This article was originally included in our email newsletter on August 21, 2009. It may have been edited somewhat from the version that was originally emailed, so be sure to sign up in the upper right corner of our website to make sure you are getting our email newsletter hot off the press!

With all of the health care talk–as well as the debacles left behind by recent celebrity deaths–we’re hearing a lot about these:

• Will
• Living Trust
• Guardianship
• Probate

While this is a great opportunity for the media to educate the public on these important legal issues, the truth is often getting mangled. Furthermore, for most of the public, the information is confusing, stressful and they would just rather not hear about it.

So let me clear up the confusion, as one who deals with this on a *daily* basis…

Let’s start with the basics. Typically, in North Carolina, when a person with assets over $20,000 ($30,000 in certain instances) passes away, their assets will be handled in one of three ways:

(1) If they had no will, their assets will be distributed as mandated by the state statutory law through a court proceeding called probate,

(2) If the person had a valid will, the estate will still have to go through the probate process, but the court will carry out their wishes as stated in their will,

(3) If the person had a valid living trust (and their assets were re-titled in the name of their living trust–this is called “funding”), their wishes would be carried out in private, without the court’s involvement.

So … why does it matter to you?

The answer to this question depends on how much you care about what your loved ones will have to deal with after you are gone and how much control you want to have as to who gets what, and when and how they get it.

If you do nothing, you get no input on any of these questions and the court and one of your eager family members/friend/creditor who petitions the court will make these decisions on your behalf through a process called probate. Why do you care about probate? Often, the probate process can take 9-18 months and can be extremely costly. Your loved ones may have limited control and access to assets, it’s stressful for your family, and the process is completely public. The probate process can often lead to squabbling between family members and airing of the family’s dirty laundry.

If a person leaves a valid will, it will still have to go through the probate process described above and the headaches that go along therewith, but the court will have the benefit of knowing how you want your affairs handled. Instead of relying on the laws of intestate succession (which is the law that distributes your assets to your family members in the order of their relation to you–you can read more here), the court will pass on your assets to the specific people you have identified in your will.

Through a valid will, you can control WHO gets your assets, but you will have no control as to HOW and WHEN they get it.

A living trust (that has been properly funded!), on the other hand, gives you more control and offers significant protection to your family. If you are working with an attorney who has expertise in this field, you can control WHO gets your assets, WHEN and HOW they get it without the court’s involvement. Even better–with a living trust, it is a private administration and can generally be handled in a short period of time. Furthermore, a living trust can incorporate a lot of other great protections including protection from taxes, creditors, predators, medical catastrophe, divorce, remarriage and more.

You may be asking yourself: why would someone ever do a will instead of a living trust? Typically, a person will choose a will over a living trust for one of two reasons:

(1) they don’t know the difference between the two or
(2) the perceived “cost” of doing a living trust.

There are some obvious advantages to doing a living trust over a will, but starting with anything is better than ending up with nothing. If you are not yet ready to make a leap into the world of living trusts, a basic, will-based estate plan is a starting point. In addition to giving the court direction about how you want your assets distributed, every estate plan should also include:

(1) an advance health care directive, which identifies the person(s) that will make health care decisions for you, if you’re incapacitated, and expresses your wishes regarding health care treatments;

(2) a durable power of attorney, which identifies the person(s) that will make financial and legal decisions, when you can’t; and

(3) if you have children, it should also include a Children’s Safeguard Plan, naming both short and long term guardians to care for your children in the event of an emergency, as well as clear and specific directions to those guardians about how you would wish your children to be raised in your absence.

While we all care about what happens to our assets, every person over the age of 18 needs to have an advance health care directive and durable power of attorney (this includes adult children heading off to college!).

I hope this clears up the confusion…

If you’d like to read a little more about these documents, here are some links to past blog articles that go more in depth:

What Is A Trust?

Parents: 13 Reasons Why Trusts Aren’t Just For The Wealthy

What Happens If I Die Without A Will?

