In my last blog we met a typical family that had acquired assets over the years. In this week's blog we will meet another typical family, one that finds it hard to meet their monthly living expenses, never mind saving for retirement!
Roger went from being a standout athlete student in high school to barely hanging on in college. There were a lot of reasons for the dramatic change, but most importantly, he met Sandy. Sandy was vivacious in high school and had been on the cheerleading squad. She maintained her easy-going outlook on life in college and attended a number of parties. Through a careless mistake at a party, they became parents. Roger was in his Junior year and Sandy in her sophomore year.
Due to their upbringing and pressure from the families, they decided to get married in a hurry and have the child. After a whirlwind of planning, they were married and shortly thereafter, their daughter Emily was born.
The pressures of fatherhood, studying and needing to work a full-time job at a fast food restaurant to meet the basic needs of his family was getting to Roger. His grades dropped and he found himself desperately wanting to go out with his "buddies" but felt compelled to get home to his wife and child. Sandy discovered that being a new mother took all her energy. She couldn't believe how much effort went into caring for Emily and by the end of the day couldn't wait for Roger to get home so she could have a little time to herself. Because Roger was working at a minimum wage job, they couldn't afford day care and finding a baby sitter was expensive. Roger finally had to quit college because his grade point average hit an F so he picked up more hours at the fast food restaurant. He applied for a few other jobs that promised more pay, but was told that without a college degree, he wasn't suitable. They also lived with Sandy's parents and Roger felt his in-laws looked down on him as a "leech."
When Emily was almost two years old, Roger and Sandy were at the family Thanksgiving celebration with Sandy's parents and her family. While the women were preparing the table, Sandy's uncle asked Roger if he had an estate plan. Roger looked at the uncle and explained to him that he and Sandy had nothing other than the clothes on their back and the necessary items needed to keep their child safe. Roger told the uncle that estate planning was for rich people and that he and Sandy were fine.
What Roger forgot, or never knew, was that estate planning is not about just the money, or assets. Indeed, estate planning is deciding what to do about everything that is precious to you. For example, if Sandy was involved in an accident a was in a coma, Roger would have legal basis to make her health care decisions. Similarly, if she owned anything in her name alone, he would have no legal basis to make financial or legal decisions for her. Worse, if something happened to both of them, then the most precious thing in their lives, their daughter Emily, would get caught up in a vortex of legal proceedings and could end up in a foster home while the courts decided who would look after her until she was eighteen years old!
Estate planning is setting plans in place that consist of legal documents and financial products to ensure that whether we are alive and well, or alive and not well, or when we pass away, that we protect those we love from the misfortunes the world will throw our way.
The first thing Roger and Sandy need to decide is who will look after Emily if something happens to them. This decision is captured in Last Will and Testament and makes sure that the people you know will care for your child will be put in charge. Just having the Will in place is not enough. The family should also have a contingency plan in place that if anything happened to Roger and Sandy, that a family member or guardian picks up Emily right away so she never has to go into foster care. In addition to this legal document, they need to put some of Roger's earnings into a life insurance policy for Emily's benefit. The Will should also set up a testamentary trust for Emily's benefit so the money is protected for her and that nobody else can take it from her while she is young. Once they have Emily taken care of, they then have of the next step in their estate planning adventure.
The second step is to make sure they each have a Health Care Proxy. This is the legal document that allows a person to make medical decisions for someone who is unable to do so because they are unable to articulate what they need. The document should conform to the HIPAA laws, and should put all the decision making authority in the hands of the agent except for one decision. The one decision that an individual should make and never leave for their loved ones is the answer to this question. "If th e only thing keeping me alive is a machine, how many days would I allow the machine to keep me alive before I pulled the plug?" This decision is about the so called "heroic" measures that doctors in hospitals can use to keep us alive when we are in a terminal condition. Now that Roger and Sandy have taken care of Emily and the decisions regarding themselves during their lifetimes, we can finally turn to their assets, or "stuff".
Again, control over stuff depends on who owns the stuff. If Roger and Sandy have a joint bank account, typically what they have is a joint account with right of survivorship. In a practical sense, they each own 100% f the asset,and if one of them wasn't competent or living, the survivor would have control over the account. Roger needs to have a Power of Attorney wherein he names Sandy as is agent so she can handle all his legal and financial affairs.
Notice that both the Health Care Proxy and Power of Attorney are the documents needed if one is alive but not able to communicate with the world around them. The purpose of this blog is to emphasize that estate planning is about protecting your family and leaving your family in control of their destiny. So even though Roger and Sandy feel they don't need estate planning because they have no "stuff," they absolutely do need a plan in place to take care of their most precious possession, their daughter Emily.
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