I want to tell you a story. A very good friend of mine died last year after a year-long battle with cancer. He was just 40 years old. His children were 8 and 5 at the time. He had done estate planning, allowing him to make arrangements to ensure his family was taken care of when he was gone. He even wrote letters to his sons to be given to them at different stages of their lives.
What if he hadn’t taken the time to plan ahead for his family’s future? What would happen to them?
The following items should be included in your personal estate planning to make sure you wishes are being followed if you die or become incapacitated.
What is a Will?
Generally speaking, a Will is a legal document that coordinates the distribution of your assets after death and can appoint guardians for minor children. A Will is important to have, as it allows you to communicate your wishes clearly and precisely. Creating a Will gives you sole discretion over the distribution of your assets. It lets you decide how your belongings, such as cars or family heirlooms, should be distributed. Because my friend had a Will, he was able to decide how his estate would be distributed to his wife and children.
Without a Will, the state in which you reside decides how to distribute your assets to your beneficiaries according to its laws. This is known as dying intestate, and the resulting settlement process may not produce the results that you wanted for your survivors.
Even though my friend was married, if he had not had done the proper estate planning his estate might not have automatically been distributed to his wife and kids. It might have gone through probate, which is a legal process for settling an estate and has to go through probate court. It is costly and can delay the distribution of assets to your family. If you have minor children, like he did, a Will lets you provide for their care. Creating a Will also minimizes tensions among survivors. Relatives battling over your possessions can weaken what may have otherwise been a strong family.
What is a Trust?
My friend took it even further by setting up a Trust. A Trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. Since trusts usually avoid probate, your beneficiaries may gain access to these assets more quickly than they might to assets that are transferred using only a will.
However, maybe you don’t want your kids to have access to a lot of money when they turn 18, which is what would happen if you only have a will. When my husband and I did our Trust, our lawyer asked us at what age we wanted our children to receive their money if we die. We decided they need to wait until they are 30. We wanted them to be more established and settled in their lives before they inherited their money. With a family Trust you have the flexibility to structure the distribution of assets to your beneficiaries as you see fit.
What is a Living Will?
I have talked a lot about financial decisions in estate planning but what about medical decisions? What documents are needed to make sure your medical wishes are honored?
A Living Will is a legal document that details the type of medical care that you wish to receive if you become incapacitated due to a physical or mental illness. It is important to have one because it carries out your wishes whether or not you want to be kept alive or be kept on life support. It also gives the Power of Attorney to the person you want to make those decisions.
What happens if you don’t have a Living Will? Many people remember the case of Terri Schiavo, the woman who was living in a persistent vegetative state from 1990-2005. Terri did not have a Living Will and her husband, who was her legal guardian, petitioned the court to remove her feeding tube because the supplemental nutrition she was receiving was the only thing keeping her alive; he felt that she would not want to live that way and he wanted her to be able to die with dignity.
However, she did not have a Living Will stating her wishes and her parents challenged his decision to remove her feeding tube. After a seven-year court battle, her husband won and the hospice in which she was living disconnected her feeding tube and she died peacefully thirteen days later. With a Living Will, all of that could have been avoided and her wishes could have been carried out immediately.
What is Power of Attorney?
A Power of Attorney is the person you assign to make decisions on your behalf. For my friend, it was clear that his wife would be his decision maker he documented that during his estate planning.
What would happen if he wasn’t married and was estranged from his family? Who would have decided what type of medical treatments he should receive? In the absence of these documents, by law the decision falls to the next of kin. But what if your next of kin is your estranged brother who you haven’t spoken to in years? Is he the person you want making life and death decisions?
It is especially important to have Power of Attorney documents when it is not clear who your decision maker should be. If you have a Living Will, your Power of Attorney is the person who carries out those wishes. If you don’t have a living will, your power of attorney will do their best to do what they think you would want, and hopefully you have had those important conversations ahead of time.
There are many reasons why people avoid estate planning. It is costly, time consuming, and no one really likes thinking about these things. In fact, I always advise clients on the importance of having these decisions made and documents in place but even I put it off until last year.
Bottom line, everyone, especially those with kids, should have these difficult conversations with their loved ones and have their wishes documented. And of course, speak with an estate planning attorney about the right plan for you and your family. Don’t leave things up to chance, because they might not turn out how you would want.