A durable power of attorney lets you arrange for someone you choose, called your "attorney-in-fact", to manage your finances.

 

A power of attorney can be effective immediately or have a springing power, applying only when a certain event takes place, such as incapacitation from an injury or illness. You can specify how the event is defined, for example, by the declaration of a doctor or even two that you are unable to make financial decisions.

 

With a power of attorney, you can insist on the amount of control your attorney-in-fact will have over your finances. This authority could include:

      making gifts

      managing a business

      paying household bills

      buying and selling assets

      handling retirement accounts

      collecting government benefits

      completing income tax returns

You choose who takes on this job. It could be a family member, close friend or your attorney or accountant. But make sure that it is someone trustworthy and competent with managing their own finances. Be sure also to select an alternate just in case the first person pre-deceases you or is unable to handle the responsibilities.

 

Avoid Family Breakup

There are two more documents that can prevent confusion and mistrust between family members.

 

A medical power of attorney - also called a health-care proxy, medical directive or durable power of attorney for health care - gives whomever you select the legal authority to make medical decisions for you when you can no longer make them yourself.

 

A living will offers exact instructions for your doctors and family regarding the continuation of your life by artificial means or heroic measures. In cases where there is little certainty of the desires of a person in a vegetative state, a medical power of attorney and living will can help eliminate grief and dispute between family members.

 

Although living wills are used throughout the country, there are no universal forms spanning all states. And the law on honoring an advance directive between states is unclear. Some states will respect the different laws of the state where the document was drafted. Others might not. In addition, the document's titles from state to state (or country to country) might differ. Problems with advance directives can pop up when you had your living will drafted in your home state (or country) and the state you are in:

      makes you use their statutory forms

      specifies which types of advance directives they will honor

      require certain conditions are met before your instructions are followed

      will not recognize documents that do not include the person's signature who is to make the medical decisions for you   

If you spend a great deal of time in a state other than your home state, you may wish to consider having your advance directive meet the laws of both states as much as possible.

 

You can find more information on your state's requirements in this reference article provided by the Wall Street Journal Online.

 

Summing It Up: How to Prepare

Estate planning is not only about making arrangements for your assets after you die. Unexpected things can happen resulting in your loved ones needing to make decisions on your behalf. Make sure you give them the legal power to do this, saving them from both emotional and financial battles. Here are the steps to ensuring your wishes will be followed:

      Review your current documents with your attorney since laws can occasionally change. Also, new case law periodically offers new precedents, possibly making forms you have used obsolete.

      Name the same person as your representative in every state's (or nation's) documents.

      Execute separate documents for each state (country) where you frequently spend time.

      After you have done this, have every family member over the age of 18 do the same.