While nobody wants to think about death or disability, establishing a pre-need plan is one of the most important steps you can take to protect yourself and your loved ones. Proper pre-need planning not only puts you in charge of your finances, it also can spare your loved ones of the expense, delay, and frustration associated with managing your affairs when you become disabled.
Providing for Incapacity
If you become incapacitated, you may not be able to manage your own financial affairs. It is a common misperception that one's spouse or children can make decisions for and manage the financial affairs of a spouse or parent who is unable to do so for himself or herself. The truth is that, in the absence of properly executed documents, for others to be able to manage your finances, they must petition a court to declare you to be legally incompetent and to appoint a conservator. This process is lengthy, costly, and stressful, and the expense of the process usually is born by the person whose legal competence is in question. The person who is appointed by the probate court to manage your financial affairs must keep thorough records of how your financial affairs are managed and provide regular reports to the probate court for review and accountability. If you want your family or a trusted friend to be able to make these decisions for you without having to seek a probate-court appointment, you must designate in proper legal documents a person or persons who you trust with the authority to withdraw money from your accounts, pay bills, take distributions from your IRAs, sell stocks, make gifts, and refinance your home.
A durable power of attorney also can grant authority to another person to make personal care decisions for you when you are not able to make those decisions for yourself. These decisions include where you will live, who will provide health care and personal-care services, and who will handle your legal affairs. Without a durable power of attorney for these matters, a guardian must be appointed by the probate court after a determination that you are unable to make those decisions for yourself. Again, the process is lengthy, costly, and stressful, and the expense of the process usually is born by the person whose legal competence is in question. The person who is appointed by the probate court to manage your health care and personal affairs is accountable to the probate court and must report annually about your condition and living arrangements.
In addition to planning for the financial aspects of your affairs during incapacity, you should establish a plan for your medical care. The law allows you to appoint someone you trust to make decisions on your behalf about medical treatment if you lose the ability to decide for yourself. You can do this by using a durable power of attorney for health care (health-care power of attorney) in which you designate the person to make such decisions. In addition to a health-care power of attorney, you also should have a living will that informs others of your preferred medical treatments should you become permanently unconscious or terminally ill.
Avoiding Probate
If you leave your estate to your loved ones using a Will, everything you own will pass through probate. The process is expensive, time-consuming, and open to the public. The probate court is in control of the process until the estate has been settled and distributed. If you are married and have children, you want to make certain that your surviving family has immediate access to cash to pay for living expenses while your estate is being settled. It is not unusual for the probate courts to freeze assets for weeks or even months while trying to determine the proper disposition of the estate. Your surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses. You can imagine how stressful this process can be. With proper planning, your assets can pass on to your loved ones without undergoing probate, in a manner that is quick, inexpensive, and private.
Providing for Minor Children
It is important that your estate plan address issues regarding the upbringing of your children. If your children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations. You also may want to provide for special counseling and resources for your spouse if you believe they lack the experience or ability to handle financial and legal matters. You should discuss with your attorney the possibility of both you and your spouse dying simultaneously, or within a short duration of time. A contingency plan should provide for persons you would like to manage your assets as well as the guardian you would like to nominate for the upbringing of your children. The person, or trustee, in charge of the finances does not need to be the same person as the guardian. In fact, in many situations, you purposely may want to designate different persons to maintain a system of checks and balances. Otherwise, the decision as to who will manage your finances and raise your children will be left to a court of law. Even if you are lucky enough to have the person or persons you would have wanted selected by the court, they may have undue burdens and restrictions placed on them by the court, such as having to provide annual accountings.
Other issues to consider in this respect is whether you want your beneficiaries to receive your assets directly or to have the assets placed in trust and distributed based a number of factors that you designate, such as age, need, and even incentives based on behavior and education. All too often, children receive substantial assets before they are mature enough to handle them properly, with devastating results.
You should give careful thought to your choice of guardian, ensuring that he or she shares the values you want instilled in your children. You also will want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack child-rearing skills you feel are necessary. Make sure that your plan does not create an additional financial burden for the guardian.