Estate Planning Documents

There are three levels of tax preparation. Each one can be appropriate in a particular case. Each one can be grossly inappropriate in another case. As always use a little common sense when making your decisions. Do it yourself with or without tax preparation software such as TurboTax is fine for a typical salary man with a mortgage. If you are frightened by tax forms or your tax returns are getting a little more complicated storefront companies like H&R Block are probably OK most of the time. If you run a small business or are involved in investments that generate a form K or foreign income taxes it is time to talk to a CPA. If you are involved in complex proceedings that could have potentially serious tax consequences such as estate taxes, go directly to a CPA and buy the insurance she sells to protect you in case the IRS takes an interest in any of your returns.

The same kind of logic applies to the preparation of estate documents.

Everyone over the age of 18 needs a will. For a young single person this could be a simple Internet document that will help your parents in the unlikely event of your death. For a young family it is very important to establish custody for your children. You do not want the state courts making that all important decision for you. If you are married make certain that anything significant other than 401(k) accounts and life insurance policies which are tied to a single individual are held in joint tenancy. Then if one partner dies the other can continue to have access to funds without waiting for them to clear probate. As your net worth increases over time, you will reach a point where a simple will is no longer appropriate. At that point talk to an estate planner. Then have a will prepared by a competent attorney.

Everyone should have a list of assets. Put it near or in the same folder as your will. That way your survivors will have a copy of your life insurance policies and the most recent financial statements from banks, brokerage houses, and the like. Note: Make certain your beneficiary forms on life insurance policies are up to date. If you have such a list, your parents will also discover that you have stored your partially restored 1969 Norton Commando in your friend’s father’s barn. As your life becomes more complicated these forms will generate a rather thick three ring binder every year.

Next consider the Advance Health Care Directives. This document informs hospitals, doctors, and most importantly the individual you grant Medical Power of Attorney your healthcare preferences in the event that you are not competent to make those decisions for yourself. Medical Power of Attorney will likely go your spouse. However, if your spouse should die or become incapacitated before you, you need to identify a backup. Personally, I found this form very intimidating. I didn’t understand some of the medical terminology or the life and death consequences of selecting from some of the options presented under each question. Fortunately my wife has worked in hospitals. She was able to explain these decisions to my satisfaction.

You need to grant someone Durable (Financial) Power of Attorney. If your wife or husband is still alive, this shouldn’t be a problem, since they have access to your joint assets anyway. Still you need to complete the form. In the event that your spouse is dead or incapacitated this decision becomes very important. You will have to trust this individual with basically everything you own, since their signature is your signature. This power will not be invoked until it needs to be invoked, but it is a very serious decision. Before that day comes it is likely that you will need to set up a joint checking account that will allow your trusted representative (often a child) access to funds to make certain your bills are paid on time. The day may come when you are still a responsible adult but you just can’t manage to remember everything that needs to be done every month.

Access to your safety deposit box: If you store your will and other important documents in a safety deposit box, make certain that your spouse and the person who will someday have Financial Power of Attorney knows about the existence of this box and has access to it. That means their name needs to be on the form. It does not mean that they need a key. They just need to know where you store the key.

As we continue to witness the death of common sense in this society, there is something else to worry about, a HIPAA Release Form. The Federal Government, in its infinite wisdom passed the Health Insurance Portability and Accountability Act of 1996 (HIPAA). This law makes it very difficult to deal with a loved one’s doctors, insurance companies, and hospitals. If you have this form filled out in advance naming the individual/s with Medical Power of Attorney and Financial Power of Attorney access to your healthcare information, it will greatly simplify their dealings with insurance companies and medical providers. Listen to me! I speak from experience! You can not believe the incredible time wasting silliness this well intentioned law will generate.

While it is likely that your rolodex or Franklin Planner will provide your survivors with all the names, addresses, and telephone numbers they will need to close out your relationship with your doctors, accountants, utilities, phone company, Internet provider, cable TV company, lawyers, insurance agents, advisors, lawn care company, pest control service, etc. etc, having everything in one list seems like a good idea. I don’t have one….yet.

Oh, I forgot, (thank you Forbes Magazine) we live in a digital age. We have usernames and passwords. Where do you have them written down? Will your heirs and your executor understand your cryptic mnemonic clues you used on that list you keep for your own personal requirements? Forbes suggests one of those services like iWallet. Then you will only need to pass on one username and one password to your executor or the individual with Durable Power of Attorney.

If you have minor children or a complex estate involving considerable tax favored assets such as a 401 (k) or a piece of property that has greatly increased in value over time you will need to talk to an attorney about a trust to make certain some responsible individual will manage your money for your children’s benefit until they become adults. Most likely this will be the same person with custody. However, while grandma may be able to handle the distribution from your group life insurance policy, she may not be the best choice for managing a large complex stock portfolio. Tax consequences, potential claims by ex-spouses, and most likely other concerns that have never entered my mind can greatly affect the outcome of probate. That is why you need to investigate a trust even if your children are adults. We have a Charitable Remainder Trust that will protect our tax deferred assets, provide my wife and heir with a guaranteed income, and leave something for the Lord without the icy grip of the taxman ever touching His funds. Fully exploring this topic is way too complex for a blog post. If you are at that stage of life, talk to an attorney.

Then there is the question of funeral instructions. Do you want to be buried in the family plot in Looneyville, Texas? Better write that down if it is not a generally know fact. Seriously, writing down your preferences is a good idea particularly if you belong to a minority religious tradition with unusual funeral requirements. Besides your personal concerns for how your remains are respected, these decisions will have a significant financial impact on your estate. In Atlanta a traditional American funeral without a burial plot or headstone will run you $18,000. The same funeral home offers cremation with a vase for your loved one’s ashes. That service costs $3,000. If you want a particular clergyman or a clergyman from a particular tradition to officiate, make certain that he or she knows about your desire and is willing to provide that service. Then write down that information on your list of instructions.

That pretty much covers the topic of estate planning documents. As always, use a little common sense. If you are an eighteen year old heading off to college, make certain you have at least an Internet will and Advanced Health Care Directives that grant your parents Medical Power of Attorney. As you move through life update these documents every five or ten years or whenever a major change, such as a wedding or the birth of a child, occurs in your life.

Proverbs 3

1 My son, do not forget my teaching, but keep my commands in your heart,
2 for they will prolong your life many years and bring you prosperity.
3 Let love and faithfulness never leave you; bind them around your neck, write them on the tablet of your heart.
4 Then you will win favor and a good name in the sight of God and man.