Why would anyone want to partake in estate planning? It takes time. You have to deal with lawyers. And to talk about your death or disability. It may bring up contentious issues with a spouse or children. It’s not urgent, since nothing is likely to happen to you tomorrow, or even in the next few years. It costs money.
So, why should you take time out of your busy life to commit to estate planning? The answer is that there are few other simple steps you can take that will could have as great an impact on your family’s welfare. The cost-benefit trade off is tremendous.
4 Essential estate planning documents
There are four straightforward legal documents that everyone should have in place in the following order of priority:
- Durable Power of Attorney. This appoints one or more people to act for you on financial and legal matters in the event of your incapacity. Without it, if you become disabled or even unable to manage your affairs for a period of time, your finances could become disordered, your bills not paid, and this would create a greater burden on your family. They might have to go to court to seek the appointment of a conservator, which takes time and money, all of which can be avoided through a simple document.
- Health Care Proxy and Medical Directive. Similar to a durable power of attorney, a health care proxy appoints an agent to make health care decisions for you when you can’t do so for yourself, whether permanently or temporarily. Again, without this document in place, your family members might be forced to go to court to be appointed guardian. Include a medical directive to guide your agent in making decisions that best match your wishes.
- HIPAA Release. While the health care proxy authorizes your agent to act for you on health care matters, you may only appoint one person at a time. It may be important for all of your family members to be able to communicate with health care providers. A broad HIPAA release will permit medical personnel to share information with anyone and everyone you name, not limiting this function to your health care agent.
- Will. Your will says who will get your property after your death. However, it’s increasingly irrelevant for this purpose as most property passes outside of probate through joint ownership, beneficiary designations, and trusts. Yet your will is still important for two other reasons. First, if you have minor children, it permits you to name their guardians in the event you are not there to continue your parental role. Second, it allows you to pick your personal representative (also called an executor or executrix) to take care of everything having to do with your estate, including distributing your possessions, paying your final bills, filing your final tax return, and closing out your accounts. It’s best that you choose who serves in this role.
- Revocable Trust. I know I said at the top that there are four legal documents you need, and now I’m adding a fifth. A revocable trust is icing on the cake and more important the older you get. It permits the person or people you name to manage your financial affairs for you as well as to avoid probate. You can name one or more people to serve as co-trustee with you so that you can work together on your finances. This permits them to step entirely seamlessly in the event of your incapacity. Revocable trusts are not as simple as the prior four documents because the offer many alternatives on how they are structured and what happens with your property after your death. This makes their drafting more complicated, but also more nuanced, giving you more say about what happens to your assets.
Put these documents in place for yourself and for your family. Unless your situation is complicated, these documents are straightforward and the process is not difficult. You may save your family a great deal of strife, difficulty, and cost right when they’re already going through a tough time. There isn’t another single step you can take that potentially delivers such a large bang for the buck in the benefit it provides for your family.