The Financial Emergency Kit: How to Build a Complete Estate Planning Strategy and Document File

Many people think they have their Estate Planning Strategy… but oftentimes it turns out they really don’t.

I’m not talking about those who haven’t done any planning and don’t even have a basic will.

I’m talking about people who have taken action on their estate plans — and yet have plans that are woefully incomplete.

You see, there’s more to a complete estate plan than most people and even many financial professionals realize.

Of course, prime goals of an estate plan are to allocate your assets to the loved ones you want to have them, in a way that minimizes time, expenses, and taxes. But there is much more to consider.

A complete estate plan addresses some additional goals. Achieving those goals requires some documents and other tools.

I call these key elements the Financial Emergency Kit.

The kit keeps difficult times from becoming much worse for your loved ones and can help avoid some problems.

A good estate planning professional focuses on these tools in the estate planning process, and the wise estate owner insists they be part of the plan.

Many elements of this part of the estate plan often can and should be completed even when there is difficulty deciding on the complete plan.

An estate planning might be completed in stages over months for someone who has a valuable estate, owns a small business, or has other complications.

There’s no reason for the decisions on difficult issues to delay completion of most important elements, such as the Financial Emergency Kit.

And so today I’ll talk about some of these very essential elements of your estate planning strategy.

A financial power of attorney (POA) is essential. This gives someone the legal authority to manage your finances and assets if you become disabled or are otherwise unable to manage your assets.

If there is no power of attorney, loved ones must spend time and money to have a court appoint someone, and it might be someone you wouldn’t have picked.

Likewise, when you have a revocable living trust, the trust should have a disability clause that states who will take over in case of a trustee’s disability and how the disability will be determined.

It often is not enough to simply execute a POA for it to be effective. Most financial institutions accept only their own forms and want to have the forms in their files before the owner becomes disabled.

They might not accept other forms or might take time to review them before allowing transactions.

Some firms also require the forms to be executed again or reaffirmed after a certain amount of time has passed.

Related to the financial power of attorney are the health care documents. These documents are also extremely essential and involve naming one or more people to make medical decisions in case of your incapacity.

Now there are several choices. The simplest is the living will. It gives general instructions about which medical procedures are or are not to be used in different circumstances.

Some studies show, however, that living wills have little effect. Often the doctors don’t see them until after decisions have been made, or the instructions are too vague to be useful in many situations.

A better document is the health care power of attorney. This gives an individual or group of individuals the right to make decisions.

However, for it to be effective, all of your regular doctors must have the current document in front of their charts along with information on how to reach the agents. Also, each agent should have a copy.

Many estate plans now combine a health care power of attorney, living will, and perhaps a letter of your preferences and call the combination an advanced health care directive.

This combination allows you to give your agents and medical professionals statements of your intent while allowing them the discretion to apply that to particular circumstances.

Beneficiary designations also need to be reviewed for the many assets not transferred by a will and the probate process. These assets include IRAs, employer retirement plans, life insurance, and annuities.

For all these assets, the next owner is determined by the beneficiary designation form, not by your will.

Always keep copies of these forms (which usually are a part of the account application) and review them periodically to be sure they still express your wishes and that a beneficiary hasn’t passed away.

It is also a good idea to be sure each asset has contingent beneficiaries in addition to the primary beneficiary.

The beneficiaries of any trusts should also be reviewed, if the terms of the trust allow beneficiary changes to be made.

Funeral and burial instructions take a burden off heirs. In most states, these have limited legal effect, but heirs generally follow them.

In next week’s issue, we’ll review other essential elements of The Financial Emergency Kit, such as Insurance Policies, a Cash Flow Plan, Business Succession Plans, and other letters of instruction.

You can find Part 2 of this post here.