The following is a guest post from Don at MoneySmartGuides.com where he posts about personal finance for the average person. Sadly, personal finance isn’t taught in school and many people are confused on the subject. Don is here to help educate everyone in hopes that they reach their personal finance goals!
When it comes to estate planning, most people avoid the topic. It’s understandable since talking about your own death isn’t something most people look forward to. But estate planning isn’t completely about you. It’s about what you are leaving behind and the decisions that others will have to make in your absence. By having the proper documentation for estate planning in place, going through the grief of losing a loved one is much easier because all of the financial matters have been tended to.
When people have a life changing event, say the birth of a child, they begin to plan for their estate. Many times they draft a will and leave it at that. After all, the will specifies who gets what when you pass away. But, what if you don’t pass away? What if you are disabled or incapacitated? Then what?
Generally speaking, should you become incapacitated, the courts will step in and appoint a guardian or conservator to handle you and your property. At first reading, this does not sound too terrible. Understand that the court will choose someone in your family to represent you. This could cause issues if multiple people want to be your guardian or if no one chooses to act on your behalf. The court will make someone be your guardian. Also, the person chosen has to follow state law as to how to manage your assets; they cannot make decisions based on the wishes of your family. They have to follow state law. The court-appointed guardian must also report annually to the court the handling of your assets. In all, it’s not an ideal situation. All of this will cost time and money, and will create hassle and heartache.
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Below I list four estate planning documents you should consider adding to your portfolio along with your will. You may not think you need these, but there is just as great, if not greater chance of you getting disabled as there is of you passing away.
Durable Power of Attorney
Many are familiar with a Power of Attorney. It allows one person to act on the other’s behalf. A Power of Attorney document ceases to be valid should you become incapacitated or incompetent. To protect you in this situation, you need a Durable Power of Attorney. The durable power ends upon death, unless specified otherwise.
With a living trust, you place all of your assets in the trust and act as the trustee. This means that you never give up control of your assets. Within the trust, you designate a successor trustee (sometimes called a disability trustee) who takes control of your assets should be become incapacitated.
Health Care Power of Attorney
A Health Care Power of Attorney can be included in a Durable Power of Attorney that was mentioned above or it can be a separate document. The purpose of the Health Care POA is for a person that you appoint to make health care related decisions for you, should you be unable to make them yourself.
A Living Will is a statement of instructions for health care purposes when you reach a terminal condition. They are primarily used to limit life-sustaining treatment. Many people place these instructions into a Health Care POA, but most attorneys recommend a separate document.
I urge you to look into these documents when you are preparing or updating your will. Don’t create unnecessary hassle and heartache to your loved ones who are caring for you. Make sure you have everything in place so your estate can transition as smoothly as possible.