The Cornerstones of an Estate Plan

By: Jonathan D. Pond | Source: AARP.org | March 2009

It’s never too early to prepare essential estate planning documents, but it can be too late. A very high percentage of people – even retirees – don’t have estate plans and many more who do have documents that are out of date. Don’t wait until it’s too late, because when it comes to a will and other estate planning documents, when it’s too late, it’s too late.

Here are the four documents every adult should have:

• A will. This legal document tells who will manage your estate, who will get your belongings, and, if applicable, who will become guardian of your minor children or other disabled family members after you die. Die without a will and the state makes these decisions—often at an added cost to those you love most.
• Durable power of attorney. This delegates the power to legally handle your financial affairs should you become disabled or incapacitated. Without this, no one may be able to access your bank account, securities, or any other property in your name without lengthy legal proceedings. 
• Advance directive is a catch-all term that refers to health care directives, living wills, health care (medical) powers of attorney, and other personalized directives. All of these documents allow you express legally your preference for continued health care should you become terminally ill. A health care power of attorney (also called a "designation of health care surrogate") names a spouse or trusted relative to make health care decisions for you in case you are physically or mentally incapable of doing so on your own.
• Letter of instructions. A "letter of instructions" is an informal document that gives your survivors information concerning important financial and personal matters that must be attended to after your demise. You don’t need an attorney to prepare it. Although it doesn’t carry the legal weight of a will and is in no way a substitute for a will, a letter of instructions clarifies any special requests to be carried out upon death. It also provides essential financial information, thus relieving the family of needless worry and speculation. Just as with all your other estate planning documents, be sure your loved ones know where your letter of instructions is located.

Use an attorney or do-it-yourself?

While you can prepare these documents yourself,  it’s far preferable to have an attorney do so. It won’t cost very much, and once it’s done, it’s pretty much done unless your situation changes. The advantage of having an attorney is that you can check in periodically with him or her to make sure your docs are OK, and the attorney could remind you of any relevant changes in the regulations that you may otherwise not be aware of.

Optional extras.

Depending on your family and financial circumstances, you may also benefit from other estate planning documents, including trusts. Certain strategies may also be useful to reduce estate taxes for those with large estates. The best way to find out if any optional extras will work for you is to speak with an attorney who is experienced in estate planning and can be objective in advising you. Unfortunately, some attorneys push certain strategies (for example, living trusts) on people who won’t necessarily benefit from them.

Make sure your estate plan is up to date. 

You and your attorney should periodically review your documents to make sure they’re up to date and laws haven’t changed. For example, your family situation may have changed through divorce or the arrival of children or grandchildren. The people you designate in your estate plans, for example, executors and those who make health care decisions, may need to be changed from time to time. Your attorney may need to revise your documents to conform to changes in state and federal estate planning regulations. For example, health privacy rules may require a change in power of attorney or other documents. Under Health Insurance Portability and Accountability Act (HIPAA) rules, the person you have designated to act on your behalf may not be able to secure enough medical information to ascertain your incapacity. The solution is to prepare an HIPAA authorization form that permits the person you designated to act on your behalf to have access to your medical information.  

Where should you store your will?

Although your family members or close acquaintances should have photocopies of your will, only one original version should exist. Deciding where to keep that important original document can be perplexing, so let’s evaluate the options:

Options: A home safe, business safe, bank safe deposit box, your lawyer’s office, or the clerk of your local probate court who will hold it for safekeeping in a sealed envelope.

Before you decide to store the will in a bank safe deposit box, consider state and local probate law. Many laws require that a bank safe deposit box be automatically sealed upon your death. This can result in messy complications.

The best bet often is to purchase a good quality home safe. The safe should be able to withstand temperatures up to 1,700 degrees in case of fire. Place the safe in the basement if you have one, so if there is a fire, it can’t fall through the floor. The safe should always be locked. Be certain someone you trust has the key or combination. If you have other valuables in a home safe, consider an alarm system or obtain professional help to make it burglar resistant.

Family members or close friends should know the location of your original will.

If a new will is drafted, ask the attorney who prepares it whether you should destroy the old one.

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