By Brian, CPA
What are the documents that any family should have in place, "just in case?"
First, a disclaimer: The author IS NOT a lawyer, and these are "lawyer" topics. It can be very persuasively argued that this is not necessarily a good "do it yourself" area. IF EVERYONE IS AGREEABLE, DIY software or similar approaches MAY do fine. But crises tend to bring the worst out in some people, something I've seen time & time again as a tax accountant doing primarily estate and trust related work.
Second, this article is NOT an "estate tax planning" article. When your assets exceed as little as (in Maryland) $1,000,000, a whole additional set of considerations begin to kick in. And that number INCLUDES the life insurance benefits, IRA's, joint accounts, annuities...pretty much everything. If you have those problems, you may need to come see me and a good attorney.
ALSO, it is possible some of this advice may be specific to Maryland, as that's where my experience is.
Still, for those of us well below that estate tax threshold, there are some basics we should have.
1. Last Will and Testament ("Will")
Probably the LEAST important of the documents I'll mention for most of us, as a 30 or 40 year old is probably far more likely to be disabled for a period of time within the next 10 years than to die. Still, it provides YOUR answers to the key questions about "what happens to my stuff after I die", including who sees that it happens, who gets it, who is named guardian of the minor children, etc. CHOOSE YOUR FIDUCIARY CAREFULLY. Very often it should be your spouse, but who will serve if he/she is unable? Name that second choice as well, and maybe a third. Consider whether your children should receive that inheritance outright if they are, say, 18 at your death, or whether trusts should continue longer than that. If there are disabled children to provide for, or trusts that could continue for many years, USE A GOOD ATTORNEY. Remember that your Will only controls the "stuff" in your name alone...NOT joint accounts, and NOT assets with beneficiary designations like life insurance, annuities and retirement plans. The fanciest 30 page Will does NOTHING if none of your assets are in your name alone.
2. "Living Will" and/or "Durable Medical Power"
NOT my area, except to say this is perhaps the most important of the documents. There are resources from the state government and/or hospitals for "canned" living wills; my suggestion is, if you have nothing, do one of those TODAY and replace it when you see an attorney. The living will expresses your directives for medical care under circumstances where you cannot express yourself, and the medical power of attorney gives someone else the power to enforce those wishes. To avoid problems, the durable medical power in particular MUST have been drafted after the medical privacy regulations of the last several years.
3. General Power of Attorney
If you are alive, but in a coma (or even merely paralyzed and unable to speak), who will pay your bills, refinance your mortgage, arrange to remodel your house for your disability, hire home health care for you, and generally help you with the "business" of life? Two possible answers: One, the person you designated as your durable general power of attorney; two, in the absence of that designation, the person who EVENTUALLY is named your guardian after a long-delayed and somewhat costly court proceeding. I strongly suggest the former approach. Again, most likely your spouse should be your first choice, but who should be your second? Think about it ahead of time. (And from personal experience, I can also say think carefully about ACCEPTING this assignment...)
Two other thoughts:
1. Where Should These Documents Be Kept?
The Will - THE ORIGINAL is generally the only valid one. I suggest it go either in your attorney's "Will Safe" or in "safekeeping" at the office of the local Register of Wills. At that office, it cannot be accessed except by you or someone with your death certificate who's named as personal representative, but it cannot be lost. KEEP COPIES with other important papers, and note where the original is.
The powers of attorney - Copies of these documents are generally valid. Keep a set with known "important papers" in your house - remember, you can't get to the safety deposit box on Saturday night on the way to the hospital after a tragic accident. (But keep a copy there too, and perhaps give a copy to another highly trusted family member or friend.) Discuss "durable" vs. "nondurable" general powers of attorney; a durable power is effective ANY TIME (which saves the person serving a lot of aggravation when needed), but that means the person named can use it NOW. Some families have named one person as durable POA, but left the document in the custody of another trusted family member until it's needed.
2. What about "revocable living trusts" instead of a Will?
They can be useful, in the right circumstances. But they do not save ANY tax, and are definitely NOT worth the huge fees some legal shops charge to put them together. A competent upright attorney will discuss the advantages and disadvantages of both, not push an expensive, canned "book". And, all of your assets must be re-titled in the Trust's name for it to be effective; that can be almost as much trouble as handling an estate under a Will later.
MOST IMPORTANT PARTING THOUGHT: Don't put this off. And, revisit it every 3-5 years or so as circumstances and laws change. (Hmm, I think I need to practice what I'm preaching there...how old were my children when I drafted mine??)