Five Legal Documents Everyone Should Have

Let's start off by stating the obvious: Hiring an attorney and going to court is EXPENSIVE! In today's litigation-happy environment it's more and more common to find yourself in front of a judge than it's ever been in the past. People are suing and being sued at an unprecedented rate and the cost of hiring an attorney to either represent you or defend you keeps going up every year.

But protecting yourself doesn't have to be hard or expensive and putting the following legal documents in place can be critical to your financial security as well as provide you some much needed peace of mind.

Wills, Probate, and Estate Planning

When someone passes away, it's almost always emotionally devastating to those they leave behind. Their spouse or parent, sister or brother, is gone from their lives forever and that can be an enormous shock. But what many people don't realize is the additional effect that loss can have on the money they leave behind. What I'm talking about here is whether or not they left an updated will behind.

A will, sometimes called a “last will and testament,” is a document that states your final wishes. It is read by a county court after your death, and the court makes sure that your final wishes are carried out.

Many people either don't have a will in place or the one they do have is seriously out of date. That can have a huge impact when it comes to probate court.

What is Probate?

Probate is a legal process that takes place after someone dies. It includes:

• proving in court that a deceased person's will is valid (usually a routine matter)
• identifying and inventorying the deceased person's property
• having the property appraised
• paying debts and taxes on the estate, and
• distributing the remaining property as the will (or state law, if there is no will) directs.

Typically, probate involves paperwork and court appearances by lawyers. The lawyers and court fees are paid from estate property, which would otherwise go to the people who inherit the deceased person's property.

Often there is a time limit, usually 30 days, within which a will must be admitted to probate. Only an original will can be admitted to probate in the vast majority of jurisdictions– even the most accurate photocopy will not suffice.

What Does a Will Do?

Most people use a will to leave instructions about what should happen to their property after they die.

However, you can also use a will to

• Name an executor (the person who 'executes' your will's instructions by liquidating your estate).
• Name guardians for children and their property.
• Decide how debts and taxes will be paid.
• Provide for pets.
• Serve as a backup to a living trust.

You shouldn’t try to use a will to:

• Put conditions on your gifts. (i.e. I give my house to Susan if she finishes college.)
• Leave instructions for final arrangements.
• Leave property for your pet.
• Make arrangements for money or property that will be left another way. (Property in a trust or property for which you’ve named a pay-on-death beneficiary.)

What Happens if I Don't Have a Will?

If you die without a will, your estate will still have to be processed through Probate. The judge will appoint a representative, usually a spouse or other close relative (or a court appointed attorney if one isn't available), to serve as your Executor and your assets will be frozen until the process is over. These representatives will do the best they can using state guidelines as to how the money will be distributed but, those are only guidelines, not what you may or may not have wanted done with your money or who will end up getting it.

By the way, when court appointed attorneys are involved, the cost of paying them to process your estate can get really expensive really fast. That's money your family won't be seeing … ever. Bottom line … get a will.

What Are the Legal Requirements of a Will

There are very few legal requirements for wills. To make a will in any U.S. state, you must:

• Know what property you have and what it means to leave it to someone after your death. Legally, this is called having "capacity" and it is also known as being “of sound mind.”
• Create a document that names beneficiaries for at least some of your property.
• Sign the document.
• Have the document signed by two witnesses.

No state requires your will to be notarized, although you may use a notarized self-proving affidavit that will make your will easier to get through probate after your death.

A few states allow you to make a handwritten “holographic” wills, that don’t have to be signed by witnesses. However, handwritten wills should only be used when you don't have time to make a formal will because they are much more susceptible to challenge after your death.

NOTE: Any person over the age of majority and of sound mind (having appropriate mental capacity) can draft his own will with or without the aid of a lawyer.

How to Write a Will

You can write a will yourself, or you can hire a lawyer to write one for you. If you write one yourself, you’ll want to find a good will template to help you.

There are no magic words that must be used to create a will. The best advice for writing your own will is to find a good will writing tool to help you. It should help you use clear, unambiguous language to accurately describe your wishes. It should also explain your options and help you decide what to include in your will. For example,

• Do you want to name several levels of executors?
• Do you want to name more than one executor to work together?
• Do you want to name guardians for your children or their property?
• Do you want to create a trust for your children, so that they receive your property when they're older than 18?

And a good will making template will help you know when you should see a lawyer for help writing your will. For example, you should talk to a lawyer if you:

• Want to disinherit your spouse or child.
• Are worried that someone might challenge your will.
• Want to provide money and care for pets after your death.
• Want to control what happens to your property long after your death.
• Are worried about estate taxes.

