5 Essential Estate Planning Documents to Be Prepared Amid the COVID-19 Pandemic

The outbreak of the Coronavirus (COVID-19) pandemic has infused a sense of vulnerability, especially among those who have not yet planned for the distribution of their estate. An estate can consist of assets like cash, clothes, jewellery, vehicles, residential property, insurance, etc., along with accounts established for retirement, investment, and savings. The management of the transfer of these assets is known as estate planning.

The pandemic has caused financial anxiety all over the world. Although the thought of suffering from the disease may not be a pleasant one, it can also not be ignored. It is vital to ensure that an individual’s assets are rightfully passed on to their heirs. Thus, given the uncertainty of times, people need to be prepared and start the process of estate planning as soon as they can.

The systematic process involves comprehensive documentation, out of which the following five documents are deemed to be the most important ones that must be prepared amid this outbreak.

Durable financial power of attorney (FPOA)

An FPOA is a legal document in which the estate owner appoints an agent to make financial decisions on his/her behalf. The agent is usually the spouse, adult children, or a trustworthy acquaintance/friend. It is essential to choose the agent carefully since they will be authorized to take significant decisions associated with bill payments, signing cheques, sale and purchase of assets, as well as filing tax returns and making deposits and withdrawals. If an individual becomes incapacitated or passes away, a conventional FPOA will be deemed null and void. However, a durable FPOA ensures the continuance of financial management at the time of disability. The person can also decide on the extent of authority that will be given to their agent. A general FPOA will have complete financial control, while a limited FPOA will have authority only to make specific decisions. In addition to this, a secondary agent must also be appointed in case the primary agent is unable to tend to matters.

Last will

A last will encompasses a clear allocation of a person’s assets among family members and other desired beneficiaries upon his/her demise. A guardian for minor beneficiaries can also be allocated in the will. The terms of this legal document can be modified as per the requisites of the person. An agent, also known as an executor, can be assigned to ensure smooth execution of the will. The executor is also responsible for the settlement of final costs and taxes. The distribution of assets takes place after the settlement. In the absence of a will, the state undertakes asset distribution and liability payments. A representative is appointed by the court to supervise the estate management. The will has to be filed in a probate court to come into effect and the filing has to be done after the demise of the person. Probate is a legal procedure to administer the assets when the person dies or becomes incapacitated.

Durable health care power of attorney (HCPOA)

A durable HCPOA is similar to a durable FPOA. This legal document entails giving power to the agent appointed by the estate owner to make medical decisions on his/her behalf. The power is extended to the agent when one is deemed incapable of making decisions. However, some complications may arise in an event where an HCPOA is not prepared, and the estate owner is more than 18 years of age. In this case, the probate court has to intervene to assign a representative/guardian to make health care decisions.

Living will/advance medical directive and waiver for the Health Insurance Portability and Accountability Act (HIPAA)

A living will is a legal document that puts forth a person’s decision regarding the life-sustaining treatment he/she wishes to receive or not receive in case of a terminal illness. This document is also referred to as an advance medical directive and states a person’s willingness to remain on the life support system in the event of a permanent coma. A living will thereby specifies an individual’s wish, so that family members are spared from taking these emotional decisions.

Though a living will is expected to give authority to a person’s agent to access his/her medical details, there might be a situation where the health care institution declines them accessibility to medical data. In this case, a stand-alone waiver for HIPAA will be required. With this document in place, the appointed agent or family members will not have to struggle to gain access to one’s health care records. This accessibility will give them the freedom to talk to medical practitioners if an emergency arises.

Revocable living trust

A revocable living trust entails the creation of a body for the management of one’s assets. The term ‘revocable’ means that the trust can be modified at any given time during the person’s lifetime. The trust can also be established in a manner that it will be applicable even after the person’s demise or over many generations. This legal contract involves the following three parties:

1. Grantor or settler: The person who sets up the trust and reassigns all the assets to this trust for management.
2. Beneficiaries: These are usually the grantor’s family members, who will be given the funds in line with the terms and conditions of the trust.
3. Trustee: The person who is given the responsibility to handle the assets in the trust. A trustee can be the grantor, a family member, or a corporate entity.

A revocable living trust eradicates the need for the intervention of probate in case the grantor becomes incapacitated. Since probate is a public procedure, this living trust will ensure that the privacy of the estate data is maintained. In addition to this, the trust saves the extra time and expenditure involved with probate. A living trust can be used to ensure that trust assets are transferred to the beneficiaries at an age deemed appropriate by the grantor. Assets can be transferred proportionately as well. This means that after reaching specified age slabs, the beneficiaries will be given control over a certain percentage of the trust assets.

To sum it up

While it might seem gloomy to undertake estate planning, it is among the most important tasks of financial planning. And the need for it has been further aggravated by the outbreak of COVID-19. To ensure effective estate planning, it is necessary to know the documents that must be prepared for the safety of one’s assets in case the person is affected by the Coronavirus and unable to make financial decisions.

The power of attorney, final will, advance medical directive, and a living trust are all essential legal components of an estate plan. You can reach out to financial advisors if you need any help in putting these documents together.