What Are Five Financial Documents You Need To Get In Order and Why They Are Important

Like many individuals, you may not have all your financial documents in good order. Collecting and organizing paperwork is easy to put off. Pegasus senior care professionals in Sierra Madre and elsewhere gathered these guidelines to assist you.

There are four primary kinds of documents. These are:

• Personal
• Medical
• Financial
• Legal

As you might guess, there’s a lot of overlap. Some individuals might regard a will as legal, many consider it a financial document, and others say it’s personal. These classifications are meant only to provide a framework to guide you.

Your first step is to consider what you need. This site has a product to sell, but you can use their helpful checklists without purchasing anything. You can also find extensive lists here. 

Your second step is to put everything in writing. Oral instructions are easily misinterpreted. They seldom hold up in court if things go badly.

Next, you need to make sure family members understand your wishes. If you can, give them copies of your documents. Make sure they know where the originals are and can access them in the event you’re incapacitated.

Finally, review everything regularly. Divorce, illness, or natural disasters are just of few of the occurrences that can change your situation.

The Top Five

Five financial documents that most experts consider essential are:

• Durable power of attorney for finances
• Durable power of attorney for health care
• Living will (advance medical directive)
• Will
• Living trust

Medical documents are included in the list as unexpected medical expenses can be financially devastating without planning.

You Can Have More Than One Power of Attorney

A power of attorney gives someone the ability to act on your behalf. There is more than one kind of power of attorney. You are well advised to consult a lawyer to determine what best meets your needs for all your documents.

Your power of attorney choices include:

• Limited – these are designed for a specific purpose and usually stipulate an expiration date. You might choose this to allow someone to conduct a particular business transaction when you’re out of town.
• General – these are comprehensive but expire if you become incapacitated or die. While in effect, the designated person can conduct all your financial matters except any that you specifically exclude. Real estate transactions are frequently excluded.
• Durable – these can be limited or general in the rights granted. They remain in effect if you become incapacitated or die.
• Springing – these take effect only if you become incapacitated. The criteria for incapacity that will give a designated person the ability to act is included in the document.

The person you designate is called an attorney-in-fact.

A durable financial power of attorney gains in importance if you become ill. For example, it allows the designated person to pay your medical bills. Without it, the courts would need to appoint a guardian or conservator to handle your affairs.

A durable power of attorney for health care differs from your living will. Both documents have a variety of names. Health care proxy is a common name. Living wills are now more often called advance directives.

The proxy allows a designated person to make health care decisions on your behalf, often during a medical emergency. That can include authorizing surgery, transferring to other facilities, or other measures to obtain appropriate medical care.

An advance directive allows you to make certain health care decisions. Those are usually end-of-life decisions. You specify procedures you are willing to undergo, such as being connected to life support.

Sometimes these two are combined into one document. Together or separately, they can serve to keep medical expenses from draining your financial assets.

Wills and Trusts Can Prevent Family Fights

It’s a fallacy to think that a will isn’t necessary if you don’t have a lot of assets. Even if you don’t have much, a will documents who gets what. That prevents the acrimony that can tear a family apart.

Without a will, state courts will distribute your assets as they see fit. That’s true regardless of how much or how little you own. They will, of course, assess an administrative fee for doing so.

A living trust is recommended for many individuals. Trusts are appropriate when you have:

• Complicated financial affairs
• A blended family
• Own a business
• Own property in more than one state

A living trust also keeps your financial affairs and family matters private.

Wills often have to go through probate. That can be time-consuming, expensive, and a matter of public record. A living trust goes into effect immediately upon your death or incapacity.

Most living trusts are revocable. Revocable means that the trust can be changed or undone at any time. Unlike a will, a living trust is concerned only with the assets you specify, not your entire estate.

You can rely on Pegasus senior care in Sierra Madre and our other locations for all your home health needs. If needed, we can assist with transportation to your attorney’s office so you can have important documents prepared. We are here for you regardless of the level of assistance you require.