The Most Important Documents You Probably Don’t Have

Dec 9, 2019Family Transformation, Financial Transformation

I’ve lived in the New Orleans area for over 16 years. The memories of Katrina are still fresh in everyone’s mind. It was shocking to me, as Katrina ended and the recovery began, how many people didn’t have flood insurance.

We live near the coast. I’m certainly not here to pass judgement on those who didn’t have flood insurance. But it amazes me that it hadn’t even crossed the minds of many residents.

A simple truth is every single one of us will reach our end at some point. In the same vein I was shocked by the lack of flood insurance, I am amazed at the number of families that come into our offices with no basic legal documents in place; it’s over 80 percent.

Most people put it off because they believe it involves thinking about the end. Consider instead, that it’s one of the most important things you can do for your family.  It also protects you now and throughout your life. This might surprise you to know, but getting these documents put together is easier than you think.

There are three simple documents that can be created on your behalf that will keep your family protected.  I encourage you to be willing to spend the money necessary to get these documents drafted correctly.  I’ve personally witnessed families who found out the documents weren’t drafted correctly at the time they needed them most.

The first and most important document that you need is a power of attorney. The power of attorney document allows someone to act on your behalf if you become incapacitated. This is more important than most people imagine, because we never know what might happen.

Imagine you are injured in a serious car accident, making you unable to function for several months. Your survival is not in doubt, but who’s going to make any financial decisions on your behalf?

If you own a business or property, this becomes even more important. I have seen property transactions held up because an owner became temporarily incapacitated and they didn’t have power of attorney documents in place. No one was authorized to step in and make decisions on their behalf.

I have also seen the blessing to a family who had this document and were able continue life without disruption. Out of all the documents that get created for you, I can’t overcommunicate the importance of the power of attorney.

The second document that should be created with your legal professional is a will. This is an instruction for the things you own and where they should go after you are gone.

One of the best parts about creating a will is you can update it as often as needed. Most families put so much time into thinking about how they want the will to be written, they neglect to do it altogether.

I encourage you to think in five‑year increments. In other words, what would you want to happen if something were to happen to you in the next five years? On a regular basis you can pull the document out and make sure it still aligns with your thinking. It is not uncommon for a will to be changed or updated several times throughout your life.

Thinking in five‑year increments allows for a lot more clarity than trying to look 30 or 40 years down the road and decide what you think you might want to happen. We don’t know when our exit will come. Having a plan that describes where and how our assets should be distributed as of today provides more peace of mind for couples and remaining family.

The third document is a trust. These are valuable in several different instances but are most often used when you have children or significant wealth.

Regarding children, creating trusts inside or independent of your legal documents will give instructions on what should happen with your wealth until your children reach an age of maturity. If you were to pass away before your children reach the age of 25 or 30, leaving a trust with instructions on how those assets should be handled would be one of the best gifts you could leave to your children and their guardians.

As wealth increases, the desire and need to avoid probate typically rises.  Trusts pass independent of the will and therefore you have the opportunity to declare how things should be distributed without having to go through probate in the courts and the public record. Not everyone will need a trust, but every person should consider whether or not a trust would be valuable to their plans.

Don’t wait until it’s too late to think about your legal documents. Most families put these off much longer than they should but with the help of the right professional, the process can bring peace of mind and comfort.  It’s not about creating protection for the end of your life, it’s about protecting those you love most through your life.  I encourage you to schedule a time to meet with a legal professional and begin the process.

At Paradiem, we have discovered that abundance is creating legacies that fail. Most professionals do a great job helping business owners create great tax plans that are ultimately horrible family plans. Our experience is that beginning with a different perspective, creates outcomes beyond anything your current professionals have helped you develop.  I encourage you to get a copy of our whitepaper, “Are there unintended consequences hidden inside your current estate or business plans?”  If you would like a copy, email [email protected] with the subject “Unintended Consequences” or give us a call at (985) 727-0770.