But if we take the time to think about these matters, we begin to understand that planning is needed. Here are a few ideas to consider. Clearly, you should discuss all of these matters with your family and your legal, tax and financial advisers.
Do you have adequate life insurance coverage? Many of us took out insurance policies years ago and have not reviewed the coverage to make sure it is adequate for the needs of our survivors.
More important, when beneficiaries change (say because of divorce or death) the policy must be corrected to reflect the appropriate beneficiary. The insurance policy you purchased 20 years ago might not fit your current needs. You should confirm that all your insurance policies are still in effect.
As we get older and our children become self-sufficient, we might consider reducing the level of insurance. You should discuss all of these matters with your insurance adviser.
Is your house insurance adequate? Many insurance policies have automatic escalator provisions that periodically boost the coverage.
Make sure the replacement value of your house meets industry standards, so you will not suffer a financial loss if your house is destroyed.
Some people purchase mortgage life insurance so that in the event of death, their mortgage would be paid off in full. I do not think such a policy makes sense. Usually, you are required to pay an annual or monthly premium on the full amount of the original mortgage, when, in fact, the outstanding mortgage debt decreases each year. In addition, from experience, we have learned that many people do not stay in the house after their spouse dies. Thus, when the house is sold, the mortgage will be paid off from the sales proceeds. In my opinion, there are better investment opportunities than having to pay the premiums for mortgage life insurance. At the very least, you can use that money to buy additional life insurance — and you will no doubt get more coverage.
Do you each have a will? If you do not have one, you are strongly advised to have one prepared now. Keep in mind that if you die without a will (called being intestate) a probate court judge will have to make decisions on how your property is to be distributed. Wouldn’t you rather have your property distributed according to your own wishes?
If your will was written years ago, you should consult your legal and tax advisers to make sure that the new tax laws will not adversely affect your estate. There have been many changes in the laws, and you want to make sure that your will tracks current law.
Lifestyle changes can affect the way your property is treated under the law. Take, for example, what can happen upon remarriage.
Let’s say that a husband and new wife own title as tenants by the entirety. But the husband wants to make sure that on his death, the house will go to his children and specifically specifies that in his will. Unfortunately, that won’t work. On his death, by operation of law (based on the way that title to the property is held), his wife would own the entire property. If the husband wants his will to be followed, he would have to change the title, most likely to tenants in common. This way, on his death, his half of the property would go to his children.
A living will and durable powers of attorney are necessary to cover situations in which you might be in an accident and are not be able to handle your affairs.
The courts — and hospitals — have made it clear that if you are medically determined to be brain dead and you want the doctor to “pull the plug,” you must make your intentions quite clear, preferably in writing, so as to give guidance to the doctors. This is known as a “living will” or a “declaration,” and it will be necessary if you have to go into a hospital.
If you do not want to be maintained by life-support equipment, you should prepare a living will declaring your intentions while you are able to do so. Your attorney can assist you with this, but you can also find sample documents on the Web at such sites as caringinfo.org.
But what it you become incapable of handling your affairs and cannot write checks to pay your mortgage or other bills? Here is where a document known as a durable power of attorney comes into play. That document will spell out your intentions and provide for a smooth transition between you and your representatives. Otherwise, lengthy and expensive court proceedings may be required.
Some people use a combined durable power of attorney for health and financial issues. Although that is permissible if, for example, you want one family member to handle your financial matters and another to deal with your health issues, you should arrange to have two documents: one durable power of attorney for health and one for financial matters.
You should also understand that there are two kinds of powers of attorney. One becomes effective immediately, even if you are not incapacitated. The other is known as a “springing” power that becomes valid only after one (sometimes two) doctor certifies that you are not capable of making decisions.
Discuss these differences with your legal and financial advisers. You might not want to authorize someone now to act as your attorney because there is always the possibility that you could be taken advantage of, even by a close friend or relative. Your attorney can draft the document that best suits your needs.
Finally, if you die or are seriously incapacitated, would your family be able to find all of your legal documents and important papers? Too often, one party in the household handles the books and records and the other spouse has no idea where things are.
Both of you should sit down one weekend and make a comprehensive list of your assets and liabilities. If you have stock certificates, certificates of deposit, life insurance policies or other valuable documents, make a list of where they are, so that your family will not have to suffer more under already-difficult circumstances. You should also make a list of people who should be contacted in the event of a problem.
This list should include, at the very least, the names and addresses of your attorney, accountant, insurance adviser, executor of your will and administrators of pension plans.
Where should you keep your documents? Some people prefer to put everything in a bank safe deposit box. That’s probably the safest place, but when you die, your personal representative will probably have to get court order to get access to your documents. One solution is to open up a safe deposit box and have the person designated in your will added as a signatory to that box.
Or put copies of your documents in your box with a notation on each indicating the location of the original.
Many people have small safes at home, so that in the event of a fire, the documents will not be destroyed.
Life has become quite complex. If you do not put your house in order, the courts and the tax authorities might make decisions on your behalf (or on behalf of the estate), which might not be in anyone’s best interest. These decisions might also be contrary to your desires.
Planning can save considerable aggravation, frustration and expense for your family in the long run.
Benny L. Kass is a Washington lawyer. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. For a free copy of the booklet “A Guide to Settlement on Your New Home,” send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036.