Five Estate Plan Documents Everyone Needs
As a financial advisor, I often talk with clients about their need for an estate plan. Far too often, clients reach out for advice because a family member has become seriously ill or passed away without any documents in place. Caring.com ran a survey this year and found that only 33% of Americans have a will or living trust. In 2019 the US had 54.1 million people over the age of 65. That means that about 36.3 million people over the age of 65 don’t have a will, powers of attorney, or trusts. And that means many of our parents and grandparents don’t have their documents in place.
The problem is many people don’t think of themselves as wealthy. They don’t think of themselves as having an estate. As a financial planner, I have found many people underestimate the monetary value of their lives. I can’t tell you how many times I have heard the following sentence:
“I don’t have anything. I don’t need a will.”
But you do. We all do.
The Need For An Estate Plan
It’s hard to truly understand what estate planning is about until we lose someone close to us. And even then, we may find ourselves on the sidelines, with information filtered through extended family members and rarely responsible for making decisions. Complex tax law, health care law, and state probate laws, combined with family dynamics leave estate planning shrouded in mystery. Talking about estate planning also plays into our natural aversion to talking about life, end of life, and death. The technical jargon and legalese make it that much harder to have tough conversations with loved ones. And they are tough conversations. Estate planning covers everything from how much money we have, to how we engage or don’t engage with various family members. Like most areas of personal finance, it is about so much more than money.
We typically talk about this highly emotional topic in non-specific ways using complicated and specialized language. It’s no wonder that so many people don’t have any legal documents in place. Below is a list of the five primary documents that make up your “estate plan.” There are some documents that help you while you are alive and some documents that help your family after you pass away. This is not a comprehensive list. Your unique situation may require additional documents. It is best to consult with an attorney to get help drafting your documents. If you are active-duty military or a Veteran, you may be able to get help through the base Legal Office. Many law schools will also provide estate planning clinics where members of the public can get their documents drafted for free.
Four Documents That Protect You While You Are Alive
Think about all the things you manage over the course of a month. For example, I run a business. I pay personal and business bills. I purchase groceries and I make sure all the little things that keep our life running happen. Now imagine, I walk outside and because it is Spokane in the winter, I slip and fall and hit my head. I can’t make any decisions. Who can make all the necessary things happen? Who can manage the money and make financial decisions for me?
If you are like my husband and me, somewhere during your active-duty years, there was a deployment. You may have gathered with all the other military families getting deployed and drafted, signed, and notarized powers of attorney for each other.
You’re good to go. Right?
Maybe.
Depending on your state, and depending on the power of attorney, maybe those documents had you covered and maybe they didn’t. However, most financial power of attorney documents are only in effect while you can make decisions for yourself. In the example above, since I just slipped on the ice, I can’t. In Washington, that general power attorney doesn’t help my husband one bit. We needed a durable power of attorney. A durable power of attorney will be in effect when you can’t make decisions for yourself. A durable power of attorney will allow your personal representative to make decisions for you when you aren’t able to make decisions for yourself. When it comes to being unable to care for yourself or passing away, you need someone who can legally manage your financial life.
Document #1: Durable Power of Attorney
I will keep using my fall on the ice as an example. Who do I want to make decisions for my health care? In my case, I want my husband. The last thing I want is to add additional stress and worry to his burden at that moment. I don’t want him to have to fight with the hospital or anyone about my care. I want him to have everything he needs to help me. The health care power of attorney allows him to make decisions for me without having to argue, fight, or justify why he can. We also have kids over the age of 18. They are adults. No more parental rights. Young adult children need to have a health care power of attorney as well. Imagine fighting to be able to help your kids in an emergency. The thought of it makes my heart race.
Document #2: A Healthcare Power of Attorney
Do you have strong feelings about how you would want to be cared for in a medical emergency? You need a way to communicate and document those feelings and preferences for your care. A living will, sometimes called an advance directive, tells your personal representative how you want to be cared for in certain circumstances. The Healthcare Power of Attorney grants your trusted person the power to make decisions for you. The living will tell your trusted person and the world what you want. Having this document ensures that your trusted person and your health care providers know your wishes. Living wills help family members make difficult decisions with greater peace of mind knowing they are choosing what you wanted.
Document #3: A living will
HIPAA authorizations complete the list of documents that help you while you are still alive. With the Healthcare Power of Attorney, you picked a trusted person to make decisions for you. With the living will, you told them your wishes. HIPAA authorizations grant your trusted person access to all the information they need to help you and make health care decisions for you.
Document #4: HIPAA authorizations
As military families, we often live in multiple states throughout our lives. Spouses may have different states of residency. We may own homes in multiple states. I cannot stress the importance of understanding the probate, estate, and inheritance laws in your state of residency. State laws vary tremendously. If you own property in multiple states work with an attorney who is licensed to practice in your state of residency. It is wise to consult with a CPA who can help you understand how your state of residency may tax the property you own in other states.
Documents that help your loved ones after you pass away
Everyone needs a will. If you don’t have a will, your state has a plan for you. You don’t want it. Your will does more than just direct your assets to your beneficiaries. Your will helps your beneficiaries save time, money, and frustration after you pass away. Wills are often paired with various trust documents. Even when you have a trust, you still need a will. A will communicates your wishes after you pass away. A will is a gift that you give to your loved ones.
Document #5: Last Will and Testament
These 5 documents make up your “estate planning” documents. Think of them as your legal planning documents for life and death. Having these documents helps you and your beneficiaries. Estate planning works across generations. For most adults, we will end up talking to our parents and our kids about estate planning, wills, and powers of attorney. Having these documents in order helps you and it helps them.
Losing someone you love hurts. Engaging with the medical system, insurance companies, hospice, and the funeral home can be difficult. It’s harder when you don’t have any legal authority. It’s harder in countless unforeseen ways when you must navigate it all without a complete estate plan and the five key documents. MFAA advisors are knowledgeable about estate planning and can help you establish your plan and required documents. Check out their profiles here.