Five Estate-Planning Documents Clients Must Have

In order to implement a careful estate plan for your clients, advisors must ensure that certain documents are in place.

This Practice Management article is intended for financial advisors only (registered representatives of broker/dealers or associated persons of Registered Investment Advisors).
 

Tony D'Amico, CEO of the Fidato Group, an RIA in Strongsville, Ohio, often tells clients about a couple who did not have the essential estate-planning documents before they became his clients. The husband was starting to become forgetful. 

"My advice early on was to get their estate-planning documents in order," says D'Amico. "Thankfully, they did." Later, when the husband had to be put into an assisted-living center, they were well prepared; his wife had signed on as power of attorney for his financial and healthcare matters.

Here are the five crucial documents that estate-planning professionals agree are needed for a successful plan:

1) Will

The fundamental estate-planning document is a will, which establishes the individual responsible for administering the client's estate as well as the beneficiaries. Without this document in place when the client dies, state intestacy statutes will take effect and create an estate plan on behalf of the client, which may not be what the client had in mind.

"If no one under the statute can be found, the decedent's assets may end up going to the state," warns Kirsten Waldrip, associate professor of estate planning and taxation at the College for Financial Planning in Denver.

2) Durable general power of attorney

A durable general power of attorney authorizes someone to act on a client's behalf in financial and personal business and tax affairs, in the event that the client is incapacitated and not able to make such decisions for him or herself. If the power of attorney is "durable," it remains effective through the client's subsequent incapacity, explains D'Amico. It ends with the client's death.

3) Healthcare proxy

Another basic document that should be included in estate plans is a healthcare proxy. By executing this document, the client appoints a person to act as an agent for his or her medical decisions if a time comes when the client is unable to make such decisions, according to Waldrip.

For example, "If the principal is under anesthesia and the doctor requires an immediate decision about treatment, an agent under a medical power of attorney may make such a decision," Waldrip says. "It's important the principal and agent discuss the principal's wishes."

4) Living will

Unlike the powers of attorney documents, a living will does not appoint a person to act on behalf of the client. Instead, a living will documents a client's wishes about being kept alive "in case of a terminal condition or a persistent vegetative state," says Waldrip.

In some states, the operative document is the living will, while in others the courts will only enforce the healthcare proxy. In either case, it is common to have both prepared since the living will provides guidance to the healthcare agent on the patient's wishes.  

5) HIPAA authorization

Generally, a medical power of attorney will include a provision, known as a HIPAA authorization, under the Health Insurance Portability and Accountability Act, granting an agent access to the client's medical records. Without this specific authorization, it is unlawful for a healthcare provider to disclose health-related information to a third party.

Without these five basic estate-planning documents, D'Amico warns, "things can become difficult and stressful."

—Bruce W. Fraser

Bruce W. Fraser, a New York-based financial writer, is a contributor to Financial Planning and OnWall Street magazines.