It’s not a very happy thought, but have you ever considered what you want to happen to your assets after death? What about the guardianship of your children in case both parents die together? If something happens to you but doctors could keep you alive through life support or other measures would you want that? And who would you trust to make legal, financial, or medical decisions for you if you were physically or mentally unable to make them for yourself?
Photo by iowa_spirit_walker via Flickr
Those are some heavy questions, and the answers may not be something you’ve thought about. Regardless of how old or healthy you are, it is never too early to think about questions like these and document the answers for your loved ones in case of an accident, illness, or untimely death. These four documents are key to a comprehensive estate plan that will make sure that your wishes are carried out. While they aren’t strictly financial in nature, each of them can have an impact on your finances and those of your loved ones.
- Will: This is the most basic estate planning document, and one that most people have heard of. A will allows you to select an estate executor to tie up your estate’s loose ends such as taxes or debts. You also use a will to bequest individual assets to family members and/or friends. Finally, a will is the place where you name your intended guardians for minor children (it’s a good idea to ask them first!). One note on wills – they are not a one-stop shop for passing on assets. Designated beneficiaries on individual accounts will inherit the balances of those accounts regardless of what a will says – so if your beneficiaries out of date on your retirement or other accounts, update them through the financial institution that holds the account. Wills should be reviewed annually so that updates can be made if necessary.
- Durable Power of Attorney: Gives a designated person the right to handle legal or financial matters for you when you cannot handle them yourself. “Durable” means that the power of attorney lasts through incapacitation or mental illness – even if you cannot confirm that the person is acting as you would want them to, they still have the right to make decisions for you. This is an important designation to make as you will want someone to be able to gather your financial information, make payments to others, or sign legal documents in the event of physical or mental illness. The power of attorney ends at your death.
- Health Care Proxy: Designates a person to make healthcare decisions for you, similar to a power of attorney specifically for healthcare – it may or may not name the same person designated as your power of attorney. Powers of Attorney and Health Care Proxies are especially important for those with non-traditional relationships. If you want your non-spouse partner or other non-relative to be able to make these decisions, you must specifically empower them to do so.
- Living Will: Tells what types of treatment you do or don’t want in the event of a life-threatening illness or injury. A Do-Not-Resuscitate order (DNR), where you say that you do not want any medical intervention, is one type of living will. Your doctor and family will be legally bound to honor your wishes, so be as specific as possible.
Executing the documents
If you have an attorney, he or she might be able to draw the documents up for you, or will refer you to an attorney who specializes in estates. A financial advisor should also be able to refer you. If you don’t have a regular attorney or financial advisor, ask family members or friends for estate attorney suggestions. And if you really have no leads, search for an estates attorney at the National Network of Estate Planning Attorneys. All four documents together could run you up to $1,000 or more. Don’t let the price tag deter you – together, these four documents are the best way to let your family know your wishes for emergency medical and/or end-of-life care, as well as provide instructions for disposing of your assets after death. Completing them now will make a stressful time a little easier on your family later.
Jill grew up in Texas, graduated from college in 2007 and is currently working in the DC metro area. Jill recently completed a 9-month certificate program in financial planning and will take the Certified Financial Planner (CFP) exam in November. After that she hopes to become a full-time financial planner. You can also find her as a staff writer at My Dollar Plan.