How many times have you heard “You need a will,” or “You should update your will,” either from your attorney, your financial planner, or even just a good friend? Did you ever act on the advice and have your will drafted by an attorney or draft one yourself through a website like legalzoom.com? If so, pat yourself on the back. You’re a part of a minority percentage of Americans who have this type of document in place. Think about some of the famous people you’ve heard about in the news who’ve passed away intestate (without a will): Aretha Franklin, Kurt Cobain, Howard Hughes, and even Martin Luther King, Jr. Their estates have been made public through a lengthy and expensive legal process called intestate succession, and some are still being contested in court to this day.
No one wants to think or talk about dying, but we all know it’s coming someday. Regardless of your age or the amount of your wealth, preparing for the inevitable is a smart choice. An important part of every sound financial plan is having proper estate documents in place to protect your family, your privacy, and the direction of your assets after you pass. There are four basic documents anyone over the age of 18 should have in place: a Last Will and Testament, a Financial or General Durable Power of Attorney, a Healthcare Representation, and a Living Will. Each of these documents serves a special purpose in your estate plan and they are all important.
A Last Will and Testament is a legal document that provides instructions on how you would like to distribute any property or assets you own after your death. Keep in mind, your will only applies to assets that do not have a beneficiary designation (such as an IRA or life insurance policy). As well, it allows you to designate an executor (the person in charge of distributing your estate). If you have minor children or even cherished pets, this document will also allow you to name a legal guardian for them. If you don’t have a Last Will and Testament, a judge (based on your state’s laws) will decide how your assets are distributed and what happens to your children and/or pets.
A Financial or General Durable Power of Attorney is different from a will because it is only in effect while you are still living. If something happens to you and you are unable to handle your financial affairs on your own, having this document in place ahead of time will allow your designated representative, called the attorney-in-fact, to step in and manage your affairs on your behalf. This means they can help make sure your lights are kept on at home or your child’s tuition is paid on time when you’re unable to do so. When you create this document, you have the power to choose when it goes into effect, whether that’s at a specific point in time or only if you are deemed incapacitated under a doctor’s care.
A Healthcare Representation may also be called a Healthcare Power of Attorney. This document’s purpose is to designate a representative who can make medical decisions on your behalf should you become incapacitated and unable to make decisions on your own.
The purpose of your Living Will is to ensure that if you become terminally ill and need to be on life support to keep you alive, you have written out your wishes as to whether you would like to be kept alive with artificial food and hydration.
Keep in mind, even if you’re married, your spouse is not automatically legally entitled to fill in most of these roles. You must name them in official legal documents or they may have to go to court to gain the rights to help you or distribute your estate. If you’ve had a big life change like the birth of a child or grandchild, a divorce, or you’ve moved out of state, it’s usually best to update your documents (and named beneficiaries) as soon as possible. As you’re considering who to name as executor, guardian, or healthcare power of attorney, make sure you choose someone you trust. Lastly, make your wishes known to whomever you choose so they’re not caught off guard in an already difficult situation.