There is no legal requirement that a will be drawn up by a lawyer, although there are pitfalls into which home-made wills can fall. The biggest one is that person who made the will isn't available to explain to the court their actual intentions or to correct any technical deficiency or errors on their part in drafting it.

What if I Want to Revoke My Will?

To be on the safe side, follow this advice: If you want to revoke your will, don't rely on destroying the original. Make a new one that replaces the old. The new will should explicitly revoke all previous wills as of the date it's written and set out your new wishes. Then tear up the old will -- and every copy you can get your hands on.

Fun Fact:

The longest known legal will is that of Englishwoman Frederica Evelyn Stilwell Cook. Probated in 1925, it was 1,066 pages, and had to be bound in 4 volumes; her estate was worth $100,000. The shortest known legal wills are those of Bimla Rishi of Delhi, India ("all to son") and Karl Tausch of Hesse, Germany, ("all to wife") both containing only three words.

Advanced Health Care Directives: Living Wills, Durable Power of Attorney for Health Care, and the Five Wishes Directive

Wills are great legal documents to have in place in case you pass away, but what happens if you're still alive and something happens to you? How can getting into a car accident or having a serious medical issue affect your finances and your family's financial security? Well, you would want to have one or more Advanced Health Care Directives in place to make sure that you and they are taken care of.

When do you need one?

• Advance directives are for times you can’t speak for yourself. Advance health care directives (also called advance directives) are a way for you to give consent for certain situations where you might want or not want treatment. They can also be used to appoint someone to make decisions for you if you can’t do so yourself. An advance directive gives you a better chance of having your wishes carried out, even if you can’t talk to the doctors about what you want.

• An advance directive will not affect the type or quality of your care while you can voice your own decisions. It only comes into play when you can’t. Sometimes, family members make medical decisions for spouses, parents, or adult children who can’t speak for themselves. Many US states have passed laws that say which family members (in a listed order of priority) may act on behalf of a person who can’t speak for her- or himself. However, if there is disagreement between family members it can complicate and delay decision-making.

• Although these documents generally apply only to your health care decisions, they can affect financial or money matters. When you're incapacitated, your financial life doesn't stop. Your bills still need paid, your mortgage still comes due, and your family still needs to eat.

Even though others may be able to make health care decisions for you without an advance directive, the directives can give you more control over those decisions and who makes them. Some types of advance directives contain written directions or guidance about future medical care. Another type of directive lets you choose a proxy (a substitute person, also called an agent or surrogate) to make decisions for you when you can’t make them for yourself.

Living Wills

A Living Will is also known as:

• an advance health care directive
• a personal directive
• an advance directive
• an advance decision

A living will usually provides specific directives about the course of treatment that is to be followed by health care providers and caregivers. In some cases a living will may forbid the use of various kinds of burdensome medical treatment. It may also be used to express wishes about the use or foregoing of food and water, if supplied via tubes or other medical devices. The living will is used only if the individual has become unable to give informed consent or refusal due to incapacity. A living will can be very specific or very general. An example of a statement sometimes found in a living will is: “If I suffer an incurable, irreversible illness, disease, or condition and my attending physician determines that my condition is terminal, I direct that life-sustaining measures that would serve only to prolong my dying be withheld or discontinued.”

More specific living wills may include information regarding an individual's desire for such services such as analgesia (pain relief), antibiotics, hydration, feeding, and the use of ventilators or cardiopulmonary resuscitation. However, studies have also shown that adults are more likely to complete these documents if they are written in everyday language and less focused on technical treatments.

Durable Power of Attorney for Health Care

Durable powers of attorney for health care and health care proxy appointment documents were created to allow an individual to appoint someone to make health care decisions on their behalf if they should ever be rendered incapable of making their wishes known. The appointed health care proxy has, in essence, the same rights to request or refuse treatment that the individual would have if still capable of making and communicating health care decisions.

The primary benefit of durable powers of attorney for health care is that the appointed representative can make real-time decisions in actual circumstances, as opposed to advance decisions framed in hypothetical situations, as recorded in a living will.

The Five Wishes: The Best of Both Worlds

It's a good idea for people to complete both documents to provide the most comprehensive guidance regarding their care. One example of a combination document is the Five Wishes advance directive in the United States. It's a five-part document that not only tells others what kind of medical treatments you do or do not want, it also tells them what other kinds of non-medical care you want. It's been described as the "living will with a heart and soul.”

Wishes 1 and 2 are both legal documents. Once signed, they meet the legal requirements for Ohio. Wishes 3, 4 and 5 are unique to Five Wishes, in that they address matters of comfort care, spirituality, forgiveness, and final wishes.

• Wish 1: The Person I Want to Make Care Decisions for Me When I Can't - This section is an assignment of a health care agent (also called proxy, surrogate, representative or health care power of attorney). This person makes medical decisions on your behalf if you are unable to speak for yourself.

