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Sandra Gilpatrick, CFP ®,CDFA™

Personal Contingency Planning Basics

So, what is an estate? Estate planning is universal and crosses both gender and age. Many think you must have expensive possessions to qualify. An estate can be as simple as just having a pet. Nearly all of us have an estate.

I welcomed Attorney Kerry Reilly as my guest speaker to help inform about the importance of estate planning. This includes both personal and family contingency planning. Personal contingency planning can help you to create a plan for what will happen to your estate once you are no longer around. To clarify the definition of contingency, it is an event that may be an emergency that is not certain to occur. Kerry Reilly likes to better refer to a contingency as “something that is liable to happen as an adjunct to or a result of something else”.

Before discussing these different types plans, it is important to know that your first plan does not have to last forever. A plan should be good for 3-5 years, and continue to be updated as your life changes.

An estate plan is a personal contingency plan. In your plan, it is very important to include permission slips and instructions. These need to be written and not just discussed. Many people make the mistake of telling someone what they want to have happen in the event of an emergency, but if it is not written and documented, this conversation will not matter.

What kinds of permission slips are there?

  • Durable Power of Attorney
    • This is a document in which an individual (Principal) designates an Agent/Attorney-in-Fact to take care of his or her legal & financial matters. It should be known that once this document is put in place, it will always be in effect. It should also be noted that if you spend a significant time in another state it may make sense to execute a DPOA specifically for the secondary state that you spend time in.
  • Health Care Proxy
    • A document in which a competent individual (Principal) designates an Agent to take care of his/her health care decisions. This document turns “on” when the Principal is deemed incapacitated and turns “off” when the Principle regains the ability to make his or her own health care decisions. You should consider naming a person you trust to state your wishes and who would be accessible to help. Like for the DPOA, if a significant amount of time is spent in another state, it is advised to execute a Health Care Proxy specifically for this state as well. It also a strong consideration for same sex couples.

As noted above, it is important to leave instructions. If you leave detailed instructions for a babysitter or a petsitter, wouldn’t you do the same for the event of contingency? Of course, when creating instructions and trying to decide who in the family (such as a daughter or son) gets the power to make decisions, one way to diffuse possible tension is with a HIPPA Release. This grants access to medical records only, and does not grant decision making powers. Multiple persons can be listed, unlike with the Health Care Proxy. This can allow for one person to make the decisions, but others to still feel involved as they still have access to records.

Privacy and Control of Plans

Many people want privacy and control. It should be known that a Will is a public document. This means anyone can access it as it is a public record. You can also lose control through a will. If you leave x amount of dollars to a child, a check will be written to and handed over to them, and what they do with it is no longer in your control. If you wanted it to be used for education, there is nothing stopping them from going out and buying that fancy car. For those who do not realize, your designated beneficiary of your insurance policy, IRA and other retirement plans supersede your will. You can request a beneficiary update form if needed to keep up with life changes.

There is also probate, a filing of a will and a death certificate, which generally takes 18-24 months. Nothing in the will can be distributed until after this occurs, and creditors have 365 days to make claims against your estates.

How can you avoid this?

A Revocable Trust! This trust works like a vault. While you are here, the door is open and you can enter and leave it as you please. It keeps what is inside it completely private (unlike a will), and as soon as you are gone, the door “slams” shut, and only the trustee has access to it. With this trust, if you wish to pay for a child’s education costs, the trustee can ensure the money goes toward education by writing the check directly to the school. This allows your assets to be used in the way that you intended them to be. A trust may also allow for easier management of assets in the event of disability or incapacitation.

You get to set the terms and conditions, such as:

  • Who gets what property
  • When do they get that property
  • Are there any conditions under which they are not entitled to that property

A common mistake I’ve seen in financial planning is having a trust created, but not retitling assets with the trust name. The assets won’t make it into the trust “vault” unless they are named for the trust.

Another helpful suggestion is to have a Wallet Card easily accessible. It should list doctors, allergies, medications and contact people at a minimum. A Wallet Card is also needed for children, aging parents & pets. The information should be clearly posted at home as well.

Addressing your personal contingency planning, while not the most fun activity, is one of the more important topics to cover in your overall planning.

-With appreciation to my intern, Vanessa Dunn, for assisting in the writing of this article.

Sandra Gilpatrick and LPL do not provide legal advice or services. This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation. The opinions voiced in the material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indicies are unmanaged and may not be invested into directly.