The Keys to Estate Planning

Here are some tips for making sure you have a proper estate plan

By Bart Basi, Contributing Editor -- Industrial Distribution, 12/1/2005

There are four documents that are essential for creating a successful estate plan: a last will and testament, a living will, a health care power of attorney, and a property power of attorney. Each one operates independently of the other, yet they are interrelated. All four documents provide you with the maximum amount of benefit when dealing with your estate. What follows is an introduction to all four documents, and an explanation of the advantages to having them in your estate plan.

Many people are familiar with a will. A will provides the mechanism for distributing any property you own at death, based upon your intent. If you do not have a will at your death, state laws will determine who gets your property. In addition to state laws determining who will get your property, it is often at a slightly higher financial expense and a much greater emotional expense. The best thing to do when writing your last will and testament is to make a list of all the items that are important to you and identify the people you want to receive them. Then, be sure to include a clause to cover items that you may forget to give someone or items you may receive after you write the will. Finally, remember to include a clause stipulating how taxes will be paid. If you forget this clause, the government will charge each beneficiary for the taxes due, on a pro-rata share.

Some people may think that if you have a living will, then you have a will. Wrong. A living will states your wishes on medical treatment should you be unable to make a decision for yourself, and becomes effective once death or a comatose state becomes inevitable. Not only does it protect you if you want to deny all available medical treatment, but it also protects you if you want to make sure you receive all possible medical treatment. In the absence of a living will, the doctors who treat you will try to determine what your best options are, with possible consent required from a family member. The living will removes this responsibility from the doctors and any surviving family members, and states what you want to be done—no more, no less.

We all remember the recent story of Terri Schiavo, the Florida woman who was the center of a right-to-die court case. If she had a living will clearly defining her wish to die given the circumstances, both her husband and her family would have saved a lot of money in litigation costs and emotional agony.

The third document you need in your estate plan is a power of attorney covering your health care. Just like the living will, this document allows medical decisions to be made for you in the event that you cannot communicate your desires, or if you are in a comatose condition. However, the power of attorney differs from the living will in that, with this document, you assign a proxy to make decisions for you. In the living will, you made your own decision prior to the medical event. Here, your proxy will make your current decisions. They are both important to have, because the living will generally provides a one-time decision to doctors. The power of attorney vests power in another person to make ongoing decisions for you. Both documents are important.

The fourth and final document that is needed in an estate plan is the property power of attorney. A property power of attorney is necessary in the event you are unable to make sound financial decisions regarding your assets during your lifetime. The property power of attorney does not become effective until it is executed by the individual you designate in the written document. It is important that you plan for the unfortunate situation when you are not able to make sound financial decisions. The property power of attorney assists in a smooth transition to a conservator and can provide you with sound financial decisions that will provide you with a steady stream of income for the rest of your life. Remember, you can always change the named individual or the terms, as long as you are of sound financial mind.