The Estate-Planning Documents Everyone Needs
No matter how strong a grip you have on your finances, it's important to help your loved ones handle things when you're not able to.
In this clip fromIndustry Focus: Financials, Motley Fool analyst Gaby Lapera and Dan Caplinger, the Fool's director of investment planning, talk about the various documents that you should have to protect your family. Between wills, trusts, durable powers of attorney, healthcare directives, and just a simple list of accounts, you'll learn what to have ready when tough times strike.
A full transcript follows the video.
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This podcast was recorded on Sept. 22, 2016 for the Oct. 31, 2016 episode.
Gaby Lapera: Estate planning is things you need to do before you die. I think most people have in their heads, "Ireally need to get a will."I don't think they even think about other stuff thatcould be attached to that. So, to get us started, Dan, what documentsdo you need to prepare before death?
Dan Caplinger:There area bunch of documents that are really helpful to have in a number of situations,not just in preparation for death, but also in case youactually manage to keep living. Having a full set of these estate planning documents can help you and your family in awide range of situations.
First, you mentioned the will. Very basic, it's definitely a good idea to have, because it's the primary instrument forfiguring out where your stuff goes after you die. But it's not the only documentthat does that. A lot of people get confused about this. One thing youhave to be absolutely sure that you do iscomplete what are known as the beneficiary designations. These forms are used foraccounts that you have at financial institutions that require them --it's like an IRA, forinstance. If you have a retirement account,whether it's an IRA or 401(k), they will have you fill out abeneficiary designation. On that, you'll say, "Who'sgoing to take this account after I pass away?" Alot of people mistakenly think that their will says where their IRA or 401(k) orother types of these accounts, where these will goafter they die. Your will does not control that; it's yourbeneficiary designation that controls that. It's important onnot only retirement accounts, but also life insurancepolicies. Check with your financial institution -- a number ofplaces will have these forms available onother types of accounts as well on what's called "payable on death" accounts. So,make sure, if you have one of those, you'vefilled out that necessary paperwork.
Theother major class of documents you should have arewhat's known as powers of attorney. Those fall into two categories. One covers financial elements, so it lets you namesomeone else who can take care of things likewriting checks on your bank account,paying your bills,making trades in your investment account. Thishappens if you're incapacitated -- so, you'restill living, but something's happened to you, you'vehad a major accident or a major illness, and you're unable to take care of those affairs on your own, thisperson can step in and handle that. So, that's the financial side.
Then,you have another power of attorney on the healthcare side. That's the person who can make medical decisions on your behalf. Going with that power ofattorneyalso what is sometimes known as anadvanced medical directive -- some people call it a living will. That's where you set out what your wishes are for whether you want life-savingtechniques used, life support systems, or other measures taken to extend your life, or whether you don't want those -- it's an opportunity to express that. It's a wide rangeof documents, but they covera bunch of different situations.
Lapera:Andsuffice to say thatfor all of these things,you should choose, for your power of attorney,both medical and financial,you should choose people that you really trust. And you can change that over time,that's not a problem. But you alsowant to make sure that this is legally binding,so you want to find a lawyer to helpyou do these things. There's lawyers that specialize in this.
Caplinger:It's not just that you should pick people you trust, butyou should pick people who knowthe gravity of the situation,who are prepared to deal with thehard decisions they might be asked to make. It's important that you be able to trust them,but they also have to have a comfort level thatif they're called upon to act, they feel comfortable,they know what you want, they know what you would do. It'sso much easier to do thatwhen everything is great, upfront, well before any of those documents are needed, so that if that crisis happens,the person you name will be ready to handle it.
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