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The Core Estate Plan: THE BIG 5 + 1

This article was published in Pioneer Valley's Live Well magazine, Spring, 2014.

I recommend that every person of age 18 or older have in place what I call "The Big Five + 1."  The Big Five are the will, durable power of attorney, health care proxy, HIPAA Release, and advance directive.  Each one of these documents has its own job so that Court can be avoided.  Four out of the five documents are important during your lifetime if you lose your health or mental capacity.   The "+1" is the homestead.  The homestead declaration protects the home you own and live in from being sold to pay a judgment by unsecured creditors.  This article explains the job of each document.  

           

When I teach my estate planning and elder law classes at Holyoke Community College, I ask my students if anyone knows what happens when a person dies without a will. I rarely hear the correct answer.

Very simply, I tell them, state law determines who gets whatever property has been left behind. State law awards it to the closest kin — even if the closest kin is someone the deceased barely knew, or didn’t like.

Few of my students understand the importance of having a will. And, they are usually quite surprised when I tell them that, in fact, every person, age 18 or over — regardless of income or assets — should know about wills and the other core documents in an estate plan. 

Taken together, I call them “The Big Five Plus One,” with the “Big Five” being the will, the durable power of attorney, the health care proxy, the HIPAA release form, and the advance directive. “Plus One” is the homestead, which protects homeowners.

With “The Big Five Plus One” in place, the family members and friends you’ve chosen have the information and authority needed to manage your legal and medical affairs before death, and handle the passing of property after death.

Here’s a summary of what they are:

√ The will

Here’s a scenario I have seen: A 20-something-year-old person, without a will, is killed in an automobile accident. The family sues the other party, and when the wrongful death claim is settled, $1 million is awarded to the young person’s estate. The parents are given the money because the person who died was not yet married and had no children.

Sounds OK, but imagine that one of the parents had deserted his or her now-deceased child many years earlier, even failing to pay child support — and now, a full half of the settlement must be given to that long-absent parent. 

A will allows you to name the people or charities who will receive your property, and it allows parents with minor children to name a guardian for them. You can also name the person you want to be in charge of handling your estate after death. I have participated in court disputes arising over who is in charge after the death of someone who didn’t have a will. What a waste of time and money! 

√ The durable power of attorney

The durable power of attorney allows a person you designate to sign legal documents — such as checks, deeds, or financial documents associated with hospital or nursing care — on your behalf.

Here’s an example of how it works and what it can do: A parent decides one of his or her adult children will be granted the durable power of attorney, the legal document is drawn up, and the parent signs it. If, in the future, that parent no longer understands what he or she is signing, the child named by the parent shows the document to the banker and the child can start signing the parent’s checks.

So, you might ask, why not just change the parent’s bank account to a joint bank account with that one child?

Here’s why I think the durable power of attorney is better:  Let’s say Mom, a widow, has three children, and she has added one of them to her bank account. Upon Mom’s death, the law presumes that only that one child will receive the money remaining in the bank account. The other two are upset because they have no legal right to the money and they argue that their sibling was only on the account to help Mom with bill paying. They say that their mother intended the bank account to be divided into thirds after her death — but now the opportunity to ask Mom about her intentions has passed.

A durable power of attorney allows you to choose who will manage your financial affairs while you’re alive, and it simplifies the division of the estate after death because it avoids the disputes among the children after death. Clear and simple is much better than confusion and uncertainty. 

In preparing a durable power of attorney, it’s important to name a first-choice person and a second choice — I call them spare tires — in case something happens and the first person can’t serve. I do avoid co-agents — two people sharing the responsibility at the same time — because it’s cumbersome and confusing to need two signatures for everything. And, if the two people disagree, you can create a tangled mess that winds up in court. 

√ The health care proxy

The health care proxy allows you to name a person to speak on your behalf if you become unable to communicate.

Without a health care proxy in place, courts unfortunately can get involved in deciding, for example, who can sign hospital or nursing home admission forms, or medical consent forms. That’s a time-consuming and usually expensive process. Having a health care proxy avoids having to go to court, at all. Ever.

√ The HIPAA (Health Insurance Portability and Accountability Act) release form 

The HIPAA Release, signed by you, allows your health care proxy to obtain your medical records if you become unable to make your own medical decisions.

For example, let’s say you have signed a HIPAA release and, years later, you are suffering from severe dementia. The release enables your proxy to make your medical records available to any new health care providers who might need to be brought up to speed on your medical history. 

Without it, health care proxies and family members might wind up in court over disputes involving medical records. I don’t want to see that happen.

√The advance directive 

This document, also known as a “living will,” allows you to state what you want in the event of certain health or emergency situations. It allows you to state, for example, what medical interventions are desired in the case of terminal illness or a permanent vegetative state, or to state that you wish to die a natural death and not have your life artificially prolonged.

In Massachusetts, a health care proxy must follow the wishes set forth in an advance directive; a medical provider is not permitted to rely on an advance directive, but must take direction from the health care proxy or follow the court order if no advance directive is in place.

√The homestead declaration

The homestead declaration protects the principal residence from being sold to pay a judgment by unsecured creditors.

Let’s say, for example, an elderly person is held responsible for a car accident and the judgment against them is more than their $125,000 auto insurance policy allows. Having a homestead declaration bars the holder of the judgment from forcing the sale of the home. It does not, however, prevent foreclosure actions brought, for example, by banks holding mortgages or home equity loans.

To be effective, a homestead declaration must be recorded at the Registry of Deeds in the county where the residence is located. The recording fee is $35, which, in my view, makes it a bargain!