Undivided is excited to feature Brianna Davidson Jarrett as author of our financial planning series! For more, check out our Future and Financial Planning Decoder.
Estate planning is not as bad as it sounds. (Well, it is as bad as it sounds, but you still need to read this!)
If you’re like most parents of young kids, you probably have a sizable collection of important papers that seems to be growing alongside the complexity of your household. And there are really critically important things that demand 150% of your time and attention on a daily basis, so you spend your time putting out the biggest fires: Have all the kids’ graded assignments been turned in? Do I have everything I need to make the next birthday happen? Does my kid have PT or OT today? Definitely OT. It could also be PT. Are they the same (asking for a friend)? OMG. Tomorrow is PICTURE DAY. And when did the boss want that project back from me? Have I started it yet? Did everyone get a physical this year? Is that a rash or did one of the offspring draw on me with red marker? Is today Tuesday or Wednesday? (If it’s Tuesday, everything’s fine; if it’s Wednesday, everything is NOT. FINE.)
But then maybe your neighbor tells you that his dad is in the hospital and he had to go dig up his parents’ important documents. Or you go in for a routine procedure and the nurse asks you for a copy of your living will or health care power of attorney or advance directive and all you can do is look at her. Or you just found out you’re having another baby and you remember you haven’t decided on who gets the kids (and how the hell do you make this official again?). Or . . . you know . . . maybe there’s a deadly virus on the loose and you’re confronted with the not-too-remote possibility that you could become very ill, very quickly. In any event, you’re likely occasionally and inconveniently reminded of the fact that if something happens to you, there’s no backup plan.
But the idea of tackling this part of your life is overwhelming, and you have no idea where to begin or how much it will cost.
The purpose of this article is to put into your hands the basic information you will need to start asking the right questions about your estate plan and to prepare to meet with an estate planner and develop the tools to make sure that, if you’re not around, the wheels of this family keep on turning. So many important pieces of your family rest on you—the CEO, CFO, Medical Director, President, Treasurer (you get it) of your household. You have put in too much blood, sweat, and tears to have this thing fall apart if, for any reason, you weren’t able to do all the things.
The importance of developing an estate plan when you have dependent children, and particularly when you have a child with disabilities, cannot be overstated. While it can be overwhelming, and incredibly complicated, your plan should be one that you feel confident in understanding as well as adapting over time with your growing or changing family. Here are three main areas of planning to get you started.
You need a document that is effective while you are living, which exists for the medical world, to provide authority to a person that you name to communicate with your doctor on your behalf if you could not communicate with your doctor on your own. You should also have a document that provides some direction to the person you name as to what type of care you would want in an end-of-life situation.
Some states combine both documents into one; other states use two different documents. You may find that the term for each document varies by state as well — some states may use a combination of a living will and a health care power of attorney, and some states may use an advance medical directive. Whether more than one document is used, and regardless of the title of the document, you should ensure that there is a legal document in which you have named a person to make medical decisions for you and given them instructions regarding the type of care you’d like.
THIS is the document that would be used if you (god forbid) were in an accident and were brought to a hospital unconscious. This would also be used if your doctor needed someone to decide whether to keep you alive artificially if your recovery was not expected.
Short list of what you need to remember:
1. Read the document.
Let me pull back the curtain for a sec on the preparation of legal documents and inform you that the drafting attorney is not (usually) typing every word in your document. Generally the preparer is using a form that’s been adapted to your situation. Make sure it reflects your wishes — if you don’t see your instructions in the document, ASK the preparer to show you where the document indicates the specific things you decided on; chances are, if you do not see the language, it’s not in the document, and the document should be revised before you sign.
2. Give a complete copy to your doctor.
Make sure you know whether a copy is acceptable or if your doctor will need to see an original. The last thing you want is for a stranger to have to go rooting through your glove compartment looking for this thing in an emergency. (Mine is currently holding a roll of toilet paper, a plastic tiara, and the crust of a sandwich.)
3. Talk to the person who is going to be making your medical decisions.
Make sure that this person is aware of how you feel about end-of-life care and is familiar with your preferences.
Listen, I know that this is a conversation that is unpleasant and depressing, but the point of this is to make things easier on your healthcare decision-maker and ensure that the care you would want is what is provided and your wishes are honored as much as possible. This takes the pressure off of your loved one/decision-maker in a big way — rather than trying to figure out what you would have wanted, their job is to instead communicate to your caregivers the decisions you’ve already put in writing and discussed with them. If you have the chance to make your wishes known, why not take it?
A power of attorney is a document in which you appoint an agent to handle mostly legal and financial matters for you, while you are still living. Importantly, a power of attorney has no legal effect after you die. You may hear it referred to as a general power of attorney, durable power of attorney, financial power of attorney, or general durable financial power of attorney — all of these terms refer to the same type of document.
Even if you need some time to make decisions about your other estate-planning documents, you should at least get the power of attorney done, rather than putting it on hold.
I know a lot of married people assume that, because they are married, they can sign each other’s names. It generally comes as a very unpleasant surprise to learn that this is actually not true.
“But, I can make a withdrawal on my husband’s checking account just like he can,” they tell me.
“Right, but that’s because you’re a joint owner on the account. What if you needed to access your husband’s Individual Retirement Plan account and he was sick or out of the country?” I ask.
“Well . . . my name’s on that account."
And this is where I stop myself from saying: “INDIVIDUAL Retirement Plan Account. INDIVIDUAL.” Come on everyone. We’re better than this.
