Documents We All Need

This may be preaching to the choir, but here are well proven thoughts on the legal documents all adults need as they go through life. Age, health, marital status, children, financial assets and goals are some of the variables any adult must consider when deciding what documents are needed to handle their affairs if they are not able.

First is a durable power of attorney, which means that it is effective even if the person making it becomes incapable in the future. This is important because a big reason people need a power of attorney is to have a trusted person handle their financial affairs if they cannot. Many years ago my daughters were leaving for Africa to do research on water supply systems. I insisted they do powers of attorney, though they said “but we are young and healthy.” I explained sickness or other events can happen without warning at any age. They signed powers of attorney. When my daughter Halley Allaire became a Navy JAG lawyer, it was standard procedure to have Navy personnel do powers of attorney. For the typical family, the power of attorney should include gifting powers between spouses, so that if one cannot sign, the other one or a reliable child, can manage their affairs. Since 2019, it became possible to get a court order to switch qualified money, such as a 401K or a 403b from a sick spouse to a healthy spouse without paying income tax, by getting a court order. The catch is that the power of attorney must have words that allow that to be done. Those married couples who have older powers of attorney without that special language should update their powers of attorney.

A health care directive, popularly known as a living will is critical so regular and end of life decisions can be made for someone who is unconscious or incapable. Without one the family would have to go to probate court to be named conservator which is time consuming and expensive.

Then the big issue is a will, or living trust or both. There are numerous variations on what can be done to avoid taxes, to protect assets if one spouse dies and the survivor needs long term care, or children are too young or irresponsible in handling money. There is no one size fits all. For example, a revocable living trust can avoid probate, but it does not save one penny of probate fees in Connecticut. That is because the probate fee is not based on property going through probate. It is based on the values shown on the inheritance tax return, even though very few people owe any inheritance tax. Worse, it does not protect assets if Medicaid or VA benefits are
needed. There are certain types of irrevocable trusts that can protect assets even if both spouses became sick and need long term care. And they still work even if an adult child dies or needs care.

In short, a power of attorney that contains all the special powers to cover any situation, a living will to handle health care decisions, a HIPAA form to let your loved ones talk to the doctors, and a will and very often a revocable or irrevocable living trust can be critical in protecting assets while alive, and passing them on upon death. Cookie cutter does not work to cover the many situations that can arise with health, finances, protecting assets, and taking care of the family after you are gone. Get these documents done right, once, and not half right as that could lose some of a family’s hard earned life savings.