Problems With Intestacy

What Is A Will? Introduction to North Carolina Wills

What Is Estate Planning?

Two Legal Documents Every Adult Needs: Part 1

Two Legal Documents Ever Adult Needs: Part 2

We’re here to help!

The recent death of Gary Coleman brings to light an important issue that is often overlooked: in some states separation does not automatically revoke health care directives, living wills, or health care powers of attorney. It seems that Gary and ex divorced in August 2008, but because he never updated his estate plan, his ex was still named as his agent to make medical decisions and during Gary’s dying hours, his ex was at the hospital and apparently implied that she and Gary were still married.

Fortunately, the North Carolina legislature added a law to the books a few years ago that an ex-spouse will automatically be revoked as health care agent when a court issues a decree of divorce or separation. Of course, if you have separated but a formal decree has yet to be entered, your ex could still be called upon to make medical decisions. Likewise, if you are an unmarried couple, you’ll need to be proactive about updating your plan. Or, if you divorce but still remain friends with your ex and want him or her to still make your medical decisions, you’ll need to update your plan to affirmatively declare your intent.

Finally, even if there is a formal decree of divorce or separation, it’s still a good idea to update your plan so there are no ambiguities. As seen in Gary Coleman’s case, in his dying hours, the hospital did not know that Gary and his ex were divorced and because she was still listed on the outdated document, the doctors were relying on his ex’s authority. We’ll never know whether or not this is what Gary Coleman truly would have wanted, but it does serve as a reminder of how important it is to regularly review and update your estate plan.

In several posts, including this one and this one, I’ve discussed the importance of having a Health Care Power of Attorney (also known as a Health Care Directive) for all adults. A recent article in the Los Angeles Times had brought to light another reason to create one: Advanced directives for end-of-life care results in preferred treatment.

According to recent studies, those that have documented their wishes regarding end-of-life treatment have their wishes honored over 80% of the time. “Researches found that of the 398 incapacitated people who had used a living will to request limited care at the end of life, almost 83% received it.” Additionally, “of the 417 incapacitated people who had requested comfort care in a living will, 97% received it.”

In our office we supplement our Health Care Powers of Attorney with worksheets to help our clients better document their express wishes regarding important health care decisions.

The following article, written by national legal expert, Alexis Martin Neely, originated from Chris Brogan’s Dad-O-Matic blog.  Alexis was featured in an interview on Good Morning America this morning, where shared some important information that all parents need to hear:

***Featured on Good Morning America***

Here’s the segment on 5 Legal Documents Everyone Should Have

with Chris Cuomo & Alexis Neely

Becoming a dad is the ultimate step into adulthood.  It simply doesn’t get more real than that, does it?  That little face looking up at you makes you realize that life isn’t just about you anymore.  Suddenly, you are responsible for the well-being and care of a little person who is totally reliant on you.  And in some ways, this new “mini-you” that has come into the world makes you feel immortal.

On the flip side though is the lurking thought “what will happen to mini-me if something happens?”  If you are like most people (69%), you push away the thought because it’s too scary to contemplate your child being raised by anyone besides you.

But, here’s the thing … if you aren’t willing to take the time and invest the energy in setting things up for your little one (and her mom) the right way, you will leave your family with a world of hurt if something happens to you.

The good news is that setting things up the right way and doing the right thing by your family doesn’t have to be as painful as you think it will be.  If you are in the know about what you need and how to get it taken care of, getting your personal affairs in order can even be downright enlightening.

Let’s start with the bare minimum of what every dad needs to have in place to make life as easy for his kids and their mom if anything happens.

Document Set #1: Kids Protection Plan
Regardless of the size of your bank account, if you’ve got a child at home who depends on you, you need to have a comprehensive Kids Protection Plan® (KPP) in place to ensure her well-being and care in case you can’t be there.

