Few people want to think about the end of life, and managing its legal and financial implications isn't much more appealing. But end of life planning is important no matter what your situation.
The good news is that once plans are made, you may only need to revisit them if you have kids, if you get married or divorced, or if your financial situation changes dramatically.
It's a good idea to seek help from a professional when making an estate plan in order to make sure your wishes are expressed clearly and made in accordance with state laws. There may also be issues you haven't considered that could impact your estate plan (such as taxes).
What Documents Do You Need?
Part of estate planning is determining what will happen to your net worth — including any cash, real estate, stocks and physical assets, like cars or jewelry — after you die. This can entail filling out a number of documents within the legal and financial realms, each addressing a different area and helping to protect your rights and wishes in a different way.
Proper documentation can make life easier for those who will carry out your wishes. They can also help ensure that your loved ones make the same decisions you would around your health and finances if you become unable to make these decisions. The end of a person's life tends to be stressful for loved ones, and having papers that clearly state your desires makes it easier for your executors to fulfill them, easing some of the potential stress. Here are few of the main documents you may want to complete during your end of life planning.
A will spells out who you want to receive each of your personal items. It can also designate who receives cash and bank accounts. When you create a will, you typically name an executor, which is the person who's responsible for making sure any debts are paid off, and that any remaining money or property is distributed according to your wishes.
What a Will Can Do
A will typically documents how and when assets should be given to each heir. For example, if you want to leave money for children or your grandchildren who are still minors, you can make a provision that the money will be distributed to them when they reach a certain age. You can also use a will to name guardians for your children. Of course, you should have a conversation with the proposed guardians before including them in your will.
Limitations of a Will
A will cannot designate recipients of certain investment types, however, like retirement accounts, mutual funds and life insurance policies. You may need to name the beneficiaries on forms provided by the company (or companies) managing these accounts, and the estate can generally be named as a beneficiary of such accounts, if advisable. A professional can help you consider the financial and tax implications of the assets you're leaving to heirs through the will.
2. Power of Attorney: Financial
As you near the end of your life, a power of attorney form, which is a legal document that grants a person or organization the ability to manage your affairs, may be helpful to have in place. If you become unable to make financial decisions in your own best interest, someone you designate in your power of attorney document can step in and make those decisions on your behalf. The scope of a power of attorney's authority is included within this document.
Designating a Person for Power of Attorney
For example, if you were to suffer a debilitating stroke, dementia or a mental illness, after which you're no longer capable of making reasonable decisions for handling your assets, the designated person could handle that responsibility instead.
Importance of Drafting and Signing a Document
It's important this document be drafted and signed before there's a medical emergency requiring its use. Once a person is unable to give consent for a power of attorney, the person requesting it may have to go to court to have permission granted legally, which can further complicate estate management.
Financial Impacts of Not Having Power of Attorney
Financially, that can make it difficult to pay the person's bills and can impact other needs as well. It can also affect what an executor does when handling the estate.
3. Power of Attorney: Health Care
Another term for power of attorney over health care is "health care proxy." This document follows the same principle as the financial power of attorney, but is limited to decisions around health care.
Health Care Proxy and Power of Attorney
If the person who has named a power of attorney is unable to make health care decisions, the health care proxy legally allows the person it designates to make certain health care decisions. The power of attorney document will outline the types of decisions that the power of attorney is allowed to make.
Importance of a Health Care Proxy
Without this proxy, a health care system may not legally be able to share your medical information with anyone, even your next of kin or whoever you'd want to make those decisions for you. Having this document in place as you age or near the end of your life may help ensure that decisions around your heath care are made according to your wishes.
Other Essential Documents in End of Life Planning
Remember, these are only some of the more essential documents that go into end of life planning. They can all be drafted at the same time, helping you create a smooth estate management strategy for your executors. There may be other helpful documents available to you, depending on what else your estate includes. Since there are so many legal and financial implications for you and your loved ones to consider, however, it's important to consult qualified experts.
The Bottom Line
While end of life planning is rarely an easy conversation (or set of conversations) to have, knowing you'll be prepared could nevertheless make a big difference for both you and those closest to you.