What estate planning documents do you need?
By Tom McDavitt
Most people think that having a will is enough to satisfy their estate planning needs. We would agree that a will is important, but there are a few other documents that are critical, as well. The others that we would recommend:
- Durable Power of Attorney
- Health Care Proxy
- Living Trust
- Letter of Instruction
Let’s look at the value of each.
Durable Power of Attorney
This document allows you to authorize another person to act on your behalf while you are alive but unable to conduct your own affairs. The person named could pay your bills, monitor your savings and investments, deposit checks and even file your income taxes. There are two types of power of attorneys. The first is an “immediate,” which,
as its title implies, begins right away. Oftentimes, this is utilized if someone is facing a major illness or surgery. The other type is referred to as a “springing” power of attorney, which is only effective if you have a life event that causes you to be incapacitated.
We have seen instances where the client did not have a durable power of attorney and was suddenly incapacitated. We are forced by law to “freeze” his or her accounts immediately until a court names a power of attorney. That means no trades can be enacted in the person’s investment accounts while it is frozen, regardless of market conditions. In 2008, that may have resulted in some significant market declines that may have been avoided had a durable power of attorney been in place.
Health Care Proxy
This document allows you to name a person to make medical decisions for you. You can decide the parameters of that power in advance. How many of us have stated our desires to avoid being “hooked up to machines for long periods of time with no likelihood of recovery”? Advanced medical directives as such can help prevent this from happening. They also can include instructions such as a DNR (Do Not Resuscitate) order.
Also commonly referred to as a revocable trust, it is typically used to transfer ownership of your assets. You control the assets while they are in the trust and are able to modify or terminate it at any time. The primary purpose of the trust is to avoid probate. That can save time and legal costs, as well as allow your estate assets to transfer to your decedents without being exposed to the public view. Any probated assets must be made a matter of public record.
Letter of Instruction
This is an informal, nonbinding document that compliments your will. It can be used to make your wishes clearer to your estate’s personal representative. You can be specific in listing who you would like to have certain items not necessarily referred to in the will. It is oftentimes the most helpful document because it clarifies many of the gray areas in your estate.
You should consult with your attorney or financial advisor to see how important these documents would be in your case, but I think it safe to say that most of us need to have them in place.
Tom McDavitt, located at 102 Shore Drive, Suite 400, Worcester, MA 01605, is a registered representative and investment adviser representative and offers securities and advisory services through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser, and can be reached at (508) 852-6222.