Who needs an estate plan? Top 7 reasons why you need one even if you think you don’t. Part II

Last time, we talked a little bit about the top reasons why you may need an estate plan, even if you think you don’t.  Here are the last three reasons.

  1. Your children’s guardian.  Have children?  Have you named their guardian?  Is this document posted prominently in your house in case it’s needed?  If you don’t decide on your guardian, the court will.  The court doesn’t know you, your children, your family, or who you think would be most appropriate (or, conversely, who would NOT be appropriate).  You may not have decided on someone, but you’ve probably eliminated some candidates.  When you name no one, no one knows who you have eliminated, as the job is up for grabs to anyone.  Name your preferences or your very last choice could very well raise your children.
  2. Your child’s guardian, part two.  What happens if you’re in an accident and you and your spouse go to the hospital?  Will the police leave your children with the underage babysitter?  No, of course not. If you have not chosen a guardian, and posted that prominently (and told the babysitter), then the police are going to take your children to the police station.  They may very well put your children into foster care while you recover.  While the chance this would happen may be slim, why take the chance?
  3. Other documents necessary.  If you don’t have an estate plan, you’re less likely to have powers of attorney, a living will/advance directive, and other necessary estate planning documents.  These documents generally help you when you become incapacitated and cannot make decisions on your own behalf.  Often a spouse is your first choice, but what happens if your spouse is also incapacitated?  You need to prepare these documents to protect yourself and your wishes from being honored if you can’t speak for yourself.

Convinced?

Estate planning “musts” to take care of NOW

I often get asked what the most basic “must dos” or “must haves” are in estate planning.  Here is the answer:

  1. Talk to an estate planning attorney.  Most, like me, offer free consultations, so you don’t have to spend anything but time, and then at least you’ll know and understand your need and risks, and be able to make informed decisions
  2. Talk to a financial advisor.  See above – you only lose your time, and if you find a reputable one (your estate planning attorney should know several fantastic ones, as I do), then you can make sure that as  you grow older, you are working toward your financial goals.

Those two items will give you all the information you need.  But more specifically:

  1. If you have children, decide on and formally nominate a guardian to care for them if you are unable to.  If you don’t decide?  A judge – a stranger – will make the decision for you.
  2. Create a will or trust.  If you don’t decide who will get your stuff, someone else will.  You’ll also pay a lot of money for the privilege.  Again, talking to an estate planning attorney to find out your risks and options costs nothing.  Why remain uninformed?
  3. Make sure you have enough life insurance.  What you think of as “enough” and what is really and truly “enough” should your spouse die may be entirely different amounts.  If one spouse doesn’t work, and the working spouse dies, wouldn’t you want to have enough life insurance to allow the survivor to take time to grieve, take care of the children, and then think about work, instead of having to worry about finding work right away?
  4. Make sure your retirement and life insurance beneficiaries are always up to date.  If you’ve been married for 20 years and your life insurance names your girlfriend of 25 years ago when you pass away?  Then your girlfriend gets the money and your wife doesn’t.  Is that what you want?
  5. Make sure you have long-term care insurance if you need it.  A financial advisor can help you to decide on this, and the earlier you get it, the cheaper it is.
  6. Make sure both spouses know and understand the family finances, even if one spouse does the day-to-day management.  Do not get caught in a situation where one spouse dies and the survivor does not even know what accounts exist.
  7. On that note, put your paperwork in order, or at least in one place.  Even if it’s disorganized in a drawer, make sure all the important paperwork, account statements, estate plan, life insurance, etc. is all in one place and easy to find.  Should you pass away, your family will be going through a rough enough time as it is – don’t make it worse by leaving a scattered financial life.

None of these items are difficult or even time-consuming, but they mean everything in the world to your family should something happen to you.  What are you waiting for?

What is a Power of Attorney? Why is it critical that you have and up-to-date one at all times, once you turn 18?

In California, there are two kinds of powers of attorney: one for finances and one for medical decisions, also called an advance directive or living will.  A power of attorney for finances gives another individual the power to handle your financial affairs if you become incapacitated and cannot manage them on your own, like when you are hospitalized.  While you are unable to manage your own affairs, someone else can ensure that your bills are paid and utilities stay on for when you return.  The power of attorney is necessary because banks generally will not allow access to your accounts without a formal document giving specific permission to someone else, even if you are the spouse, parent, or sibling of the person who is incapacitated.

Similarly, a power of attorney for medical decisions gives the power to another person to make medical decisions on your behalf if you are incapable of doing so due to illness, accident, or other problem.  It specifies what kind of medical treatment you do or do not want, and in the absence of one, the doctors will do all that they can to keep you alive as long as they can, even if you are in a persistent vegetative state.  In addition, in California there is the HIPAA authorization for medical records so that the person who is making your medical decisions can also look at your medical records.

Every individual 18 or over needs to have these three documents.  Sometimes, parents assume that their college-age children do not need these documents because they will be listened to as parents.  This is not always the case, so any child going off to college, or just turning 18 needs to have these documents.  Similarly, aging parents need to have one as well to avoid the difficult conservator process if they become incapacitated without proper powers of attorney.

Powers of Attorney: Why do you need them, particularly in a California divorce case?

There are two kinds of powers of attorney: one for health care, and one for assets. They both allow you to choose the person who will make decisions for you in the event you cannot, either due to mental or physical incapacitation. If you are in a car accident and unconscious for several days or weeks, someone will have to make decisions for you regarding your care and treatment (this hospital or that one, this medication or that one, etc.) as well as your finances. Someone will need access to your bank account to pay your mortgage, utilities, etc. so they do not fall behind.

