8 life stages of estate planning
By G.M. Filisko
When you're 40, chances are you're not the same person you were at 20, and your estate plan should reflect the changes you've experienced. Here's a rundown of the estate-planning tools you should have if you're just beginning your life's journey, midway through or approaching the final leg.
Young, single and carefree
"When you're a child, your parents can make financial and medical decisions for you," says Gabriel Cheong, an estate planning attorney at Infinity Law Group LLC in Quincy, Mass. "But when you turn 18, they no longer have that legal right. If anything were to happen to you, you'd probably want your parents to control your health care and financial decisions. You'd also want them to be able to talk to your medical providers and have those providers respect your parents' right to make health care decisions, including discontinuing treatment if necessary."
So if you're over 18 and unmarried, execute four documents to make sure your loved ones can carry out your wishes:
1. A general durable power of attorney enables you to designate who will control your finances if you become incapacitated, whether it's your parents or another loved one.
2. A health care proxy allows you to designate who will make medical decisions on your behalf in the same situation.
3. A living will lets you lay out your wishes regarding life-sustaining medical treatment.
4. Finally, a Health Insurance Portability and Accountability Act, or HIPAA, release allows your designated agent to discuss your medical condition without violating patient privacy laws. Without those documents, your loved ones may be forced to go to court to seek guardianship over you to assert those controls.
Single, but committed
"If you're in a long-term relationship but unmarried, create a will or trust if you want your life partner to inherit your possessions," says Mark Clair, an estate planning attorney at The Clair Estate Planning and Elder Care Law Firm in Maumee, Ohio. "Otherwise, they'll go to your closest relatives according to your state's law."
"A prenuptial agreement isn't only for people who have a lot of money," says Cheong. "It's essential for everybody. A lot of people divorce because they've never had conversations about money. A prenuptial agreement forces people to engage in this financial conversation."
Revise your durable power of attorney, health care proxy and HIPAA release if you want there to be no question that your spouse should control your financial and medical decisions if you become incapacitated. "Think of Terri Schiavo," says Leanna Hamill, an estate planning and elder law attorney in Hingham, Mass., referring to the woman whose parents and husband battled publicly for seven years over the right to make health care decisions on her behalf after she became incapacitated. "She didn't have a health care proxy."
Without a revised durable power of attorney, says Hamill, your spouse also can't administer property solely in your name or property you hold jointly with your spouse. Also specify the person you'd like to make financial and medical decisions on your behalf if an accident incapacitates you and your spouse.
If you don't already have one, this is also the time for a will or trust. "In a lot of states, if you die without a will and have a spouse but no children," says Hamill, "your spouse will inherit some of what you own, but your parents will also inherit." Rather than risk a fight between your spouse and parents over who should inherit, have a will or trust definitively state who should receive your assets. Also, if you own a home, purchase life insurance that will pay off your mortgage if one spouse dies.
Finally, change your beneficiary designations on such things as health insurance and investment plans so they pass to your spouse. "A lot of people think when they get married, those things change on their own, and they don't," says Hamill. "Go to your human resources department and ask which documents include a beneficiary. Health savings accounts and flexible spending accounts sometimes have a beneficiary, as do bank accounts payable on death."
The joys of parenting
If you have children, update your will to nominate a guardian to step in if you and your spouse pass away. "Also include provisions in your will or a separate revocable trust so that your child doesn't inherit everything at the age of 18," says Hamill.
"A revocable trust allows you to appoint a trustee to handle any money your child inherits. The trustee can use it to support your child as the child grows up, and you can specify at what age your child can receive the money, along with any reasons your child should get it before that age, such as starting a business or buying a house. You can also specify that the trustee can withhold money if your child has a gambling problem, is in the midst of a divorce, or there's another situation that makes it inappropriate to inherit."
You'll also need a separate guardianship nomination -- sometimes called an emergency guardianship proxy -- that nominates a guardian to care for your child if both parents are incapacitated, says Hamill. That's helpful in simpler situations as well, such as when both parents take a vacation and a child needs emergency medical treatment.
Each time you have another child, be sure your estate planning documents address all of your children, and don't forget to increase your life insurance. "You need about $1 million to care for a child from birth to college," says Cheong. "Also, if you have a special-needs child, set up a special-needs trust, which allows you to provide for your child without disqualifying the child from government benefits."
Sing it, Tammy Wynette: D-I-V-O-R-C-E
"If you're separating or divorcing, you probably don't want your spouse to still have all the authority to make decisions on your behalf and access your medical and financial information," says Hamill. "Revoke those documents, including beneficiary designations, or sign new ones. A divorce decree doesn't magically change those things."
If you remarry, revise your will and trust documents to reflect the proper beneficiaries. "Most people want to share with their new spouse but also want to provide for their separate children at their death," says Hillary Gagnon, an estate planning attorney with Jennings, Haug & Cunningham in Phoenix. "Determine which assets you want to leave to your spouse and which to leave to your children."
The middle ages
As you reach your 40s and 50s, says Hamill, consider purchasing long-term care insurance, which covers the cost of long-term care or a nursing home.
The golden years
Review your life insurance to determine whether you can reduce it if your children are grown. Also review designations on your durable power of attorney, health care proxy, and HIPAA release to be sure the people you've named are still in your life and willing and able to serve in that role. "A lot of people at this stage," says Hamill, "also start planning their funeral to make sure that's in order."