In the fifth phase of retirement you need to plan for the inevitable. During this phase we must all deal with the things that we frequently put off:
- Wills
- Trusts
- Durable Power of Attorney for Financial Affairs
- Advance Directives
- Durable Power of Attorney for Medical Affairs
- Living Wills
- Insurance Policies
- Review the Specifics of any Joint and Survivors Annuities Documents
If you don’t establish some or all of these documents and/or review existing documents, you will be allowing the state to decide who will inherit your assets and under what circumstances. Additionally, you need to acknowledge the possibility that you may become incapacitated. Each of these documents has a specific purpose.
Wills
The will is a legal document that stipulates to whom and in what percentages or amounts you want your assets to go upon your death. Beware that in a will you cannot establish restrictions when you will (give) an asset to someone upon your death; the asset is theirs to do with what they wish. Within the will the maker names an executor/administrator. The person/persons named as executor/administrator has no access to your assets and cannot act on your behalf until after your death.
It is not necessary to have an attorney draw up your will but it is frequently advisable.
Trusts
There are two broad categories of trusts – living and dead. A living trust is established and “funded” by you during your lifetime; therefore living trusts can be revocable or irrevocable. A revocable trust can be changed by the trustor. All revocable trusts become irrevocable upon the death of the trustor. A dead trust is established by you as a testamentary trust which is established as a legal document, but no assets are held in the trust until after your death and assets have gone through probate. Every trust has three ‘parties’, the trustor, the person who creates the trust and who puts assets into the trust; the trustee, the person/entity who manages the assets, and the beneficiary or beneficiaries who benefit from the assets held in the trust. A trust allows the trustor (you) to control assets after your death.
Durable Power of Attorney for Financial Affairs
This is an important document for each of us to establish and keep current. The Durable Power of Attorney for Financial Affairs gives an other person the right/responsibility to carry on your financial affairs if you should become incapacitated. Many people assume that if they are married their spouse can always transact their financial matters. This is true in most cases, on assets held jointly. However a Durable Power of Attorney would be needed for your spouse to sell your joint-owned home. Otherwise your spouse would need to be appointed as your guardian by the court in the event of your incapacity. Upon your death the person named as having Durable Power of Attorney has no control over your assets. That is where the executor or administrator of your estate, as named in your will, becomes effective. There are also specific Power of Attorney documents in which you name someone to “act as you” in a specific financial transaction.
Advance Directive
These are actually two documents which are frequently combined:
1. Durable Power of Attorney for Medical Affairs
This document gives someone you name the power to make medical decisions for you when you are incapacitated but not terminally ill. For example, if a medical event renders you vegetative but life could continue indifferently, someone would have to make the decisions on what routine medical care you should receive. That person would not necessarily have the power to withhold life sustaining medical care unless the same person is named as having the authority in your living will.
Living Wills
A living will has nothing to do with your assets, it does however give someone the responsibility to make decisions on what life sustaining care you would want when you are being artifically maintained. As with the Durable Power of Attorney for Medical Affairs make sure that the person given this responsibility is willing to carry out your expressed wishes.
This is not a responsibility you want to surprise someone with. Before you give someone (friend, relative or medical advisor) this responsibility, discuss with them in detail what you would/would not want in the worst case scenario. Make sure that the individual you name will be willing to carry out your wishes even if other friends and family members object.
Review Insurance Policies
This is something that all of us should do on an ongoing basis; however, frequently we do not. This concept should apply to all types of insurance policies (home owners, auto, health, long-term care), but specifically life insurance. Know the type of life insurance you have. Is it term insurance? Is it universal/whole life? If it is term insurance what is the “term” – the point at which the value of the policy decreases or disappears. If it decreases, what formula is used to effectuate the decrease?
Review Designation of Beneficiary forms. These forms are your responsibility whether connected to Federal life insurance or private life insurance. A Will never supercedes the Designation of Beneficiary. The standing order of precedent for the Federal Employees’ Group Life Insurance is:
– Named beneficiary (even if it no longer makes sense)
– Spouse
– Child/Children (shared equally)
– Parent or Parents
– Executor or Administrator (to become part of your Estate)
– Next of Kin based on the laws of the state of residence at the time of your death
Naming a beneficiary, even if the named person/persons would be in the standing order of precedence, expedites the distribution of the asset.
Review the Specifics of Any Joint and Survivor Annuity Documentation
Any annuity purchased on the open market, or if you have an annuity from your Thrift Savings Plan account, has specific wording which dictates if a survivor’s annuity will be paid upon your death and in what amount. Further, the annuity documents will clearly indicate what is to be done with any remaining principal upon your death.
Finally, even though none of us like to think about it, it is inevitable that we will each die. Think about your funeral arrangements. Some people prefer to establish a letter of instruction explaining how they want their “final appearance” carried out. Others prefer to take care of everything and even prepay for the arrangements. Still, others prefer to set money aside specifically earmarked for final expenses. If you are inclined to prepay, check your state’s laws governing prepaid funerals, they vary greatly. Some states have little or no protections against the misuse of the funds. There is a resource provided by the Federal Trade Commission – a consumer guide to funerals. It is available at www.ftc.gov and click on the “For Consumers” link; the guide is listed under “Products and Services”.