No matter your circumstances, having an estate plan is the best way to plan for your "stuff" when you're gone. It allows you to avoid probate, family rifts and negative tax implications. Below are some of the "typical" documents included in an estate plan along with a description of what they are and why they are useful.
Will: This document which enables you to dictate where your property goes upon your death. Typically, you name spouse/partner (and a back-up) as Personal Representative — this is the person that executes your Will, paying debts, distributing assets, etc. Your spouse/partner would execute a Will for themselves as well with similar provisions in place.
- Why it's useful: If you both passed away tomorrow without a Will, your assets (personal property, home, cars, retirement accounts, life insurance policies, other bank accounts) would be distributed via state law. Assuming you don’t have children or grandchildren, it would go to your living parents. If your parents are no longer living, then it would likely go to your brothers and sisters (in “equal shares”). If you have a blended family, inheritance rules get complicated quickly.
- Usually people want to dictate where their assets go upon death, rather than leave it up to the state they live in. For example, do you have a charity you want to give to? Or perhaps close friends that are like family? Are you unmarried but in a long-term relationship and want to give them something? Do you have a beloved pet you want to gift to someone? A family heirloom? Most state laws recognize only blood relations if you don’t have a Will that states otherwise. And if you have no relatives that your assets can be given to, then what? The property "escheats" to the state -- meaning the government gets it.
Power of Attorney: This document authorizes someone to act on your behalf in financial matters. Typically, you name your spouse/partner (and a back-up person) as your “Agent”. The same document is also created for the spouse, naming you as his or her Agent.
- Why it's useful: If you were to get in a car accident, this gives your Agent the authority to pay bills and handle financial obligations on your behalf. Although he or she may already have this authority over things like joint checking accounts and a jointly-owned house payment, he or she does not automatically have that authority for things that you have control over in your name alone. This power only lasts as long as you’re living — the power would cease at the time of your death.
- It is absolutely critical to understand that this power exists in your Agent the moment you both sign the document. This means they could (in theory) leave you and drain your personal bank account. Or sell your property out from under you. Or 100 other terrible things. So a word of caution, only appoint someone you trust a great deal.
Health Care Directive: Sometimes called a "living will", this document names an agent and informs others of your health care wishes. Typically, you name your spouse/partner (and a back-up) as your “Agent” over health care decisions in the event you cannot make them on your own. The same document is created for the spouse, naming you as his or her health care Agent.
- Why it's useful: If you were to get in a car accident, this gives Agent authority to make medical decisions on your behalf. It provides clear notice to everyone involved that you trust this person to make these decisions. If married, he or she may already have some authority to discuss treatment with your doctor (since he or she is "family"), however this authority is far from absolute. It provides a way to make your preferences for medical treatment crystal clear. It ensures that your spouse/partner can make decisions for you even if your health care directive doesn’t specify what you would otherwise want. Like the Power of Attorney, this document only lasts as long as you’re living.
- It can be as specific or as general as you wish and includes things like (1) organ donation, (2) end of life care treatment, (3) preferences for artificial nutrition and hydration, (4) preferences regarding mental health treatment, and (5) authorization to release HIPAA-protected information to your Agent.
Please remember, this post provides educational information only and in no way constitutes legal advice.
Written by Jennifer A. Rutz