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Basic Estate Documents Everyone Should Have

Many people hear the words “estate planning” and assume that it is only for people who are married with children, wealthy, and established in their careers. Although it is true that under today’s high estate tax exemption laws most people do not need to worry about estate tax planning, there are at least three documents that everyone over eighteen years old should have in place and review periodically: (1) a Power of Attorney, (2) a Health Care Proxy with a HIPAA provision, and (3) a Last Will and Testament. First, let’s define each:

Power of Attorney

This document appoints a trusted family member, friend, or advisor as your “attorney-in-fact” to handle financial items on your behalf, such as signing tax returns, depositing checks, handling banking/credit accounts, etc. The document can be structured as “springing”, which means it would only go into effect if you became incapacitated, or “durable”, which means it is effective immediately. Either way, it is crucial that you trust the person you appoint in this document as they will have full financial authority over your assets.

In deciding between Durable vs. Springing Power of Attorney, consider how comfortable you are with another person having control over your finances. The benefit of having a Springing Power of Attorney is that it does not kick in unless you are incapacitated, so there is no ability for your attorney-in-fact to act on your behalf when you are in good health (even if it might be convenient for them to do so if you were out of town, for example). The downside of “springing” is that it can cause delays in getting your attorney-in-fact recognized to make decisions, often when timeliness is of great importance (e.g., health-related bills need to be paid). This delay is due to qualifications of incapacitation needing to be met under springing rules (e.g., a popular provision is that two doctors must sign off that you are incapacitated before your agent can act on your behalf).

If you do opt for a Springing Power of Attorney, make sure you also give your attorney-in-fact the ability to access your health records through a HIPAA provision (more on this below), otherwise they will not be able to know/show that you are incapacitated and the Power of Attorney can’t be used.

Health Care Proxy with a HIPAA Provision

A Health Care Proxy appoints a trusted family member or friend to make medical decisions on your behalf if you are unable. If it includes a Living Will, it can also indicate your preferences on treatment in various circumstances, but the ultimate decision is left in the agent’s hands.

The Health Insurance Portability and Accountability Act, better known as the “HIPAA” provision, allows your agent to receive your medical information from a doctor. As soon as a person turns eighteen years old, their parents are no longer automatically allowed to receive medical-related information. Without a HIPAA release, doctors can’t speak with anyone (including spouses and parents) without a special court order. The HIPAA regulations went into effect in April 14, 2003, so if your Health Care Proxy was put in place before then, you should have an attorney review it and add a HIPAA release. A Health Care Proxy is effectively worthless when your agent cannot access your health records.

Last Will and Testament

The Last Will and Testament accomplishes a number of things:

1. It appoints an executor (also called a personal representative) to handle the administration of the assets of your estate at your death.

2. It states what should be done with your assets at your death. This can include naming possessions with sentimental significance that you want to leave to someone special.

3. If you have minor children, it names who should be responsible for them in your stead.

If no Will is in place, a court will appoint an executor and guardian for your children. How your assets get distributed would default to that state’s “intestate laws”, which often leave assets to spouse and/or children, otherwise parents and/or siblings.

Why these documents are so Important

Now, let’s get to an example of when these documents would come into play:

Michael has lived with his girlfriend Emily for the past five years, and is estranged from his parents. One morning, Michael went for a run and was struck by a car. The driver called an ambulance when he realized Michael was unresponsive, and Michael was rushed to the hospital.

When he arrived, Michael was placed in intensive care. Emily rushed to the hospital to be by his side. Upon arrival, Emily was unable to obtain information on his condition, since she could not produce a HIPAA authorization signed by Michael allowing her access to his medical-related information. Michael’s estranged father Mark also heard about the accident and came to the hospital, but he was also refused any information since he did not have a signed HIPAA agreement either. After grueling days of waiting, a court order was made granting Emily and Mark the ability to get information regarding Michael’s condition, at which point they were notified that he was in a vegetative state, and was unlikely to recover, but there was a procedure that could be done which had a 10% chance of getting Michael back to a normal life.

Michael and Emily had previously had extensive conversations about how he loved life, and that he would be open to a risky procedure if it gave him a chance to survive. However, Michael did not have a Health Care Proxy on file appointing Emily as his agent, so she could not make the decision to move forward with the procedure on his behalf. Mark believed things happened for a reason and didn’t want to take a risk with a surgery with a low probability of success, trusting instead in fate.

Since no health care proxy was on file appointing an agent, it was left up to the court to decide. The court ruled in favor of Mark since he was Michael’s closest blood relation, and Mark made the decision to not pursue surgery on Michael’s behalf, even though this is not what Michael would have wanted.

In the meantime, Emily was trying to cover her and Michael’s expenses out of their joint checking account, which was quickly depleting. Michael was the breadwinner of the couple and would transfer funds from his personal account to their joint checking periodically. Michael had never executed a Power of Attorney giving anyone else the ability to handle finances on his behalf. Emily quickly ran out of money and was late on mortgage and credit card payments. She also wasn’t able to afford the legal counsel she needed to fight Michael’s father in court.

Unfortunately Michael passed away, never given the chance he would have wanted if the surgery was performed. Even though it was Michael’s intention for his assets to go to Emily and a couple of his favorite charities, because he had never gotten around to writing a Will, that didn’t happen. His state’s intestate laws kicked in, which said that since Michael wasn’t married and didn’t have children, his assets would go to his parents. This left Emily with nothing, and she was forced to move out of their shared home because she couldn’t afford it on her own.

Although a situation like this is not likely to occur, the risk of putting your loved ones into this type of position significantly outweighs the cost of planning for the worst. Working with an estate attorney and an advisor, such as Lake Street, to ensure your documents align with your intentions may give you peace of mind that your wishes will be fulfilled.





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