4 End-of-Life Documents Worth Having
Even if you don’t have many assets, you might think you don’t need a will or other end-of-life documents. But such documents can make taking care of you in your final days easier, along with making the lives of the loved ones you leave behind less stressful and problematic.
Here are five end-of-life documents worth having, and worth letting your family know about long before you reach old age:
1. A will.
“This is the most basic and essential estate document, but an amazing number of people don’t have one,” says Pamela Horack, a certified financial planner at Pathfinder Planning in South Carolina.
“This is the only place where you can designate a guardian for your children and determine who will get your figurine collection,” Horack says.
A will provides instructions on how your assets should be distributed when you die. However, there are certain assets and accounts that aren’t directed through a will, says Anjali Jariwala of FIT Advisors, which helps physicians with their financial planning needs.
These exceptions include retirement accounts, life insurance proceeds and assets that are titled jointly, Jariwala says. Retirement accounts such as a 401(k) or IRA and life insurance are directed through beneficiary designations.
“It is always good practice to periodically check your beneficiary designations especially after a life changing event,” she says. “For example, if you recently got married you may want to update your beneficiary to your spouse.”
Another good practice, Jariwala says, is to include a secondary beneficiary on retirement accounts in preparation for the worst-case scenario.
A will doesn’t have to be very complicated, but an overly simple one may not be adequate either, says Andrew Novick, a certified financial planner at The Investment Connection in Center Valley, Penn. A will should be professionally drafted, and shouldn’t be too expensive to draft.
In a two-spouse family with minor children, it’s typical for each spouse to leave everything to the surviving spouse and then to the children, Novick says. However, he almost always recommends establishing a trust if substantial assets will be left to minor children.
2. Durable power of attorney.
Granting power of attorney is important in situations where you become incapacitated. “It is important to have someone listed who can make medical decisions on your behalf that are in line with your views,” Jariwala says.
There are other types of powers of attorney to have, including durable power of attorney that takes effect when you’re alive so someone can manage a parent’s finances, for example, if they’re incapacitated.
3. Digital power of attorney.
This gives someone control of your online accounts after you die, allowing them to close them or control them.
“The person handling your estate may be great at the finances, but you need a different skill set to handle the online information,” Horack says.
The privacy policies of many websites don’t allow someone to obtain access to your account upon your death, Jariwala says. The control of digital assets such as Facebook, Twitter and Instagram accounts after someone dies is still a developing area, “but will become more and more relevant as younger individuals start thinking through their estate plans,” she says.
4. Health care directives.
Also called advanced healthcare directives or a living will, these are part of the power of attorney given to someone to make medical decisions for you if you’re unable to make the decisions.
“Addressing healthcare and financial issues for the incapacitated person are much more difficult, if not impossible, without these documents and will only add unnecessary stress to the situation,” Novick says.
The directives tell your health-care provider and your loved ones “how you would like to be cared for if you should become terminally ill or unable to make decisions yourself,” and details your views toward life-support, says P.J. Wallin, a certified financial planner at Atlas Financial in Richmond, Virginia.
Even if you’re young and healthy, it’s a good idea to write down what type of health care you want at the end of your life.
“A car accident or cycling injury can remove your ability to help yourself, so you need to designate a competent person to make your medical decision,” Horack says.
Without these end-of-life documents, your assets could end up in probate.
“As many financial planners say to their clients, ‘Your state has a will in place for you whether you like it or not,'” Wallin says.
“For example, if you die in Virginia without having set up any estate planning, the state has a probate process that occurs whether you like it or not,” he says. “Now in many cases this isn’t a terrible process, but it can be an administrative burden, have unnecessary costs” and have other problems.
Next week: Why you need an estate plan, no matter how small your estate is.
Aaron Crowe is a freelance journalist who covers the insurance industry and personal finance topics for a number of websites, his website CashSmarter.com.
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