If you become ill suddenly and unable to manage your finances, your agent under power of attorney is the person who would have authority to pay the bills that you’re paying on a regular basis and sign legal documents that, otherwise, only you would have authority to sign. What if your income tax return needed to be signed? What if you were in the middle of refinancing? What if an auto-debit from your account needed to be stopped?
What I want you to understand from reading these words is that, even if you don’t own many assets, and no matter the size of your estate, a power of attorney will allow you to select someone who would have legal authority to step into your shoes and sign your name for you. When you have other people depending on you, and who would be in real trouble in the event that something happens to you, this is usually a relatively simple way to ensure things won’t completely fall apart without you.
Short list of what you need to remember:
1. Select a backup agent.
If you have only one agent named, and it’s your spouse or someone else that is close to you, and something unexpected happens to both of you at the same time, there is no one to fill this role for you. A simple solution is to name a backup. Ensure that your document has at least one person to serve as a backup or successor agent in case your first choice of agent, for any reason, can’t serve.
2. Ask the preparer when the document is effective.
Be sure that you understand and that your agent understands when this document becomes legally effective. For example, the document can be made effective immediately, which means your agent can step in and handle financial matters for you without having to prove that you are not capable of handling these things on your own. You could also indicate that the document should not be effective unless or until you have been determined to lack capacity to handle financial matters. I’ve seen a lot of situations in which having the document legally effective immediately has been critically helpful, but there are also of course reasons why you may wish to delay effectiveness until some point in the future. In any event, you should talk through these options with your estate planner and make sure the agent named knows what (if anything) needs to be proven before he or she can step in for you.
3. Give a copy to your bank.
Most large banks will review a power of attorney in advance of it being used and will then keep a copy on file. This is a great way to make sure that in an emergency, if your agent needs to handle your finances, the bank is already aware who your agent is and they’ve already reviewed the document. You do not want to be in a situation where you are incapacitated, and some bills need to be paid, but Large National Bank, Inc., LLC, LLP, has forwarded your document to their legal department, which is in Wyoming. And there is no phone number or way to check on the status, but they promise to get back to you in two weeks. Mmmmk, sure.
And now for the piece of the estate plan with which most of us are probably familiar: the document that directs where your stuff will go, and to whom, after you die.
This piece of the estate plan can feel overwhelming, so I’d like to try to break down for you the decisions that you will likely need to make in order to begin organizing your thoughts on this topic:
If your spouse/partner survives you, will everything be distributed to that person?
If your spouse/partner does not survive you, how will your assets be distributed among your children? Equal shares? Different percentages for each?
It’s likely that if you have young children, you’ll want to prevent them from inheriting from you at an early age, so they should instead inherit their shares in trust. What would you want to allow the trust to pay for? Who would you want to serve as the trustee? (Note: there are specific considerations for special needs trusts, which is the topic of another article that you can read here, as there are already too many words in this article and I’m losing my own interest.)
In the unlikely event that you pass away and your spouse/partner is not living, who would serve as the legal “guardian” (term may vary by state) for minor children and for disabled children? Have you determined the living arrangements for minor and disabled children?
Who would be the person to handle the paperwork involved in administering your estate after you die?
Short list of what you need to remember:
1. Make sure that your beneficiary designations and titling of your accounts work with your documents.
I know some people who have named a trusted family member as the beneficiary of a life insurance policy with the understanding that this family member will hold the money for their younger children in the event of an untimely death. (Example: “Oh, I don’t need a trust for my kids. I put my brother Chad on my life insurance and he’s going to make sure the money is there for them if I die.” K, first of all it’s not “if” you die, because you are for sure going to die, this is a thing that will happen to all of us. Also, what happens if Chad gets married and has kids of his own who need the money and his new wife Karen decides some of the money should go to them? What if Chad is sick???). In short, this is so dangerous. That family member might predecease you, or may be unwell at the time you die. Also, they might just simply not use the money in the way that you intended, and there is no way for your children to hold that person responsible. The safest way to ensure that your wishes are followed is to let your legal documents do the job they were drafted to do — review your beneficiary designations with your estate planner and preferably your financial planner and make sure that everything works together.
2. Revisit this document once a year.
The last thing you want is to remember right before you go in for major surgery that your Will indicates a once-close friend would be your kids’ guardian if you pass away, but you and that person had a falling out and you are no longer on speaking terms. Take a look at your document once a year, or sooner if you’ve had any major life events, and make sure no changes are needed or (if they are) make an appointment with your estate planner to discuss the changes.
3. Find out whether a trust, a will, or some combo of both is the best way to distribute your estate.
In some states, a trust or several trusts may be the best way to distribute your estate for lots of different reasons — maybe the probate process in your home state is expensive and time-consuming and best to be avoided if at all possible. Don’t assume that a trust is the best option for you instead of a last will and testament — it may be possible to use a simple will which contains trusts for your children that spring into effectiveness only until after you pass away and only if your spouse has predeceased you. Check with your estate planner and make sure you understand, fully, why you are using the document that has been recommended to you.
If this feels complicated, that’s because...it is complicated. Establishing a backup plan to make sure the right tools are in place in a situation where you become ill or pass away while your kids are still young is not an easy thing to do — because your life IS complicated. When you are the person others are depending on, however, you owe it to these people to make sure they remain cared for in the best way possible if you weren’t here to do it. For those of us who have children with complex needs, we know (likely better than most) that human life is so terribly fragile, and unpredictable. Is establishing an estate plan easy? No. Not usually. Will it be your favorite activity? If it is, I worry for you. Do this for the people in your life who are counting on you. Do it for yourself. No matter what drives you — take this information and get it done.
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