A KPP begins with naming legal guardians to raise your children if anything happens to you and their mother.  But, that’s just the beginning. A comprehensive KPP will also name local friends or family as guardians for the immediate/short-term care of your children so that the authorities never have to take your children out of your home and into the care of strangers.  With a KPP in place, you’ll carry an ID card in your wallet listing the names and addresses of your immediate/short-term guardians as well as provide written instructions to all of the people who care for your children, such as babysitters and schools.  Finally, a KPP will confidentially exclude anyone you know you would never want to serve as guardian of your children to ensure there are no court-room battles over your child’s care and will also provide detailed instructions about things like health care, education, discipline and your values, so your children are raised the way you want, no matter what.

To get started with your Kids Protection Plan® by naming long-term guardians (which EVERY parent must do), go here and be guided through a process of first choosing the right people to raise your kids if you can’t and then easily document your choices … legally.

Document Set #2: Financial Durable Power of Attorney

A financial durable power of attorney is something every adult needs, even if you don’t have little kids at home.  This document is what will let your family access your bank accounts, pay your bills, and make financial and legal decisions for you if you are hospitalized or otherwise incapacitated.

This story should bring home the importance of having a durable power of attorney in place:

My law firm was contacted by a young woman after her father was hurt at his janitorial job, hospitalized and unable to communicate.  This man thought he didn’t need estate planning because his income was very low and he had less than $10,000 in the bank.

Unfortunately though, his failure to plan left his family in a lurch. They needed the little bit of money he had in the bank, but couldn’t access it without going to Court because the account was in his name and he didn’t have a durable power of attorney naming anyone to act for him legally.

The cost of going to Court was going to cost their family more than the money that was in the bank!

Don’t leave your family in this kind of a painful situation unable to access the limited resources you have because you didn’t do what you need to do.  Be sure you have a financial durable power of attorney in place and make sure it’s comprehensive and will work when your family needs it.

Document Set #3:  Health Care Directive (Living Will)

A Health Care Directive (also known as a Living Will or Health Care Power of Attorney) is another document set that every adult needs, even if you don’t have little ones at home counting on you.

These set of documents do two important things:

1. Appoint the person you want to make health care decisions for you, if you cannot make them for yourself; and
2. Tell your appointed decision-maker how you want those decisions to be made.

Each state has its own rules for how these documents should be prepared.  In some cases, your instructions can be all in one document and in others they need to be two separate documents.  The most important thing is that you get something down in writing.

And, once again, make sure you’ve got something that will really work when your family needs it.  I recommend giving broad discretion to someone you trust to make decisions about all of your health care decisions, including not only life-saving medical care, such as respiration, but continued nutrition and hydration in case you are incapacitated.  If you recall the Terry Schiavo case from several years ago, in which her husband and her parents fought over whether she should be kept alive or not and the case was brought all the way to the Florida Supreme Court, the issue was not whether to continue to keep her lungs pumping, but whether to continue to provide nutrition and hydration – be sure your medical directive addresses these issues.

Document Set #4:  Will:

When it comes to estate planning, most people think of having a Will.  Unfortunately, having a Will often provides a false sense of security to people who think “I have a Will, therefore, I’ve taken care of everything.”  That’s a myth. In fact, your Will is the least important of the 5 legal documents every dad must know about.

A Will sets forth what you want to happen to your assets at the time of your death.  But, here’s the thing, where there’s a Will and your assets are owned in your name, the Will merely acts as instructions to the Court as to what to do with your assets. That means your family is stuck dealing with the Court after you are gone.  Nobody wants that, trust me.

The Court process for handling your assets after your death is called probate.  It’s typically expensive, time-consuming, and always totally public, which means anyone in town can find out how much you’ve left behind, who it went to and when they get it.  That puts your loved ones on the radar of every con artist in the neighborhood.

A Will alone is really only appropriate for dad’s who have no (or very limited) assets titled in their name.  If you have assets, such as a home, bank accounts, life insurance, and retirement accounts, you need to have a Living Trust to keep everything out of court, totally private and make it super easy for your loved ones.
You may have heard that if you only have life insurance and retirement accounts that you could simply name beneficiaries on those assets and avoid probate.  That’s true, but not going to work if you have minor children because they are too young to be the beneficiaries of your assets and would end up in Court with a guardian appointed to handle them.  Not what you want.

