It's not Halloween yet, but I've got a few thoughts that should frighten you out of your wits. Forget to make out a will, and some judge might be the one deciding who raises your children. Fail to draft a health-care proxy, and you might spend the rest of your life on life support. Ignore discussing a pre-nup with your partner-to-be, and you just might find he or she has become your "former spouse" and has a hand in all of your assets.
The nightmare of not being properly prepared may be worse than any Friday night horror movie. Unscrupulous advisors, thieving lawyers, and conniving relatives may all have a say in what happens to you, your property, and even your health care in a situation where you can't speak for yourself.
Better than silver bullets and wolfsbane, here are a handful of "must have" legal documents that protect you and your family from the monsters hiding in the legal system.
- Health-care power of attorney
- Living will
- Financial power of attorney
- Beneficiary designation
- Prenuptial agreement
- Living trust
I shouldn't have to say it, but if you're one of the 70% of Americans who don't have one, a will is the single most important document you need. Without a will, you're giving up control over a whole host of decisions -- who gets to live in your house, who spends your hard-earned money, who uses your property, and more importantly, who will raise your kids. So go get a will drawn up -- pronto! It will be the best peace of mind you can buy.
Health-care power of attorney
The health-care proxy specifies who it is you want to make medical decisions on your behalf when you're unable to. Not every decision is life-or-death, but someone needs to make them. Better that you pick somebody you trust.
Want scary? According to the Social Security Administration, a 20-year old has a 30% chance of becoming disabled before reaching the age of 65. If your idea of "quality of life" doesn't include being hooked up to a life support system till the end of your days, you need to have a living will to speak for you when you can't, stating when -- or if -- you want your loved ones to pull the plug.
Financial power of attorney
Again, when you can't talk, this document talks for you. Like the health-care proxy, the financial power of attorney lets you choose who you want to make financial decisions on your behalf.
You've been working hard all your life and squirreling away money into retirement accounts. But even if you have a will, it doesn't direct how retirement account proceeds will be paid when you die. That's what the beneficiary designation is for on all those forms you fill out. Make sure they're current, with the beneficiaries correctly named.
Ah! Love. Roses, chocolates, pre-nups. What could be more romantic? They're not just for the rich anymore, and although not completely ironclad, a prenuptial agreement is essential these days, particularly for someone who is getting remarried and has children from a prior marriage. It's not exactly something you discuss over wine and candlelit dinners, but it is something you must talk about before you tie the knot.
OK, this one perhaps isn't essential, and it definitely isn't for everyone, but it is something that should be considered as part of your personal finance first-aid kit. A living trust protects your assets (for a time) from the disembodied hand of the government reaching into your pocket. While often used by the wealthy, living trusts are gaining greater acceptance by the middle class. Where wills are inflexible, a revocable living trust is quite limber.
With those seven documents in hand, here are a bunch of additional items you should have on hand and available in order to keep the hound of the Baskervilles at bay:
- Insurance policies
- Company benefits
- Names of accountants and lawyers
- Significant creditors and debtors
A file or folder that is put into a safe location -- like a fire- and water-proof safe or safety deposit box -- will ensure that upon your death or incapacitation, your loved ones will have access to the paperwork when it's needed. Like hanging garlic bulbs above your doorway, keeping the documents up-to-date is another important task you should consider doing at least once a year -- and certainly as life-changing events approach.
Don't let the bedbugs bite
It's a scary world, full of creatures that seek out the blood of money or power: your money, their power. We don't like to think about our own demise, but it is coming. Better to be prepared for that eventuality, and control your decisions just as you do your investments, rather than whistling your way to the graveyard and hoping things will all just work out.
So keep those spooky things in the closet for another few months until Halloween, and get your affairs settled. Your family will be glad you did.
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