Estate planning

A couple years ago when we purchased life insurance, our financial advisor recommended that we also get wills. We agreed that we needed them but never quite got around to getting them. However, there's nothing like impending parenthood to jump start one's plans for the future, so now we're researching the estate-planning process. 

We met with a lawyer last week to discuss the four components of an estate plan, and here's what we learned.

Wills
A will determines how one's assets are distributed in the event of one's passing.

When you're married, your will is straightforward: everything goes to your partner. It's nice to take into account what might happen if you both die together, but if you're gone, do you really care? Probably not, which is why we have avoided creating wills until now.

However, when children enter the picture, you have to care. If you both die together and leave your child or children behind, you can set up a living trust. More about that later.

You need to name an executor for your will. That person is in charge of filing the will at probate and collecting assets. Your spouse is typically the executor of your will, but you should come up with at least one backup. The law firm that creates your will can appoint a family member if the named executor is no longer around.

Living trust
A living trust, also known as a family trust or revocable trust (because it can be changed at any time) is used for the health, education, support, and maintenance of a child (or children) that you leave behind.

You have lots of options for setting up a trust, including imposing restrictions (such as no distributions for x years after marriage, or higher-education requirements, or specific amounts set aside for education). However, restrictions can be risky because you never know what might happen after you're gone.

Rather than imposing restrictions, most people write letters of intent so that others know their wishes for the distribution of the trust. The letter is not legally binding, however.

You can also specify when distributions happen. For many trusts, distributions are available in chunks at ages 25, 30, and 35. When the child reaches one of those ages, he can request distributions, and the person overseeing the trust is not allowed to say no.

You have to designate an overseer for the trust and several backups. You can appoint multiple overseers, but they have to reach agreement in order to pay out from the trust, and that can be risky. Typically, the overseer is in charge of managing the investments of the trust, but this task can also be handled by investment professionals.

You also have to designate a guardian of your children, in the event that something happens to both of you (not sure if this info is part of the will or the trust, but I'm guessing the former).

Medical proxy
This document allows someone to make health care decisions for you. The document is invoked only when a doctor says you cannot act on and communicate decisions.

You can create a personal wishes attachment for this document. The personal wishes are not legally binding, but they address situations with no hope of recovery. I expect that giving the plug-pulling order would be much easier when you have a document signed by the person telling you to do just that.

Your spouse is your medical proxy, but you should also come up with 2 backups.

Durable power of attorney
This document allows someone to sign for you and essentially be you with regard to financial and contractual matters. This document is invoked when you're alive but cannot make decisions, either because you're medically incapacitated or are for some reason unreachable (for instance, hiking the Appalachian mountains when something important comes up).

You can make the power of attorney a "springing" document, which means that it can be used only when you have legal proof that the person is unable to make decisions. This adds an unnecessary complication when you are giving these rights to your spouse, though.

You need 2 backups for this document, as well.

What you have to do to get all these documents
First of all, you have to set up an appointment with a lawyer, preferably one who specializes in estate law. They'll probably send you a questionnaire in which you list all your assets, debts, dependents, and other personal information.

Next, you have to prepare to say good-bye to some of your assets. These documents aren't cheap. However, I'm a proponent in investing in one's peace of mind, which these documents bring.

Our lawyer is going to draw up a proposal, and then we'll send her 1/3 of her fee and the information for our documents. Then she'll create the documents, collect the remaining fee, give us paper and electronic copies, and store the originals in the law firm's vault. The originals belong to us, and we can access them at any time and put them in a safety deposit box, if we prefer (I like the sound of the vault, though).

Our lawyer recommended revisiting the documents every 3 to 5 years, a great plan, assuming we remember. I'm writing it here now to ensure that I do...

If you don't have these documents, I highly recommend considering getting them. Even if you think a will and trust are unnecessary, a medical proxy is relevant to everyone over the age of 18.

Facing your mortality isn't easy or fun, but making life easier for those who remain behind is a worthwhile activity.