Document Set #5:  Trust

If you have financial assets or real estate, you want to have a Living Trust.  A Living Trust is the single best way to make things as easy as possible for the people you love, bar none.

But, and it’s a big BUT, most people who have a Living Trust in place have one that won’t work when their family needs it.
It’s the same for each of these documents I’ve talked about; they are only going to work the way they were designed to work if the law stays the same and your life stays the same.

As your life changes, the documents need to change.
As the law changes, the documents need to change.

And, for your Living Trust, it won’t work unless all of your assets are titled in the name of it, not just once, but every time you acquire an asset in the future.

I’ve met with loads of people who thought they had everything taken care of because they had prepared these 5 documents or had them prepared by a lawyer, but because they had not been kept up to date or their assets were not owned properly, the documents didn’t work!

In fact, that happened in my own family when my father in law died.  He had spent thousands of dollars to work with a lawyer who put in place a set of documents for him and then didn’t keep them up to date and didn’t make sure his assets were owned properly on an ongoing basis.  What that meant is at the end of his life, we were stuck dealing with the one thing he thought he was protecting us against – the probate court and a fight with his ex-wife.

Even Michael Jackson, who no doubt spent hundreds of thousands of dollars with his lawyers, had a trust-based estate plan that he was probably told would keep his family out of court.  As we now know, it must have failed because his family has been dragged into court already multiple times since his death with everything open to the public.

So, yes, these 5 documents are absolutely vital because they will make life as easy as possible for your family, keep your loved ones out of court and get them easy access to your assets in the midst of a crisis, but only if they are kept up to date and your assets are owned properly.

Most people do not have the time, knowledge and discipline to do this for themselves the right way.  If you do, great.  But, who is going to guide your family to make the right decisions and carry things out the right way after you are gone?

Because when all is said and done, that’s really what this about, isn’t?

There’s nothing more important to you than your family.  They are why you do everything you do, right?  So, for them, find a lawyer who will guide you right during your lifetime and be there for your loved ones when you can’t be.  It’s far easier for you to take care of things now, while you are living and able than it will be for them to take care of things after you are gone.  Legal planning is not about the money; it’s about making life as easy as possible for the people you love … no matter what.

Alexis Martin Neely is America’s Personal Family Lawyer, author of the bestselling book “Wear Clean Underwear! A Fast, Fun, Friendly – and Essential – Guide to Legal Planning for Busy Parents” and the nation’s leading legal expert guiding you to smart financial and legal decisions for your family. Subscribe to Alexis’ free online magazine, Family Wealth Secrets, and have wealth advice delivered right to your inbox each week.

Special Update!

In honor of the Dad-o-Matic article and her appearance on Good Morning America, Alexis has convinced her publisher to give her vital book on legal planning for parents (Wear Clean Underwear, Morgan James Publishing 2008) away on Kindle for just .99.  Get your copy today right here.

The recent media attention of the tragic death of Natasha Richardson serves as an important reminder to the rest of us of the importance of end of life planning.  Especially for young couples and families, failure to have a health care power of attorney can be more devastating than failure to have a will.  Just look at the cases of Terri Schiavo, Paul Brophy, and Nancy Cruzan.  In the case of each, their families fought for years through the court system regarding the proper course of treatment.

Not only is it important for every adult to have a health care power of attorney (also called health care proxy or advance medical directive) but it is also important that you talk to your designated agent and family members about your desires regarding end of life treatment.

Attorneys are not the only ones espousing the importance of health care proxies.  New York Times health columnist Jane Brody has released a new book addressing the importance of end of life planning for the young and healthy.

Do you have a health care power of attorney?  Have you discussed your wishes regarding end of life planning with your family?