• Wish 2: The Kind of Medical Treatment I Want or Don't Want - This section is a living will—a definition of what life support treatment means to you, and when you would and would not want it.

• Wish 3: How Comfortable I Want to Be - This section addresses matters of comfort care—what type of pain management you would like, personal grooming and bathing instructions, and whether you would like to know about options for hospice care, among others.

• Wish 4: How I Want People to Treat Me - This section speaks to personal matters, such as whether you would like to be at home, whether you would like someone to pray at your bedside, among others.

• Wish 5: What I Want My Loved Ones to Know - This section deals with matters of forgiveness, how you wish to be remembered and final wishes regarding funeral or memorial plans.

Signing and Witnessing Requirements

The last portion of the document contains a section for signing the document and having it witnessed. Some states require it to be notarized.

Limited Power of Attorney

Sometimes there are times when you're not in a position to actively manage your money and property directly. A power of attorney (POA) or letter of attorney is a written authorization for someone else to represent or act on your behalf in private affairs, business, or some other legal matter. The person authorizing the other to act (i.e. you) is the principal, grantor, or donor (of the power), and the one authorized to act is the agent, donee, or attorney.

For example:

• You go on vacation for a couple of months and need someone to take care of your rent and utilities.
• You need someone to represent you in a business deal in another state.

A Limited Power of Attorney is usually for a limited period of time or only in limited circumstances. After that time period or circumstance has passed, the right to manage the money and/or property reverts to you.

Trusts

Trusts are a great tool for managing and protecting your assets but they're often misunderstood. Many people think that only the uber-rich set up trusts but they can be created by average people who just want to protect their hard earned money and to make sure that it's going to be used the way they want after they pass away.

A trust is a special type of legal entity that holds property for the benefit of another person, group, or organization. There are many different types of trust funds and many different trust fund provisions that change how they work but generally speaking, all trust funds have three important parties:

• The Grantor: This is the person who establishes the trust fund, donates the property (such as cash, stocks, bonds, real estate, mutual funds, art, a private business, or anything else of value) to the fund, and who decides the terms upon which it must be managed.
• The Trustee: The trustee can be a single individual, an institution (such as a bank trust department that appoints one of its staff to the responsibility), or multiple trusted advisors. They're responsible for overseeing that the trust fund maintains its duties as laid out in the trust documents and applicable law and are often paid a small management fee to do so. Some trusts give responsibility for managing the trust assets to the trustee, while others require the trustee to select qualified investment advisors to handle the money.
• The Beneficiary: This is the person for whom the trust fund was established. The trust is set up so that the the Beneficiary gets the benefit of the assets within the trust without having direct access or control over them. The Trusteee manages while the Beneficiary benefits.

Why Would I Consider Using a Trust Fund?

Here are a few reasons trust funds are so popular:

• Sometimes you don't trust your family members to follow your intentions after you pass away. For example, if you want to make sure your son and daughter from a first marriage inherit a lake cabin that must be shared among them, you could use a trust fund to do it. Having a trust fund with an independent third-party trustee to handle this can often alleviate your fears.
• You don't want to expose your hard earned money to a lot of estate taxes after you pass away. There are some significant tax advantages that can be achieved when using trust funds. For example, setting up a so-called Charitable Annuity Trust or Charitable Remainder Trust can make it possible to shield thousands, or even millions, of dollars from taxes, while benefiting your favorite charity. Trust funds can also be used in a way that maximizing estate tax bypasses so you can get more cash to more generations further down the family tree.
• You want your grandchildren to have the money they need for college and to get a leg up on life. Grandparents often set up trust funds for their grandchildren, designed to pay educational expenses and then distribute any additional principal following graduation as start-up money to establishing a life.
• You want a business you built to continue to be successfully run after you pass away. Trust funds can protect assets that you cherish, such as a family business, from your beneficiaries. Imagine you own an ice cream factory and feel tremendous loyalty towards your employees. You want the business to continue being successful, and run by the people who work in it, but you want the profits to go to your son, who has an addiction problem. By using a trust fund, and letting the trustee be responsible for overseeing management, you could achieve this. Your son would still get the financial benefits of the business but he would have no say in running it.

Final Thoughts

By having these legal documents in place, you can have peace of mind in the knowledge that you and your family will be taken care of. Once they're in place, you'll only need to review them every couple of years to make sure that they still reflect your current needs and values. Setting them up the first time isn't complicated if you educate yourself on the basics of how they work and then lay them out in plain, everyday English. For some of them, you'll probably want to consult an attorney to make sure you didn't miss anything but the money you spend will be well worth it for the value you'll be getting.

So go get your legal house in order. Your finances will thank you for it!

Steve