This article was excerpted from This Is Not Your Parent's Retirement, which is available on Entrepreneurpress.com.
Estate planning is like cutting the lawn or taking out the garbage. It's one of those mildly unpleasant things that tends to be put off, but when finally done, gives a sense of relief. Whew! Got that out of the way! Except that putting off estate planning can have much more serious consequences than smelly garbage or overgrown lawns.
The actual process of estate planning is not unpleasant in itself. It's just that you must think about subjects you would rather not deal with: injuries, illness and death. But as you will see in this article, the consequences of not planning your estate can be very bad for the loved ones you leave behind. Estate planning should never be put off, because you never know when your last moment will come.
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There are four basic documents everyone should have: A durable power of attorney, a health care proxy, a living will, and a last will and testament. I don't care if you're worth $100 million or $100, everyone should have these documents. It's about much more than money; it's about softening the emotional impact of illness on your family and avoiding placing burdens on those you love. It's about protecting yourself against needless suffering and controlling your destiny. And, yes, it's also about money.
Durable Power of Attorney
This document allows another person, designated by you, to act as your "attorney in fact," that is, to handle financial and other nonmedical affairs in the event you are legally incompetent. "Incompetent" is a term used to describe a medical condition--sometimes temporary, sometimes permanent--that prevents you from understanding what's going on and completing everyday tasks like writing a check or signing your name. Accidents, strokes and various illnesses are the usual causes of incompetence. With this document, the person you have designated can access your accounts, sign documents on your behalf, pay your bills, and perform other needed tasks.
Naturally, the person you choose should be someone you trust completely: a child, a spouse, a sibling or another loving and trusted person. The chosen person should also have common sense and an understanding of what they must do. The person must be trusted to act intelligently on your behalf.
Usually husbands and wives will designate each other, but there must always be a successor designated in the event both spouses are incapacitated. Don't make the mistake of thinking that because you are married and own everything jointly, you don't need this. There are many financial instruments you cannot own jointly--retirement plans, for instance. If one spouse is stricken and the other spouse needs to access funds from the stricken spouse's IRA, the healthy spouse will not be able to get this access because IRAs and retirement plans can only be held in one name. Another instance is signing for a real estate closing. A couple may have a house in contract, and if one spouse is stricken, the other spouse may use the durable power of attorney to sign for the stricken spouse.
If there is no durable power of attorney in place, your spouse or family must hire attorneys to petition a surrogate court to get that power of attorney. It's expensive, time consuming and emotionally draining on loved ones who already burdened by the impact of your condition. Having this simple instrument drawn up provides an inexpensive solution.
Be aware of the difference between a regular power of attorney (POA) and a durable power of attorney. A regular POA cannot be used when the person who granted the POA becomes incompetent. A durable POA may not be used if a person is not incapacitated. It's only valid in case of incompetence, and medical proof is usually required to activate it. Some states allow a combination of these two types of POA, sometimes called a "jumping" POA.
Health Care Proxy
This legal document permits someone else to make medical decisions for a person when that person is incapacitated and incapable of making such decisions. The health care proxy may be the same person who holds the durable power of attorney, or it may be someone else. In either case, the person named should be able to exercise good judgment in the face of the emotional trauma and make sound medical decisions on behalf of the individual. Very often spouses will designate each other as health care proxy. A health care proxy document only allows medical decisions; a durable power of attorney allows all others to be made on behalf of the person, but no medical decisions. This is why both documents are needed. Failure to have a health care proxy in place may mean that in the case of your incapacitation, medical decisions would be made by a hospital committee instead of a trusted relative or friend who understands your wishes.
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