Part III: More Estate Planning Documents

Last month we looked at the first of the basic estate planning documents — the will — and at the probate process. This month we will take a look at the three other basic documents: the living will, health care proxy, and durable power of attorney. 

A living will gives you the ability to state what kind of care you want — or more importantly, don't want — in the event you are seriously incapacitated. As with a will, the good news is that your state probably has one for you already — although it may not be to your liking. As we saw with the sad case of Terri Schiavo in 2005, it is much better for a patient to decide on health care directives in advance, rather than let them be decided by the state, relatives, the courts or congress. Well-meaning hospital personnel may choose to extend your life in ways you would not have wanted.

Without a living will and health care proxy, many states will not allow any of your friends or family (spouse, parents, siblings, etc.) to order or deny care on your behalf.

A living will is much more comprehensive than a DNR (Do Not Resuscitate) order, which simply forbids CPR (cardiopulmonary resuscitation). A living will can specify whether you want artificial respiration, forced feeding, antibiotics, pain relief, etc. You should discuss this with your physician and perhaps with your spiritual advisor as well, but ultimately this should be your decision.

A health care proxy (sometimes called a medical power of attorney) names an individual, and preferably at least one alternate, who is empowered to speak on your behalf and ensure that the terms of your living will are carried out. In New York, for example, your health care proxy is activated once two doctors affirm that you are no longer capable of making decisions for yourself. This may be a temporary incapacity (e.g., a patient under anesthesia) or permanent (e.g., a patient in a coma or vegetative state).

You should obviously choose your health care proxies carefully, and discuss your wishes with them at the time your documents are prepared. Ideally, you want to choose someone who lives reasonably close to you, and not a child or sibling in a distant location. It is important to remember that your proxy needs to be able to act as your advocate — with the ability to speak to doctors and nurses in no uncertain terms about your wishes, as expressed in your living will. It is also critical that your proxy maintains a copy of your documents, in addition to giving them to the health care facility. I knew a woman who was subjected to multiple unwanted intubations because the living will had been lost.

A durable power of attorney (DPOA) is a critical form that enables a friend or family member (and an alternate) to handle your affairs if you are no longer able to do so yourself. It can (and should) be prepared very inexpensively by an attorney, usually as a package with the other basic legal documents. The DPOA is “durable” because it is not affected by your incapacity, but remains in force. It may be either non-springing (going into effect immediately) or springing (effective only at incapacity); most are non-springing, to avoid the time, expense, and potential embarrassment involved with publicly proving incapacity. 

The DPOA will enable the agent or attorney-in-fact to act on your behalf in a wide range of matters: real estate, investments, banking, taxes, insurance, gifting, and many others. It can be submitted to financial companies, for example, to enable withdrawals from retirement plans, changes in beneficiary designations, and so forth. Your attorney will know that state requirements differ; recently New York revised and greatly expanded its statutory DPOA form.

Because of the enormous power granted by the DPOA, some people may be reluctant to prepare the document — or at least reluctant to let their agents know that it was made. Without a DPOA in place, however, a family may find itself going through a lengthy and very expensive guardianship proceeding in order to handle matters for someone with Alzheimer's, for example. This simple document can avoid horrendous problems.

A guardianship proceeding is time-consuming, costly, restrictive, and potentially embarrassing. It places the incapacitated party, or ward, under the care of a guardian (who may also act as conservator of the ward's property) after the court has heard evidence of incompetence. 

As stated above, this proceeding can be avoided altogether by having a DPOA prepared in advance. It's easy to see that with the help of a financial planner, an attorney and a few basic estate planning documents, you can potentially avoid some very serious problems down the road.

 Estate Planning Continued: Part IPart IIPart IIIPart IVPart IV

FPA member Tim Sobolewski, CFP®, is President of The Financial Planning Center, Amherst, N.Y.

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