I'm an Estate Planning Attorney: These Are the Two Legal Documents Everyone Should Have

A person signs a document at a desk, only their hands and torso showing.

Whenever I meet someone new, one of the first questions I'm asked is: "What do you do for a living?" After telling them I'm an estate planning attorney, the response I get 95% of the time, after a deep sigh, is: "I really need to start looking into that."

Unfortunately, life gets in the way, and other things take priority.

But what people fail to realize is that your estate plan is more than just distributing your assets after you pass away.

In today's world, a comprehensive estate plan includes documents that protect your interests and wishes while you are still alive.

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Two documents specifically, the health care proxy and the durable power of attorney, are vital in any good estate plan.

Not only can these documents ensure your interests are protected, but they can save your loved ones time, money and unnecessary complications in the form of legal and medical bureaucracy in the event you become incapacitated.

Here's what you need to know.

The health care proxy

What is it? A health care proxy lets you appoint a trusted person as your health care agent to receive information about your medical care and make medical decisions if you are incapacitated.

Your physician determines whether you are incapacitated and then invokes your health care proxy.

Once you are no longer incapacitated, the health care agent can no longer get information about your medical care, unless you become incapacitated again.

Why do you need it? The health care proxy allows you to express your wishes through your health care agent when you are unable to do so due to incapacity.

Incapacity could simply be that you are under anesthesia for a scheduled surgery, during which time you cannot communicate your wishes.

Alternatively, it could be for a longer period during an extended medical event, such as a coma.

It allows you to choose who your health care agent will be, in lieu of that person being chosen by a court or a committee.

A health care proxy may also include living will provisions, which could specify types of medicines and/or treatments you would elect, or not elect, to receive if you were not incapacitated.

It can also include any sort of religious considerations that individuals consider important. This will often include how invasive medical providers can be when trying to resuscitate you or prolong your life.

Who should serve? Who serves as your health care agent often depends on where you are in your life. Younger individuals typically name a parent, spouse or another close relative or friend. Older individuals will typically name a spouse, child or sibling.

The important thing is that you are comfortable enough with whomever you choose to have a conversation regarding very difficult choices, and that you trust those individuals to carry out those wishes.

What happens if I do not have a health care proxy?

Unexpected medical event. A medical emergency can strike without warning, resulting in a person being incapacitated for an extended period. The individual could be married.

However, simply being married to someone does not automatically give them the right to make decisions for you.

The case that generally comes to mind in this situation is the Terry Schiavo matter, where Schiavo suffered a medical event that left her in a persistent vegetative state. She did not have a health care proxy or living will in place, so her husband and family spent 15 years fighting about her wishes in court.

The case was extensively covered in the media, making a deeply personal matter very public. In addition to the personal toll this takes on a family, there can also be a significant financial cost, especially if, as in the case of Schiavo, family members do not agree on a person's wishes.

Becoming an adult. Generally, once a child turns 18, they are considered an adult. As such, their parents are no longer their default guardians.

In this situation, if something were to happen to the young adult and they did not have a health care proxy in place, a formal process would need to be initiated to appoint someone (likely a parent) as their legal guardian.

This can be further complicated if the young adult goes to a college or university in another state, or if the parents are divorced.

Mental decline. It's possible to wait too long to execute your estate planning documents, including your health care proxy. When someone has already been declared incompetent, they cannot execute a health care proxy.

The end result is that someone will have to undergo a formal court proceeding to be appointed as your legal guardian, which is a time-consuming and expensive process.

Unfortunately, this is generally the most common scenario, and it places a substantial amount of stress on an individual who is shouldering a considerable burden.

The durable power of attorney

What is it? A durable power of attorney appoints an "attorney-in-fact" who is responsible for making financial and business decisions on your behalf.

Contrary to the name, an individual does not have to be an "attorney at law" to serve as your attorney-in-fact.

Generally speaking, a durable power of attorney goes into effect when executed. The most common durable power of attorney goes into effect when it is signed.

However, there are rare situations where individuals prefer to have a "springing" durable power of attorney.

This requires a medical doctor to declare you to be incompetent prior to the power of attorney taking effect, which can often complicate matters in an already complicated and tense situation.

It can be difficult for a doctor to agree to state you are incompetent, especially if you can have good days and bad days or just need help with your finances.

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Typically, an attorney-in-fact acts as your agent and manages your financial affairs if you become incapacitated.

However, an attorney-in-fact can occasionally help you manage your affairs on a regular basis, whether you are incapacitated or not.

Regardless of when they act on your behalf, they are required to act in your best interest.

Why do you need it? Simply being absent or incapacitated does not relieve you of your financial obligations, such as paying your mortgage, rent, utilities, car and credit card payments, dealing with financial institutions and filing tax returns.

Having a comprehensive and well-drafted durable power of attorney allows your attorney-in-fact to handle your financial affairs in a timely and efficient manner, in the event you are unable to do so.

Similar to your health care proxy, your durable power of attorney allows you to choose your attorney-in-fact, in lieu of having that person appointed by a court or a committee.

It also saves you time and money, and protects your privacy, as court hearings to appoint individuals are often public and expensive.

Who should serve? Choosing your attorney-in-fact often depends on where you are in your life. You can name one or more people to serve as your attorney-in-fact, including multiple people acting at the same time.

You may require multiple people always to act jointly (together), or you can allow them to act jointly and severally (meaning that they need to agree on actions and decisions, but can separately carry them out.)

You should name at least one primary attorney-in-fact and one successor attorney-in-fact.

Working with an estate planning attorney

While some individuals elect to have these documents created through an online provider, as with any legal document, it is always best to hire an attorney who handles these matters on a day-to-day basis and who is licensed in your state of residence.

While you do not need to compile a list of assets before meeting with an estate planning attorney to discuss these documents, you should come prepared with questions, as well as your wishes.

Your questions can cover topics such as:

• The specific powers of the individuals acting on your behalf
• How broad or narrow you want those powers to be
• How detailed your wishes can be for your health care decisions
• What limits can be put in place to ensure your wishes are carried out

You should also bring any prior documents you may have, which may conflict with any new documents going forward and which may need to be revoked.

Starting your estate planning process with the health care proxy and durable power of attorney is a relatively easy way to break the ice, while also providing you with incredible value.

These documents prevent conflicts among family members, keep your matters private, save significant amounts of money and time that would otherwise be spent on legal fees and, most importantly, outline your wishes so that your affairs are handled in the way you want.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.