What did Jimi Hendrix, Anna Nicole Smith, Steve McNair and Sonny Bono have in common? They all died without proper estate plans. As a result, their deaths became overshadowed by stories of relatives and lawyers launching legal volleys at each other during attempts to settle their estates.
They're not alone. Nearly 60% of Americans do not have a will or estate plan. Why? Because "they think they don't need it," says Noreen Perrotta, editor of Consumer Reports Money Advisor. But even if you have the smallest of estates, you should want your assets distributed your way. "Especially if you have minor children," she said. "You need to name a guardian. And in some states, minor children cannot hold assets, so they have to have a trust kick in as soon as they die."
Mark Britton -- founder of Avvo.com, a free online legal directory -- identifies the legal documents we absolutely cannot live without.
Q: What legal documents do we absolutely need?
A: "There is a will and a lot of the elements around a will. Then there are trusts. Trusts only make sense if you are rich.
"A will is simply a document that directs all of your assets to your beneficiaries. You will name an executor for your estate, typically an attorney. Now, as part of that -- this is critical -- is an advanced health care directive. In some states, they are two separate documents. There is the medical directive. In some states, this is called a living will. This sets out your wishes regarding your medical care in event that you are incapacitated. The other element of this is durable power of attorney for health care. That names someone to make medical decisions for you when you are not able to. In some states, these two parts are included in a single medical directive.
"We've become obsessed with privacy in the United States, especially around medical records. In 1996, there was something called the Health Insurance Portability and Accountability Act (HIPAA). It provides tremendous privacy around your medical records. In order to make the power of attorney for health care more effective, you should execute a HIPAA release. That grants the right to whomever you designate (access to) your medical records. It seems like a small point, but HIPAA has made it a big point.
"Then there is the Do Not Resuscitate order. As more stories come out of people being incapacitated for long periods of time, most people say when they are healthy and in a rational state of mind that in the event that they stop breathing naturally, they don't want to be revived. That should go into your will. Typically, when you are not breathing, to avoid liability, the emergency workers will resuscitate you anyway. This becomes more of an issue when you're on life support.
"Another important document is power of attorney for finances. As you get older, you may have a tough time handling your financial matters. The power of attorney for finances gives whomever your designee is the legal right to act on your behalf on some or all of your financial affairs. You should specify that is "durable," which means it continues if you become incapacitated."
What do we need to think about when drawing up a will and these other papers?
"People will walk into an estate planning conference with their lawyer where they are paying by the hour and they have not thought about anything. That costs a lot of money. So think that you will die and what happens if you are to die later or to die earlier. It's hard for somebody when he starts with estate planning to say, what if I were to die next month? Or what if I were to die with my spouse? What would we want to happen with our assets and, in particular, our children? Doing a lot of that thinking upfront can save everyone a lot of time, money and consternation.
"I think it is also really important for people to take pettiness out of the equation. You're dealing with a family spat, so you cut your siblings out of ever being custodians of your children. To the extent that it probably won't be a lifetime spat, you will have to amend that provision in your will, and that will cost you money at a later date. Pettiness wise and pound foolish."
So can any lawyer draw up these documents?
"One of the reasons I built Avvo.com was that there are a lot of attorneys who profess to be experts in all sorts of things. Estate planning is something that there are a lot of quirks under (in) state law. If you don't have an attorney that understands every element of that, then you could potentially die intestate, meaning you don't have a valid will. To the extent that you don't have a valid will, the money will not go to your parents, your kids or other relatives. In most states, it escheats to the state, meaning it goes back to the state. That is why it is critical that you hire a competent estate planning attorney who does estate planning regularly."
How often do we need to revisit these legal papers?
"Updating them is expensive if you are using a competent attorney. If you are in a major metro area like New York, you are going to be paying a minimum of, say, $300. So that is not something anyone can undertake lightly. What you are looking for is the material change in your life. Did you have another child? You lose someone who is a potential custodian for your kids if you are incapacitated or die. The problem is that, in day-to-day life, especially when catastrophic events come around, people are not necessarily thinking about their estate documents. At a minimum, you should be thinking about your estate documents every three to five years.
Wills and other legal documents to have before you die