Most estate planning attorneys focus on a revocable living trust as the most important document of their client’s plan, and there are plenty of good reasons for that. But here’s a secret: a trust isn’t always necessary, especially if you are just starting to build your wealth and don’t particularly care about avoiding probate, or if you are in a state where probate just isn’t that big of a deal. However, without a trust, the other documents in your plan become much more important and necessary. Let’s talk about why that is and what you need to make sure you have in place when you aren’t quite ready to invest in a trust.
When you don’t have a trust, there are other legal documents you need to put in place to plan for your incapacity or death in order to help your loved ones who are trying to manage your affairs. These necessary documents include, at minimum: a durable power of attorney, a will, an advance health care directive (in some states called a medical power of attorney and/or a living will), and a HIPAA waiver or release. Nomination of guardians for your minor children should also be done either in a separate document or as part of your power of attorney and will.
Durable Power of Attorney
A durable power of attorney document designates someone else to act on your behalf with regard to your financial affairs if you are incapacitated (or can be effective immediately, if that’s what your document says). The term “durable” in this case simply means that it remains effective even if you are incapacitated.
Much like trustee powers, the power of attorney document lists all the things that your agent, also known as your attorney-in-fact, can do on your behalf. For example, the California statutory durable power of attorney allows you to choose any or all of the following powers to give to your agent by initialing the line next to the power:
_______ (A) Real property transactions.
_______ (B) Tangible personal property transactions.
_______ (C) Stock and bond transactions.
_______ (D) Commodity and option transactions.
_______ (E) Banking and other financial institution transactions.
_______ (F) Business operating transactions.
_______ (G) Insurance and annuity transactions.
_______ (H) Estate, trust, and other beneficiary transactions.
_______ (I) Claims and litigation.
_______ (J) Personal and family maintenance.
_______ (K) Benefits from social security, medicare, medicaid, or other governmental programs, or civil or military service.
_______ (L) Retirement plan transactions.
_______ (M) Tax matters.
_______ (N) ALL OF THE POWERS LISTED ABOVE.
The power of attorney document is the document that your banking and other financial institutions need to see (along with proof of your incapacity) in order to allow someone to access your bank account or pay your utility bill, for example, or something more drastic like obtaining a mortgage on your house because money is needed to pay for your care or medical bills.
Most if not all states should have a statutory version of this document that you can easily obtain online and complete yourself at no cost. Many attorneys also will draft customized versions of a durable power of attorney as part of their clients’ plans, to include more expansive or specific powers or to provide specific limitations according to their specific situations.
What happens if you are suddenly incapacitated and you haven’t executed a durable power of attorney? In that case, if you do not have the requisite capacity, any adult can petition the court for a conservatorship of your estate and be granted the legal authority to manage all of your financial affairs while stripping you of that right (Yes, just like what happened with Britney Spears). Usually, the person doing this will be your spouse or trusted family member who is taking care of you anyway, but ultimately the court decides.
Last Will and Testament
Most people are familiar with the concept of a will, also known as a “last will,” or “last will and testament.” This is a document that you sign with primarily two objectives: naming an executor for your estate (and successors as back-ups) and instructing how your estate should be distributed (i.e. all to your spouse, then to your descendants).
Do you need a lawyer to make a will? No, but having a lawyer draft one for you and guide you through it’s execution is the best way to make sure it’s done correctly and will be upheld as valid. There are rules governing how to make a valid will. If you don’t want to use a lawyer, most if not all states should have a statutory version you can find online and complete, so there really isn’t any excuse not to do this.
What happens if you don’t make a will? Well, depending on how large your estate is and what assets there are, a probate case may need to be opened and if so, someone (anyone) will need to petition to be appointed the administrator of your estate. Since you haven’t left a will nominating anyone, the person who is appointed may or may not be the person you would have chosen for the role. Multiple family members or friends might also fight over the job because the administrator gets paid a statutory fee. Your estate will then be distributed according to your state’s intestacy laws, which may or may not mirror your intention. In California, what often happens is that your spouse and your kids end up having to split your assets, and your spouse may end up having to petition to be legally appointed as guardian over your child’s inheritance, even though that’s their parent! Just being able to designate your spouse as the beneficiary of your estate and THEN your children as contingent beneficiaries in your will can make things a lot simpler for your family. Of course, that might not be the best advice for your specific situation, which is where a good attorney can counsel you, but hopefully you get the point.
Advance Health Care Directive
An Advance Health Care Directive does a few things: (1) it names an agent to make health care decisions for you if you can’t (also known as medical power of attorney), (2) it provides your medical providers and agent with your preferences about your end-of-life care, such as whether or not you want to be on prolonged life support or want drugs for pain, and (3) it authorizes or restricts organ donation upon your death.
In California, you do all of the above in one form, called the Advance Health Care Directive. In other states, you may need a few distinct documents including a medical power of attorney and a living will.
If you don’t execute an Advance Health Care Directive (or the equivalent in your state), and an accident or medical diagnosis renders you incapacitated or otherwise unable to communicate, nobody will have the legal authority to act on your behalf. Not even your spouse. Instead, again someone is going to have to petition a court to become your legal conservator, asking for the right to make decisions for you relating to your person and stripping you of your rights. Sometimes, a conservatorship is the best or only course of action, but it should usually be the last resort.
In some states, a Conservatorship is referred to as a Guardianship. This can be confusing since in California a guardianship refers to the care and control of a minor child. In your research, don’t let that confuse you!
HIPAA Release
The HIPAA Authorization for Release of Protected Health Information provides named individuals with access to your medical records and otherwise privileged information about your health. This document becomes very important when your loved ones need to make doctor appointments for you and talk to your attending physician about your capacity. It removes a lot of bureaucratic red tape. The HIPAA Release is an often-overlooked legal document in the estate plan, but it’s important.
Nomination of Guardian
A Nomination of Guardian is a declaration nominating an individual to be appointed as your minor child’s legal guardian to care for them if you’re unable to. Your nomination will be considered by a judge when someone petitions the court for guardianship of your child. It is essentially evidence and becomes part of the public record if submitted to the court. Putting your declaration in writing is the only way you will have a say in what happens to your child.
There are two types of guardianship, Guardianship of the Person and Guardianship of the Estate, and you should nominate individual(s) for both. Whether a Guardian of the Estate is needed will depend on the extent of assets involved, but it doesn’t hurt to nominate someone to manage that in the event it’s needed.