If you do not choose who this person will be, then the state decides for you. If you are married, then your spouse decides. This is still the case if you have filed for divorce but not yet come to a Judgment. If you have filed for divorce, then it is likely that you do NOT want your estranged spouse making medical and financial decisions for you. In that case, you need to create powers of attorney naming someone else.

Everyone who is 18 or over should have these documents prepared to ensure that their medical wishes are followed and that they have someone who can make both financial and medical decisions for them if they are injured or ill, and unable to do so.  Many parents believe that they are the automatic decision-makers for their adult children, but this is not the case.  If you have an adult child, too, they should have a power of attorney naming you as agent so that you can make decisions on their behalf, examine medical records, and handle finances should they be injured or in an accident.

Painful estate planning questions you must answer to avoid disastrous estate planning mistakes

Many of my estate planning clients have put off their estate planning for months, and even years sometimes. Part of this is because death or disability is something we don’t want to think about, and part of it is because some of the questions are difficult to answer.  What my clients do not always understand is that (1) it’s my job to help them to make the decisions, and (2) if they don’t decide, then someone else – a stranger – will decide for them. Here are some questions you need to consider when thinking about estate planning:

  1. The guardian for your children. This is probably the most important decision you will make.  In case the unthinkable happens – you and your spouse are out together on date night and get into an accident and are both hospitalized or worse. What do you think will happen to your children, who are at home with the 19-year old neighbor babysitting? The police will likely take your children into protective custody – foster care – until a proper guardian is named.  If you have a formally-named guardian in your estate planning documents (and not some hastily-written page), then you can avoid this awful experience for your children.
  2. Who will get your stuff. If you don’t decide who gets your stuff, the state will. And perhaps more importantly than the couch and the jewelry is the estate itself.  Do you have minor children? Do you want them to inherit hundreds of thousands of dollars when they reach 18? Do you perhaps want to hold back some of the estate to pay for college, or at least to let them mature a little before coming into (and losing) a great deal of money right at 18? The only want to do this is through trusts.
  3. What do you want the doctors to do if you are in an irreversible coma? If you don’t decide how you want the doctors to treat you and what extraordinary measures will be taken to save your life, then the doctors will endeavor to keep you alive as long as they can.  Do you want to survive by machine alone? If not, then you need to tell someone!  Tell your parents and your children, and create a power of attorney that legally records your wishes.  If you don’t do this, you could cause your family to scramble to determine what YOU would have wanted.
  4. Who will help you to manage your assets and estate if you can’t? Most of us are more likely to experience a slow decline than go out with a bang.  Because of the advances in medical and health care, we are living longer and with better-quality lives. But as we slow down, there is a chance that we will start to lose our ability to pay our bills and manage our finances.  To avoid the painful, time-consuming and expensive process of conservatorship, each of us needs to designate someone to make decisions on our behalf if we become unable to.  This is relevant to individuals of all ages, as surviving traumatic brain injuries is getting more and more common.
  5. Where are your documents? Part of creating your estate plan in making sure everything is in one place: your will, trust(s), powers of attorney, bank/investment/life insurance/retirement statements, pre-need funeral planning documents, and passwords/keys/online account information.  There is nothing worse than making your grieving family rummage through your stuff to find what they need.

Estate planning is the last thing that you can do for your family to make your passing easier. Isn’t your family worth it?

Why a power of attorney is not enough: Do you have this critical document in your estate plan?

If you created your estate plan more than a couple years ago, you may be missing a crucial piece to the puzzle.  In the past, a power of attorney for health care decisions, which in California includes your advance directive (or living will), was sufficient to name another person (your “agent”) to make health care decisions on your behalf.  But the enactment of HIPAA (Health Insurance Portability and Accountability Act), which was designed to limit the access to your medical records – and was focused on insurance companies – actually resulted in limiting the access to your medical records for everyone, including your agent on your health care power of attorney.

Worse, if you don’t have a health care power of attorney, you may think that your “next of kin” – your spouse, your children, or your parents – will have access to your medical information and to be able to make decisions on your behalf.  Unfortunately, with HIPAA and the stricter privacy regulations on doctors and hospitals, this is not often the case.  While you may be looked to for decision-making, if you want to see the medical records or tests results themselves, for example to get a second opinion, you won’t be able to, not even with a power of attorney.

What’s necessary now is called a “HIPAA Authorization,” which I have been using for a couple years now.  It allows the individuals you designate to have access to your medical records and can save your loved ones from hassle and hardship should you be incapacitated.  I use a separate form document, though my older health care powers of attorney included the HIPAA authorization in the body of the power of attorney.

I’ve talked already about the importance of everyone having a power of attorney once they turn 18, but what is also critically important is that you have all the correct documents in your estate plan as well, and a complete estate plan includes a HIPAA authorization.

Powers of attorney: What they do and do you need one?

As a part of my comprehensive estate plans, I provide my clients with Powers of Attorney.  In California, there are two kinds of powers of attorney: one for assets and one for health care.  Powers of attorney come into play while you are still alive, but you are incapacitated and/or unable to make decisions on your own behalf.  This can be due to accident, illness, or cognitive impairment such as dementia or Alzheimer’s.  Your power of attorney for assets allows the person of your choice (generally your spouse first, then a close friend or family member if your spouse is unable) to manage your finances.  This means that, while you are incapacitated, your mortgage and electric bills can still be paid.  The power of attorney for medical care allows the person of your choice to make medical decisions on your behalf.  It includes the medical advance directive, which tells the doctors how to treat you if you are in a persistent vegetative state.  If you do not sign a power of attorney and you become incapacitated, then your family must go to court for a lengthy and expensive process to obtain conservatorship over you.  Executing powers of attorney is thus a critical aspect of your estate plan that protects you, your family, and your assets as you move through the stages in your life.  Here is a video on this topic: