"Do I need to worry about estate planning?" The short answer: yes. The long answer: absolutely.
Whether you are young or old, single or married, wealthy or broke, it's never too early to start the process of estate planning. While death and taxes may be the only certainties in life, a good estate plan will allow you to have control over both.
Many people think estate planning is all about passing wealth through a will at death. While this is part of an estate plan, it also incudes appointing guardians for minor children, naming agents for health care emergencies, and making your wishes known for end-of life medical care. Estate planning also ensures there is an inventory of your financial accounts, personal property, and digital identity. This inventory will ease the administration of your estate after your death.
There are five estate planning documents that every adult with a pulse should have. This includes: (1) a will, (2) a living will, (3) a medical power of attorney, (4) a durable power of attorney, and (5) a HIPAA privacy authorization form. While these documents may seem redundant at first glace, keep reading to see why you and your loved ones will be well served by having such documents.
The Last Will and Testament
Most people are familiar with the idea of a will and understand that it is often used to pass property to their family members at death. In addition to family members, a will can also be used to pass property to friends, caregivers, and even donated to charities (which may also provide your estate with tax saving benefits).
Wills are also used to appoint executors, guardians, and agents.
One of the most important decisions you will make when creating a will is deciding who to appoint as the executor of your estate. Your executor is responsible for carrying out the wishes contained in your will, as well as performing any duties necessary in administering your estate. A lot of consideration should go into making this decision, as this individual will have a great deal of power in how they handle your estate. You should be sure to select someone who is capable, responsible, and who you trust absolutely.
Another critical appointment in a will is the naming of guardians for those individuals who depend upon you. If you have minor children, your will can name one or more persons who you wish to care for your children. While this is often a difficult topic to consider, it is incredibly important that you select someone who you would trust to raise your children in your place. It is also a wise to discuss this decision with the individual(s) you select, as they are not required to accept guardianship of your children. A thorough discussion ahead of time will make the transition process much smoother if the situation ever arises.
In addition to minor children, a will can be used to appoint guardians for adult dependents. An adult guardianship, also known as a conservatorship, is used to make decisions about the adult dependent's finances, medical care, and/or personal care.Naming an adult guardian may be appropriate when you are already the legal guardian of an adult and you are concerned about passing away before the adult who you care for. Another situation where an adult guardianship may be appropriate involves elderly parents. If a parent is physically or mentally incapable of making important decisions for him or herself (and that parent does not already have legal documents to cover personal and financial matters), it may be appropriate to name an adult guardian in the event that you pass away before your parents.
While it is difficult to make plans that concern your death, it is in the best interest of you and your loved ones to make these decisions now. If you do not execute a last will and testament prior to your death, the laws of the state where you reside at death will dictate how your estate is administered. Your state's laws of intestacy will be used to determine who receives your property. Laws of intestate succession generally follow the pattern of property going to a surviving spouse, then children, surviving parent(s), siblings, grandparent(s), next of kin, stepchildren, and then to the state. While some individuals may be okay with this order of distribution, it is common for an individual to choose to alter who receives their assets and in what proportions.
If you die without a will and your have minor children or adult dependents, a court will be responsbible for appointing guardians to care for those children and/or adult dependents. Although the courts must name responsible individuals to act as guardians, there is no guarantee that they will name the same individuals who you would select.
While a last will and testament is not the only estate planning document you should have, it is certainly one of the most important.
The Living Will
A living will, also known as a health care directive or an advance directive, is used to describe the type of care you would like to receive in the case of permanent unconsciousness or terminal illness with the inability to communicate.
For example, if you are in a car accident resulting in a coma, in which doctors certify ultimate recovery is hopeless, a living will would be used to dictate whether you receive tube feedings, comfort care, pain relief, or wish to be resuscitated in the case of heart failure.
A living will also allows you to indicate whether you wish to make any anatomical gifts upon your death, including all or parts of your body. It also allows you to state for what purposes you wish to donate anatomical gifts such as transplantation, therapy, research, or education. While many people have a driver's license indicated his or her wish to be an organ donor, a living will allows you to have more control over what happens to your organs and the remainder of your body upon your death.
In addition to executing a living will, it is important that you discuss your wishes with your loved ones (especially the individual(s) you name as having power of attorney).
The Medical Power of Attorney
A power of attorney is used to authorize someone to act for you under certain conditions. In the case of a medical power of attorney (also known as a durable power of attorney for health care) an agent is appointed to make health care decisions for you in the event of your incapacity. This power is separate from, and does not override, your living will. While the living will applies to your end of life health care when you are irreparably incapacitated, a medical power of attorney allows your appointed agent to act on your behalf when you are incapacitated but there is a chance for recovery.
Naming an agent through a medical power of attorney grants that individual the legal authority to make medical decisions as if it were you making the decisions. Therefore, you should place a great deal of thought into your decision. Once your choice is made, you should speak to the individual(s) you name in your medical power of attorney. Anyone named as agent in a medical power of attorney will undertake a great burden if they must act as your agent. It is in your best interest to inform them of your health care wishes in order to lessen that burden and so that your wishes are carried out.
The Durable Power of Attorney
Similar to a medical power of attorney, a durable power of attorney is used to name an agent to act on your behalf. However, the durable power of attorney's purpose is to appoint an agent to act for you in connection with financial & legal matters and to manage your assets when you are incapcitated. A durable power of attorney may be general (allowing the agent to perform every act which you may legally perform) or limited (allowing the agent to perform only specific acts such as selling an automobile or handling business transactions). A power of attorney is "durable" when it allows your agent to carry out his or her duties once you are incapacitated.
In terms of estate planning, you should have a durable general power of attorney. If you become incapacitated because of an accident, disesase or some other condition, this document will allow your agent to continue paying your bills, filing your taxes, handling retirement & financial accounts, as well as other powers that you may name in the document. Without a durable power of attorney, the timely and often costly process of having a court appoint an agent will be necessary.
Naming an agent through a durable power of attorney grants that individual an incredible amount of legal power to act on your behalf. Just as with a medical power of attorney, a great deal of thought should be placed into this decision. You should be certain to discuss this matter with any individual(s) you name in such a document.
The HIPAA Privacy Authorization Form
While not strictly an estate planning document, a HIPAA privacy authorization form is often useful in conjunction with other estate planning documents. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a set of federal guidelines that protect individually identifiable health information. While HIPAA is effective at protecting your medical information, it also makes it difficult when you decide to share your information with family or other health care providers.
A HIPAA privacy authorization form is used to allow medical record holders to share that information with third parties that you designate. For example, if you change to a new primary physician and you wish to have your medical records transferred from your previous physician, a HIPAA privacy authorization form can be completed. Once this form is delivered to your previous physician, it will simplify the process of transferring your medical records to your new physician.
While it is never easy to think about your own disability or death, planning ahead of time will make the process easier for you and your loved ones. After reading this article, you now understand the importance of having basic estate planning documents including a will, a living will, a medical power of attorney, a durable power of attorney, and a HIPAA privacy authorization form.
The Law Office of Justin P. Barnhart can draft these documents for you, as well as help you with all your estate planning needs. Contact us today so that we can start the process.