You’re young, healthy, and just starting out in life—you probably feel invincible. It’s an easy trap, one that many young and even older couples fall into. But accidents, illness, and unexpected events do not check your age or your iCloud calendar—they just happen. Without basic documents such as a Last Will and Testament, Durable General Power of Attorney, and Health Care Directives, families can be left scrambling to make difficult decisions with little to no guidance.
Last Will and Testament
When most of us think about an estate plan, we tend to think of a Last Will and Testament (“Will”) and/or a Trust Agreement. While this article discusses the importance of Wills, it is important to note that both a Will and a Trust can accomplish many of the same goals. A key distinction between the two is that a Will must be submitted to probate (the process for settling an estate in court) while a Trust is set up to be administered outside of probate and without court supervision. While a Will’s most important feature is its ability to direct the disposition of your property, a Will can also direct who will serve as your Estate’s Personal Representative (the person who represents your Estate in Court) and how your debts will be paid following your death.
To die intestate means to die without a Will. Without a Will, the intestacy laws of the state where you reside will control the disposition of your assets. For example, in Florida, if you are married and have no living descendant (e.g., child or grandchild) then your spouse would inherit all of your probate assets. To the contrary, in Indiana and Kentucky, if you are married and have no descendant but have one or more living parents, then your parent(s) will inherit a portion of your Estate, and your spouse will be left with a fractional share. In all of the aforementioned states, if you have a blended family, inheritance gets even more complicated, and your spouse receives even less.
Durable General Power of Attorney
While a Will directs what will happen to your assets after your death, a Durable General Power of Attorney (“POA”) authorizes trusted individuals to manage your assets—both tangible and intangible, real and personal—if you become incapacitated. Though a POA can be drafted to limit certain powers, a typical POA grants broad authority to your attorney-in-fact, including the ability to access bank accounts, change retirement account beneficiary designations, sell real estate, pay bills, and even make gifts of your assets. These powers are not only important for temporary periods of incapacity but can also help preserve assets from nursing home expenses if your incapacity requires such care. Because incapacity can occur suddenly and without warning, having a POA in place helps ensure a smooth transition in managing your financial affairs and is often a more efficient, cost-effective alternative to a court-appointed guardianship.
Health Care Directives
The counterpart to the POA is the Advance Directive for Health Care Decisions (“Advance Directive”) (formerly known as a Limited Power of Attorney for Health Care Decisions). Similar to the POA, the Advance Directive grants broad powers to individuals you designate to provide instructions related to your health care, including consenting to, withdrawing, or refusing care. An Authorization for Release of Protected Health Information and Living Will generally accompany your Advance Directive. In the absence of prior authorization by you, the federal HIPAA law generally prevents medical providers and insurance companies from sharing your health information—even with family members. Finally, the Living Will provides guidance as to whether you wish to receive life prolonging treatment, including artificial nutrition and/or hydration, in the event your physician states (a) you have an incurable injury, disease, or illness; (b) your death will occur within a short period of time; and (c) the use of life-prolonging procedures would serve only to artificially prolong the dying process. Therefore, while these documents complement each other, they serve their own unique purpose.
Beneficiary Designations
Finally, while preparing documents such as a Will and POA is vital, confirming that your beneficiary designations are correct is just as important in the estate planning process. These designations ensure that some of your largest assets (e.g., retirement accounts and life insurance policies) are distributed to the correct beneficiary. Moreover, by reviewing these designations with your estate planning attorney (specifically beneficiary designations on retirement plans) you can better understand the tax implications of those designations and appropriately plan for the same, and you can integrate these beneficiary designations with your estate plan, including trusts for minor children or grandchildren.
Conclusion
Estate planning is not only for the wealthy and the elderly—it is a practical safeguard for anyone who wants to protect their loved ones and ensure their wishes are honored. By preparing essential documents like a Last Will and Testament, Power of Attorney, and Health Care Directives, and by keeping beneficiary designations up to date, you can spare your family from unnecessary stress, confusion, and legal hurdles. The reality is that life’s uncertainties do not wait for a “better time” to prepare, and having a plan in place gives both you and your loved ones’ peace of mind. Taking these steps now puts you—not chance—in control of what happens next.
This material has been prepared for informational purposes only, and it is not intended to provide, and should not be relied on for tax, legal, accounting, or investment advice. Please contact SKO or your other tax, legal, or investment advisor prior to engaging in any planning or transaction.