For more information on the health care power of attorney:  Two Legal Documents Every Adult Needs: Part 1

Every adult should have a Financial Durable Power of Attorney and a Health Care Power of Attorney (also sometimes referred to as a Living Will, Advance Medical Directive, or Health Care Directive).  Regardless of your financial circumstances, these documents are critical for anyone who wants to protect their own well-being and wants to spare their loved ones from likely pain and aggravation. If you are in an accident and you do not have these documents in place, a significant burden may be placed upon your family.

A Financial Durable Power of Attorney (often referred to simply as a Durable Power of Attorney) allows you to appoint a person (referred to as your agent) to make financial decisions on your behalf, access your financial records, and take appropriate action to handle your financial affairs.

If you become incapacitated, your loved ones may not be able to access the appropriate assets and records to manage your financial affairs. Especially in the event of long-term incapacitation, it is crucial that you have appointed an agent to handle your finances.

The Durable Power of Attorney will allow your agent to use your assets to pay for the day-to-day expenses of you and your family, such as paying the mortgage or rent, utilities, medical bills, and so on.  It will also allow your agent to collect, on your behalf, any income which you may be entitled to such as Social Security, disability insurance benefits, or other benefits.  The Durable Power of Attorney will also allow your agent o file and pay your taxes, manage your stocks, bonds, retirement accounts and so on.  And, while your agent has broad powers, the agent is required to act in your best interests.

A Durable Power of Attorney can be drafted to be effective as soon as you sign it–this is commonly used by spouses so they may act on behalf of each other, for example, if one spouse is out of town.  Alternatively, you may prefer to use a “springing” Durable Power of Attorney, meaning that it will not take effect until a doctor certifies that you are incapacitated.  This creates a hurdle for your agent to obtain a doctor’s affidavit, but it can give you peace of mind if the idea of an immediately effective Durable Power of Attorney makes you uncomfortable.

Using a Durable Power of Attorney form from the internet is ill-advised.  Many, especially those of the “check the box” variety, are too generic and may not be honored by your bank or other financial institutions.  The internet document may not comport with the laws of your state of residence.   In addition, it is important that the power of attorney contain the appropriate “durability” language.   Without such language, a power of attorney will be ineffective upon your incapacity–the exact situation we are trying to protect!

If you do not have a proper Durable Power of Attorney in place and something happens to you, your family will be stuck with the frustrating, time-consuming and expensive process of having the court system appoint an agent on your behalf.  The time to complete such a process can create financial hardship for your loved ones and may result in the appointment of an agent that you would not have selected for yourself.  Take the time now to make sure that you and your family are protected.

See Two Legal Documents Every Adult Needs: Part 1 for more information on the Health Care Power of Attorney.

Every adult should have a Financial Durable Power of Attorney and a Health Care Power of Attorney (also sometimes referred to as a Living Will, Advance Medical Directive, or Health Care Directive).  Regardless of your financial circumstances, these documents are critical for anyone who wants to protect their own well-being and wants to spare their loved ones from likely pain and aggravation. If you are in an accident and you do not have these documents in place, a significant burden may be placed upon your family.

If something terrible happens and you are in the hospital and unable to communicate, the hospital will need someone else to make health care decisions on your behalf.  Deciding who will make such decisions, and the decisions themselves, can create an enormous family dispute among your loved ones as they attempt to determine what you would want to happen.

A Health Care Power of Attorney allows you to name the person (your agent) that you want to make your health care decisions if you are unable to make those decisions yourself. It also allows you to let your agent know how you want your health care decisions to be made.

The Health Insurance Portability and Accountability Act (HIPAA) strictly protects who may access your medical records.  A Health Care Power of Attorney will include the appropriate language to ensure that your appointed health care agent will be able to access your medical records so as to be better equipped to make an informed decision regarding your treatment.

Remember, if you are in an accident or some other ill fate befalls you, your family will already be scared and worried about you.  A Health Care Power of Attorney will make it easier for your family to navigate the legal red tape and help them feel comforted in knowing that your health care decisions are being made in accordance with your wishes and beliefs.

See Two Legal Documents Every Adult Needs: Part 2 for more details on the Durable Financial Power of Attorney.