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Estate Plans, Wills & Why They Are Necessary - Part 3

Estate Plans, Wills & Why They Are Necessary - Part 3

| December 21, 2022

Ok, welcome back! Last week we talked about the scary things that face your family if you don’t have a will or estate plan or if they are out of date. This week we are going to get into the basics of a good estate plan and the idea of setting up medical directives. Let’s get started!

Basic Estate Planning Concepts

Your estate plan helps you prepare for incapacity, health care, property management, death, your will and probate, estate taxes, life insurance, trusts, and charitable giving. These make up the basic components of an estate plan. 

Let’s begin by talking about planning for incapacity. We all know how unpredictable life can be. Becoming incapacitated can strike anyone at any time. So what is incapacity? Incapacity is a condition in which you are legally unable to make your own decisions. Think for a moment what might happen if, for example, you were to become the victim of an accident that puts you in a coma for several months. How would your doctor know what medical treatments you would want or not want if you can't speak for yourself? How would your personal business be transacted if no one is authorized to sign documents for you? 

What would happen is this: Someone would have to go to court and get legal permission to do things for you. And that person called a guardian and typically a close family member, such as a spouse or child, would have to go back to court every time permission is needed. As you can imagine, this might be quite burdensome to the guardian. And on top of that, without any instructions from you, your guardian might make decisions that would be different from what you would have decided. And if you have small children, failing to plan could mean that a court would be responsible for appointing a guardian for your kids. Lack of planning can increase the burden of responsibility on your guardian and can result in the guardian making decisions for your child that you would not want. 

Health Care Directives 

Now let’s talk about what you can do to remove the burden around your healthcare if incapacitated and ensure that you receive only the care you want. You know how you want to be taken care of, but others may not. If you are unable to express your needs and desires, you need to make sure they are clear and known. One way to do that is with a Healthcare Directive. There are three main ways to create a Healthcare Directive, and those are through the creation of a Living Will, a Durable Power of Attorney for Healthcare which is also known as a Health Care Proxy, and/or a DNR, which is a Do Not Resuscitate Order. It is important to note that not all types of healthcare directives are effective in all states, so be sure to use the one(s) that will be effective for you. 

No matter which type of directive you choose, they all have one thing in common, they give you the ability to leave instructions about the medical care you would want if conditions were such that you couldn't express your own wishes. 

We’ll take a look at a living will first. A living will is a document that lists the types of medical treatment you would want or not want under particular circumstances. For example, your living will might state that you would not want life support if you fell into a persistent vegetative state. With a living will, you'll have to think about all possible scenarios where you would want a specific action to be taken and then put your wishes in writing so that the reader will clearly understand them. 

A durable power of attorney for health care, or health-care proxy, lets one or more family members or other trusted individuals (who are called agents) make medical care decisions for you. Unlike a living will, with this type of healthcare directive, you don't have to envision specific circumstances. You simply grant authority to your agent or agents to make decisions for you. 

A Do Not Resuscitate order is used for a different purpose. Let's say that you're in the hospital, lingering and suffering from a terminal illness, and you don't want the hospital staff to take life-saving measures if you suddenly go into cardiac or respiratory arrest. To make sure your wishes are carried out, you may be able to get your doctor to issue a DNR. A DNR is a legal form, signed by both you and your doctor, that's posted by your bed to give staff members the permission they need to carry out your wishes. 

There are a couple of things to be aware of when deciding to create a healthcare directive. You need to be careful if you're using a DNR because some states require their own DNR form. And some states require one DNR form if you're in the hospital and a different DNR form if you're in a nursing home. You should also be aware that some states don't recognize some of these healthcare directives. So, depending on your state, you might need one, two, or all three of them. 

Now let’s talk about how to ensure your financial affairs are handled in the best possible way if you become incapacitated. There are three ways to do this. You can arrange to own property jointly, appoint an agent using a durable power of attorney, or create and put the property in a living trust and name someone to take over the management of the trust if something happens to you.

Granting joint ownership of your property to another person allows that person to have the same access to the property as you do. If you become incapacitated, your joint owner simply acts instead. For example, if you and your spouse have a joint checking account, each of you can make deposits and write checks. So, if you were to go into a coma, your spouse would still be able to make the mortgage payments on time. 

A durable power of attorney lets you name family members or other trusted individuals to make financial decisions or transact business on your behalf (just like with the durable power of attorney for health care). 

In addition to joint ownership and a durable power of attorney, using a living trust is another common strategy. There are many types of trusts with various benefits, but for now, just know that a living trust can be used in planning for incapacity because someone (called a successor trustee) can step into your shoes to manage the property in the trust if something should happen to you. 

Until next time…

One last thought, I believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended as authoritative guidance or tax or legal advice.  You should consult with your attorney or tax advisor for guidance on your specific situation.