When the family's financial boss dies

These 3 documents are must-haves: will, POA, and health care directive.

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Key takeaways

  • Regardless of your wealth, you need 3 key documents to ensure that your wishes are carried out in case you are incapacitated or die: a will, a durable power of attorney, and a health care directive.
  • A trust can help consolidate your assets, designate beneficiaries, reduce potential income and estate taxes, provide protection from creditors, and lay out your wishes on what goes where, and to whom.
  • Determine how your children can work together to handle financial or health care decisions on behalf of the surviving spouse. In addition, you'll likely need to hire an estate attorney.

The process of mourning the loss of a loved one is difficult for most people. This becomes an even greater challenge when the recently deceased is also the family's key financial decision maker. The surviving spouse or partner and other family members now have to shoulder the burden of taking on a wide range of financial decisions and mobilize family members to navigate uncertain territories to keep the family's finances on course.

Plan well and involve the family

One way to counter these headwinds is to plan ahead—and to begin the process as early as possible. If you are your family's financial leader, think about how you will protect and provide for your loved ones—just as you have during your lifetime.

It may not be easy, but it's best to begin by opening a dialogue with all family members, including adult children, so that everyone is involved and understands each other's wishes, both personal and financial. It's OK for everyone to express an opinion of how to handle your affairs, but remember, not everyone gets a vote on how to handle your affairs. The decisions are yours.

"You don't need to get into details about the assets and dollar amounts, but do have an open discussion," advises Pamela Pirone-Benson, an estate planning specialist with Fidelity. "Maybe your children can work together. Or you might find that one or more lacks the interest or ability to handle financial or health care decisions on behalf of the surviving spouse, and you'll need to appoint someone else as a trusted adviser."

If an executor or trustee has already been named on the estate, that person may also want to be involved in the conversation.

3 documents everyone needs

Regardless of how much wealth you and your spouse have accumulated, generally you should have the following key documents on hand to ensure that your wishes are carried out in case you are incapacitated or die:

  1. A will or a "pour-over" will and trust combination
  2. A durable general power of attorney for each adult
  3. A health care directive for each adult

A will is an essential legal document that sets forth your wishes regarding the distribution of your property and the care of any minor children when you die. A pour-over will is established by an individual, often in conjunction with a trust, so that upon the death of the individual, all or a portion of their assets can be transferred to a trust. By doing so, an individual can ensure that his or her estate has explicit directions on moving estate assets to a trust. Additionally, a properly structured pour-over will may alleviate the burden of requiring the estate to undergo an often costly and lengthy public probate process.

A power of attorney designates an agent to act on your behalf regarding financial and other matters while you are alive. A durable power of attorney simply means that the document stays in effect if you become incapacitated and unable to handle matters on your own.

A health care directive is a document that instructs others about your medical care should you be unable to make decisions on your own. In general, a health care directive outlines your wishes regarding life-prolonging medical treatments, and may vary depending on your state of residence. It becomes effective only under the circumstances delineated in the document. Also, depending on state law, it can provide an opportunity for you to appoint a health care agent to make decisions on your behalf, much like a power of attorney.

Do you need a trust?

Establishing a trust can make it easier on your surviving spouse and heirs when you become incapacitated or die. A trust can help consolidate your assets, designate beneficiaries, reduce potential income and estate taxes, provide protection from future creditors, and lay out your wishes on what goes where, and to whom. (Read Viewpoints on Fidelity.com: 6 reasons you should consider a trust.)

One option is a revocable living trust created while you're still alive, which generally provides for you, as the grantor, or creator of the trust, to have full discretion to change or dissolve the trust at any time, as long as you are mentally competent. If you name yourself as trustee, you can also manage the assets during your lifetime, investing and spending them as you wish.

For more information to help you plan for the transfer of wealth and your values to loved ones, read Viewpoints on Fidelity.com: An all-in-one wealth transfer checklist.

A checklist for your loved ones

These are some of the financial and legal documents your heirs will need:

  • At least 10 certified copies of the death certificate, which will be needed to prove to various institutions and agencies that the loved one has passed away
  • A will or trust document
  • Insurance policies, including life, health, homeowners, auto, and disability
  • Statements regarding investment accounts, including IRAs, 401(k)s, pension plans, and non-retirement accounts
  • Social Security statements
  • Checking, savings, mortgage, credit card, and other account statements
  • Marriage and birth certificates
  • If available, your most up-to-date credit report
  • The last 2 years of tax returns
  • Last filed gift tax return, if applicable

Financial institutions, government agencies, and others will have to be notified about the death, including:

  • Social Security Administration. In addition to survivor's benefits, a surviving spouse should receive a one-time death benefit to help with burial expenses
  • Your employer and previous employers will have to be contacted to see whether your heirs are entitled to any pension plans or other benefits
  • Insurance companies
  • Credit card companies and credit bureaus
  • Post office
  • Department of motor vehicles
  • Utilities

Upon your death or incapacity, a successor trustee of your choosing would take over that responsibility. Because the assets are held out of the probate estate, this kind of trust can also be an effective way to mitigate court costs and avoid probate, by which the deceased's assets are dispersed by a court. However, estate taxes may apply whether or not the revocable trust is in place.

Of course, there are other types of trusts to consider. (Read Viewpoints on Fidelity.com: Do you need a trust? for examples of how trusts may apply to your situation.) For example, an irrevocable life insurance trust (ILIT) can provide immediate liquidity for your estate which can help heirs pay estate taxes right away, instead of waiting for illiquid assets such as properties to sell. (Read Viewpoints on Fidelity.com: Can life insurance help your estate plan?) If you are considering a trust, be sure to consult a trust and estate attorney.

Consolidate and simplify

Another time-saving move is to consolidate and simplify your financial affairs. If your family already has a trust, that should simplify matters. If not, consider consolidating assets into as few accounts as possible, while still making sure the accounts fit your financial and estate needs in the most tax-efficient manner possible. Your family's tax adviser could help to provide guidance given your particular situation.

Also, try to organize your important documents so they will be easy for your survivors to access. One online option for Fidelity customers is FidSafe®, a secure, easy way to store, organize, and access your family's most important documents.

"Planning ahead is key to helping your family find the information they may need in a difficult time," says Kevin Ruth, head of wealth planning and personal trust at Fidelity Investments. "You should have and securely store a current inventory of key assets, a contact list of advisers, and a list of legal documents and other key information including computer and online-banking passwords. But you need to provide loved ones with a location and a way to access this information should the need arise."

He added, "Be sure to review the beneficiary designations on life insurance policies, retirement plans, and taxable accounts, and review the titling of the assets with the family's tax and estate adviser to make sure they are aligned with your overall plan."

Don't go it alone

There is a lot to take care of when a loved one passes or becomes incapacitated. Resist the temptation to do it all yourself. Everyone can benefit from help, including from professional guidance, especially during a difficult time. Having a family meeting ahead of time can lay the groundwork for a solid estate plan and help manage expectations. If you have close relatives or friends who can help you, this is the time to lean on them.

Get help finding an attorney

"A qualified estate planning attorney that takes time to understand your situation and develop a plan based on your needs will be an important part of your estate planning team," says Ruth. Look to identify at least several candidates and speak with each of them to assess how well they fit. Be sure to ask each for an estimate of cost and what is included.

Tip: To learn how to select an attorney to work with your family, read Viewpoints on Fidelity.com: How to find an estate planning attorney and access the Fidelity Estate Planner®.

Next steps to consider

Get organized and connect to an attorney with the Fidelity Estate Planner®.

Store important financial, legal, and personal documents safely with FidSafe®.

See how to avoid common and potentially costly estate planning mistakes.

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