Compass Financial PartnersJim McPartland CLU® ChFC® RIPC®Donna Jenkins, CLU® ChFC®Financial Plannerswww.compassfpinc.com151 5th Ave SE, Ste 300Cedar Rapids, IA 52401319-531-3723jmcpartland@compassfpinc.comdonna@compassfpinc.com

Key Estate Planning Documents You NeedThere are five estate planning documents you mayneed, regardless of your age, health, or wealth:

1. Durable power of attorney2. Advance medical directives3. Will4. Letter of instruction5. Living trust

The last document, a living trust, isn't alwaysnecessary, but it's included here because it's a vitalcomponent of many estate plans.

Durable power of attorneyA durable power of attorney (DPOA) can help protectyour property in the event you become physicallyunable or mentally incompetent to handle financialmatters. If no one is ready to look after your financialaffairs when you can't, your property may be wasted,abused, or lost.

A DPOA allows you to authorize someone else to acton your behalf, so he or she can do things like payeveryday expenses, collect benefits, watch over yourinvestments, and file taxes.

There are two types of DPOAs: (1) an immediateDPOA, which is effective immediately (this may beappropriate, for example, if you face a seriousoperation or illness), and (2) a springing DPOA, whichis not effective unless you have becomeincapacitated.

Caution: A springing DPOA is not permitted in somestates, so you'll want to check with an attorney.

Advance medical directivesAdvance medical directives let others know whatmedical treatment you would want, or allowssomeone to make medical decisions for you, in theevent you can't express your wishes yourself. If youdon't have an advance medical directive, medicalcare providers must prolong your life using artificialmeans, if necessary. With today's technology,physicians can sustain you for days and weeks (if not

months or even years).

There are three types of advance medical directives.Each state allows only a certain type (or types). Youmay find that one, two, or all three types arenecessary to carry out all of your wishes for medicaltreatment. (Just make sure all documents areconsistent.)

First, a living will allows you to approve or declinecertain types of medical care, even if you will die as aresult of that choice. In most states, living wills takeeffect only under certain circumstances, such asterminal injury or illness. Generally, one can be usedonly to decline medical treatment that "serves only topostpone the moment of death." In those states thatdo not allow living wills, you may still want to haveone to serve as evidence of your wishes.

Second, a durable power of attorney for health care(known as a health-care proxy in some states) allowsyou to appoint a representative to make medicaldecisions for you. You decide how much power yourrepresentative will or won't have.

Finally, a Do Not Resuscitate order (DNR) is adoctor's order that tells medical personnel not toperform CPR if you go into cardiac arrest. There aretwo types of DNRs. One is effective only while youare hospitalized. The other is used while you areoutside the hospital.

WillA will is often said to be the cornerstone of any estateplan. The main purpose of a will is to disburseproperty to heirs after your death. If you don't leave awill, disbursements will be made according to statelaw, which might not be what you would want.

There are two other equally important aspects of awill:

1. You can name the person (executor) who willmanage and settle your estate. If you do notname someone, the court will appoint anadministrator, who might not be someone youwould choose.

Benefits of a will:

• Distributes propertyaccording to yourwishes

• Names an executor tosettle your estate

• Names a guardian forminor children

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2. You can name a legal guardian for minor childrenor dependents with special needs. If you don'tappoint a guardian, the state will appoint one foryou.

Keep in mind that a will is a legal document, and thecourts are very reluctant to overturn any provisionswithin it. Therefore, it's crucial that your will be wellwritten and articulated, and properly executed underyour state's laws. It's also important to keep your willup-to-date.

Letter of instructionA letter of instruction (also called a testamentary letteror side letter) is an informal, nonlegal document thatgenerally accompanies your will and is used toexpress your personal thoughts and directionsregarding what is in the will (or about other things,such as your burial wishes or where to locate otherdocuments). This can be the most helpful documentyou leave for your family members and your executor.

Unlike your will, a letter of instruction remains private.Therefore, it is an opportunity to say the things youwould rather not make public.

A letter of instruction is not a substitute for a will. Anydirections you include in the letter are onlysuggestions and are not binding. The people to whomyou address the letter may follow or disregard anyinstructions.

Living trustA living trust (also known as a revocable or inter vivostrust) is a separate legal entity you create to ownproperty, such as your home or investments. Thetrust is called a living trust because it's meant tofunction while you're alive. You control the property inthe trust, and, whenever you wish, you can changethe trust terms, transfer property in and out of thetrust, or end the trust altogether.

Not everyone needs a living trust, but it can be usedto accomplish various purposes. The primary functionis typically to avoid probate. This is possible becauseproperty in a living trust is not included in the probateestate.

Depending on your situation and your state's laws,the probate process can be simple, easy, andinexpensive, or it can be relatively complex, resultingin delay and expense. This may be the case, forinstance, if you own property in more than one stateor in a foreign country, or have heirs that liveoverseas.

Further, probate takes time, and your propertygenerally won't be distributed until the process iscompleted. A small family allowance is sometimespaid, but it may be insufficient to provide for a family'songoing needs. Transferring property through a livingtrust provides for a quicker, almost immediate transferof property to those who need it.Probate can also interfere with the management ofproperty like a closely held business or stock portfolio.Although your executor is responsible for managingthe property until probate is completed, he or she maynot have the expertise or authority to make significantmanagement decisions, and the property may losevalue. Transferring the property with a living trust canresult in a smoother transition in management.

Finally, avoiding probate may be desirable if you'reconcerned about privacy. Probated documents (e.g.,will, inventory) become a matter of public record.Generally, a trust document does not.

Caution: Although a living trust transfers property likea will, you should still also have a will because thetrust will be unable to accomplish certain things thatonly a will can, such as naming an executor or aguardian for minor children.

Tip: There are other ways to avoid the probateprocess besides creating a living trust, such as titlingproperty jointly.

Caution: Living trusts do not generally minimizeestate taxes or protect property from future creditorsor ex-spouses.

Other benefits of a livingtrust:

• Gives someone thepower to manage yourproperty if you shouldbecome incapacitated

• Lets a professionalmanage your propertyfor you

• May circumvent statelaws that limit yourability to give to charity,or force you to leave acertain percentage ofyour property to yourspouse

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