Prepare advance directive documents in case you become incapacitated

You can retain your dignity and save your loved ones the burden of making some very challenging decisions by writing down what you want to happen if you become incapacitated. Many illnesses, such as Alzheimer’s disease, strokes, and cancer, can result in a period of mental incompetence and physical disability before death. Give copies of these documents to members of your family and other responsible people in your life, and your wishes in these matters may be controlled as you desire.

Powers of Attorney
People over age 50 or 60 often create a durable power of attorney well in advance of the onset of any medical problems. This is a document in which you appoint someone, called an attorneyin- fact, to handle your legal or business matters and sign his or her name to documents. It stays in effect as long as you live, unless you explicitly revoke it. This document should detail the specific aspects of your affairs that it covers and should even mention specific institutions (banks or brokerage firms, for example) and account numbers. A durable power of attorney gives the designated person virtually absolute power to manage your financial affairs, so choose a trusted individual who knows your wishes.
A limited (or special) power of attorney is narrower in scope and could be restricted to one specified act or a certain time period, such as signing your name at the closing of the sale of a home or managing your investment accounts. A springing power of attorney “jumps” into effect when a specified event occurs, usually mental incapacitation or disability. This is often used to allow a spouse or family member to manage the grantor’s affairs in case illness or injury makes him or her unable to act, while allowing him or her to retain power before the incapacity occurs.

Advance Medical Directives
An advance medical directive is a medical guideline that pertains to treatment preferences, including the designation of a surrogate decision maker in the event that a patient becomes unable to make medical decisions on his or her own behalf as a result of coma, dementia, brain death, or other serious medical condition. A living will specifies what types of medical treatment are desired. It commonly states that “If I suffer an incurable, irreversible illness

disease, or condition and my attending physician determines that my condition is terminal, I direct that life- sustaining measures that would serve only to prolong my dying be withheld or discontinued.” This document may relieve family members of making a painful decision to allow a person’s life to end. To be effective and to avoid varying interpretations, a living will must speak to specific circumstances. For example, a living will could dictate a “do not resuscitate order” designed to prohibit health care providers from attempting cardiopulmonary resuscitation (CPR) in case of cardiac or respiratory arrest. Federal law requires hospitals to inform patients of their rights to make such decisions about medical care. Living wills need to conform precisely to the statutes in the state in which the person lives.

A health care proxy is a legal document in which individuals designate another person to make health care decisions if they are rendered incapable of making their wishes known. The person designated in the health care proxy has, in essence, the same rights to request or refuse treatment that the individual would have if capable of making and communicating decisions.

Checklist to Settle and Transfer Your Estate
Creating a master checklist to your financial world by providing answers to estate planning questions and detailing the locations of related documents will simplify the settlement and transfer of your estate.

Current will. Location? Contact information for attorney? For financial adviser? For insurance agent?
Powers of attorney. Durable power of attorney? Advance medical directive? Medical power of attorney?
Letter of last instructions. Document locations? Who has copies?
Funeral and burial arrangements. Written instructions? Who has copies?
Trusts. Location? Attorney contact information?
Official documents. Birth? Prenuptial agreements? Marriage? Divorce? Guardianship? Military
Social Security numbers. Yours? Spouse? Children
Computer passwords. Passwords for computer
Safe-deposit box. Location? Key? Written record of contents?
Employer. Employee benefits? Contact information for supervisors and human resources department?
Life insurance. Policies? Employer group policy? Beneficiaries? Contingent beneficiaries? Agent(s)? Details on collecting benefits?
Pension. Potential benefits? Veterans benefits?
Retirement accounts. IRA? 401(k)? Keogh? Annuities? Employer pension plans? Passwords?
Social Security and Veterans Administration. Current or potential benefits? Discharge papers? Records?
Health insurance. Coverage details? Employer policy?
Disability income and long-term care insurance. Policies?
Financial statements. Balance sheet, including artwork and family heirlooms? Cash-flow statement? Value of estate?
Budget. Details? Old records?
Liabilities. Credit cards? Vehicle loans/leases? Personal loans? Mortgages? Passwords?
Cash management. Bank information? Checking? Savings? Money market? Passwords? Certificates of deposit?
Housing. Deeds? Titles? Rental properties? Title insurance? Timeshares? Homeowner’s policies?
Automobiles/recreational vehicles. Titles? Insurance policies?
Investment assets. Brokerage accounts? Mutual fund statements? Stocks? Bonds? Other assets? Written investment objectives? Passwords?
Business interests. Agreements? Ownership interest in a family-owned business? Legal counsel?
Tax returns. Last year’s return? Previous returns? Current year’s information? Gift and estate tax?

Estate and Inheritance Taxes
The federal estate tax is assessed against the estate of a deceased person before property (real estate, stocks and bonds, business interests, and so on) is transferred to heirs or assigned according to terms of a will or state intestacy laws. It is a tax on the deceased’s estate, not on the beneficiary who is to receive the property. The first $2.0 million of a taxable estate is exempt from the federal estate tax. Referred to as the exclusion amount, it is the value of assets that may be transferred to heirs without incurring an estate tax. The marital deduction allows an estate to pass on an unlimited amount of assets to a surviving spouse free of estate taxes. When the surviving spouse who inherited assets dies, the estate would be subject to any federal estate taxes in effect at that time.

You are not likely to be subject to federal estate taxes because out of about 2.4 million deaths each year, only 18,000 estates must pay estate taxes; that is less than 1 percent. Most estate taxes are paid by the extremely wealthy. Because of exemptions, trusts, gifts, and other estate planning actions, the average tax bite on an estate of $1 to $2 million is 4.7 percent and it is 10.5 percent on estates of $2 to $3.5 million. Current law has the federal estate tax being repealed and going to zero in 2010. The law expires in 2011, meaning that the older estate tax rates, which are higher, will become law again that year unless Congress changes it. Seventeen states and the District of Columbia have a state estate tax, and since most are coupled with the federal estate tax, the state tax is zero when the federal tax is zero.

Eight states* impose an inheritance tax assessed by the decedent’s state of residence on beneficiaries who receive inherited property. This tax is based on how much the beneficiaries get and their right to receive it. In those states, transfers to spouses, children, and other close relatives may be either exempt or subject to a lower state inheritance tax rate. The beneficiaries are responsible for paying inheritance taxes, although typically the estate pays the taxes before distributing any remaining assets to the heirs.