1) a durable power of attorney, 2) medical power of attorney and 3) a living will.
This info come courtesy of Investopedia and helps you understand the importance and relevance of the three legal documents listed above.
Nobody plans to get crippled by an accident or immobilized by a terrible illness, but these sudden life-changing events do happen. In estate planning
there are three particular documents individuals need to ensure they have a say in who manages their finances and health care should they become incapacitated. Failure to secure these documents could significantly reduce the amount that eventually goes to your loved ones or even break a family apart. Here we outline some problems that result from poor estate planning and demonstrate the importance of 1) a durable power of attorney, 2) medical power of attorney and 3) a living will
The Hardships of Negligence
Here’s an example of how inadequate estate planning can put loved ones in a painful position.
After her husband died, eighty-nine year-old Thelma did not think it was necessary to meet with an attorney to review her estate plan. Thelma had always managed her own finances and never told her four children how much she was worth and where it was invested. Her plan was simply to have the children split the estate equally as specified in her twenty-year-old will.
One month before her birthday, Thelma had a severe stroke and ended up in a nursing home. One of her daughters, Sally, was a stay-at-home mom and lived close by, so she took on the job of managing her mother’s finances. After five months, Thelma’s mental capacity was less than 40%, with no improvement expected.
At $170 per day, the nursing home expenses were mounting up, and Sally was under pressure to pay them. Plus she had to worry about ongoing bills to maintain her mother’s house. However, Sally could not access her mother’s accounts. Desperate, she went to court seeking legal guardianshipover her mother. But her siblings protested. They claimed that Sally was out to gain control of the money for her own use. Disgusted, Sally dropped the petition. The court declared Thelma incompetent and assigned a guardian to handle her affairs.
Thelma hung on for two years until she died. By that time, much of her hard-earned dollars had gone to attorneys and her guardian. And Medicaid had to pay her last six months’ worth of nursing-home bills. Furthermore, her children were irrevocably divided over the guardianship issue. This is no doubt the opposite of what Thelma wanted for her family.
Avoid Estate Depletion
Here’s what you can do to avoid putting yourself or your loved ones in the same position as Sally. A durable power of attorney lets you arrange for someone you choose, called your “attorney-in-fact”, to manage your finances.
A power of attorney can be effective immediately or have a springing power, applying only when a certain event takes place, such as incapacitation from an injury or illness. You can specify how the event is defined, for example, by the declaration of a doctor or even two that you are unable to make financial decisions.
With a power of attorney, you can insist on the amount of control your attorney-in-fact will have over your finances. This authority could include:
- making gifts
- managing a business
- paying household bills
- buying and selling assets
- handling retirement accounts
- collecting government benefits
- completing income tax returns
You choose who takes on this job. It could be a family member, close friend or your attorney or accountant. But make sure that it is someone trustworthy and competent with managing their own finances. Be sure also to select an alternate just in case the first person pre-deceases you or is unable to handle the responsibilities.
Avoid Family Breakup
There are two more documents that can prevent confusion and mistrust between family members.
A medical power of attorney – also called a health-care proxy, medical directive or durable power of attorney for health care – gives whomever you select the legal authority to make medical decisions for you when you can no longer make them yourself.
A living will offers exact instructions for your doctors and family regarding the continuation of your life by artificial means or heroic measures. In cases where there is little certainty of the desires of a person in a vegetative state, a medical power of attorney and living will can help eliminate grief and dispute between family members.
Although living wills are used throughout the country, there are no universal forms spanning all states. And the law on honoring an advance directive between states is unclear. Some states will respect the different laws of the state where the document was drafted. Others might not. In addition, the document’s titles from state to state (or country to country) might differ. Problems with advance directives can pop up when you had your living will drafted in your home state (or country) and the state you are in:
- makes you use their statutory forms
- specifies which types of advance directives they will honor
- require certain conditions are met before your instructions are followed
- will not recognize documents that do not include the person’s signature who is to make the medical decisions for you
If you spend a great deal of time in a state other than your home state, you may wish to consider having your advance directive meet the laws of both states as much as possible.
You can find more information on your state’s requirements in this reference article provided by theWall Street Journal Online.
Summing It Up: How to Prepare
Estate planning is not only about making arrangements for your assets after you die. Unexpected things can happen resulting in your loved ones needing to make decisions on your behalf. Make sure you give them the legal power to do this, saving them from both emotional and financial battles. Here are the steps to ensuring your wishes will be followed:
- Review your current documents with your attorney since laws can occasionally change. Also, new case law periodically offers new precedents, possibly making forms you have used obsolete.
- Name the same person as your representative in every state’s (or nation’s) documents.
- Execute separate documents for each state (country) where you frequently spend time.
- After you have done this, have every family member over the age of 18 do the same.
- Article can also be viewed here via http://www.investopedia.com/articles/pf/05/050905.asp
Let me know if I can be of any help to you as you prepare for any of the above.