5 Estate-Planning Essentials
Know who will handle your finances and health care decisions
If you have diabetes, you already manage your blood glucose, eating plan, and physical activity. Your financial health is just as important. The best way to tend to it? Create an estate plan.
The idea of an estate plan may bring to mind Rockefeller-like wealth, but “estate” is just shorthand for all the stuff you own: your home, your car, your bank accounts—even that collection of flea market finds you’ve built over the years. An estate plan is an essential financial planning tool that makes clear who gets what after you die. It also charts a course of action for medical decisions and everyday financial matters if you’re unable to communicate your wishes. It’s especially valuable if you have diabetes or another chronic condition.
“Estate planning is about planning for your life and death. If you have diabetes, you may need to cut back [on work] or cease working earlier than people who don’t have diabetes,” says Martin Shenkman, CPA, JD, author of Estate Planning for People with a Chronic Condition or Disability. “Ask yourself: ‘Will I have the right structure or mechanisms in place if I get sick for a long period of time?’ ”
Read on for five essentials of an estate plan.
A set of instructions detailing where your assets go after you die. It names an executor who will carry out your plans and beneficiaries who will inherit your assets. It also names guardians if you have kids who are minors.
Your assets fall into two buckets: One holds everything with a named beneficiary, such as retirement accounts, life insurance policies, and stock holdings. The other bucket holds the rest of your possessions—your grandmother’s priceless jewelry, stemware, and other things that don’t have a named beneficiary. “Because the assets in that first bucket already have a named beneficiary, they automatically go to your heirs upon your death,” says Ric Edelman, author of Your Financial Future: The Money Guide You Need Now, Later, and Much Later. “Your will explains who will inherit the contents of that second bucket.”
2. Durable Power of Attorney
A document that gives an appointed person, such as a trusted relative or friend, legal authority to handle financial and/or medical decisions on your behalf.
Unlike an ordinary power of attorney, a “durable” power of attorney allows the appointed person to make health care decisions, and handle everyday matters such as paying your bills, if you become incapacitated and are unable to communicate your wishes. If, for instance, you’re in a coma, an ordinary power of attorney automatically becomes void because no one can verify that you’re still in agreement with it. “The ‘durable’ phrase says that even if you are incapacitated, the power remains valid,” Edelman says.
3. Medical Directive
A written statement describing how you want to be cared for if you become incapacitated.
If you become so impaired mentally or physically that you can’t make decisions for yourself, a medical directive (also called a “living will” or “advance health care directive”) instructs medical personnel about whether you want life-prolonging measures to be taken in life-threatening situations. For instance, you might use a medical directive to guide providers about your wishes if your heart stops beating and you’re unable to communicate. Would you want doctors to use a breathing machine and chest compressions to do the work of the heart and lungs? Similarly, would you want a ventilator to keep you alive or would you want physicians to allow a natural death? A medical directive answers these kinds of questions.
4. HIPAA Release Form
The Health Insurance Portability and Accountability Act document indicates who has permission to access your medical records.
This document permits your health care provider to share your medical information with a third party, such as your adult children. “It’s typically signed upon admission to a hospital, but if you are incapacitated, you lose the opportunity to sign it,” says Edelman. It’s best to have all these documents completed in advance.
5. Revocable Living Trust
A legal document that authorizes a trustee to manage your assets if you’re unable to do so.
A revocable trust allows a trustee—ideally, a trusted family member or friend—to manage your assets, such as bank and brokerage accounts, if you become incapacitated. Depending on the size of your estate, you may not need a revocable trust. But for someone with, say, a house, a retirement plan, and possibly other investments, this document, “upon your death, distributes your assets to your heirs without them having to go through the cost and delay of probate court,” Edelman says.
Estate Planning Myths—Debunked!
MYTH: Estate plans are only for wealthy people.
TRUTH: Everyone needs an estate plan. Depending on the complexity, an estate plan can run from $3,000 to $6,000 for a middle-income married couple and addresses everything from the care of a pet to burial wishes, says Ric Edelman, financial advisor and author.
MYTH: Your estate plan is nobody else’s business.
TRUTH: Your family members, and any other people or charitable organizations affected by your estate plan, should have all the information they need to carry out your wishes—now and after you’ve died.
MYTH: An estate plan is something you create once.
TRUTH: You should review your estate plan every three to five years, suggests Edelman. “Tax law changes and so do circumstances—yours, as well as your heirs’.”