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By Christine Benz | 10-06-2014 10:00 AM

What You Need to Know About Estate Planning Today

Every pre-retiree and retiree needs these documents, says estate-planning expert Deborah Jacobs.

Note: This video is part of Morningstar's October 2014 5 Keys to Retirement Investing special report.

Christine Benz: Hi, I'm Christine Benz for It's 5 Keys to Retirement Investing week. Joining me to discuss the topic of estate planning and essential estate-planning documents is Deborah Jacobs. She is an estate-planning expert. Deborah, thank you so much for being here.

Deborah Jacobs: I'm happy to be here. Thank you for having me.

Benz: We are focusing on retirement planning all this week, and we'd like to look at estate planning. What essential documents should every pre-retiree and retiree be thinking of as they are setting the groundwork for their estate plans?

Jacobs: Many people, when they think about estate planning, think it’s a way of giving away their stuff, dealing with things that happen after they die. But the first chapter of my book, Estate Planning Smarts, has absolutely nothing to do with giving away your stuff. It involves planning for later stages of life, including events that could happen without much warning.

So, I recommend that everybody have a durable power of attorney first of all, which gives somebody authority to step into your shoes to handle financial matters if you, for any reason, can’t do it for yourself--which might just be temporarily, say, when you are in the hospital. As a matter of fact, this particular document is something that I recommend parents get their 18-year-olds to sign as they go off to college. So, this is absolutely not just for old folks.

The other document, in a similar vein, is the health-care proxy: another one that everybody over the age of 18 should have. This authorizes someone to make decisions about your medical care if you can’t. It’s sometimes called the health-care power of attorney, which can be a little bit confusing because it shouldn’t be confused with the durable power of attorney, which just applies to financial matters.

Often now, when you are admitted to a hospital for any reason, they will ask you whether you have a health-care proxy. They'd like to have it in their files. In some hospitals now, if you don’t have one, if you haven’t done one, they have in their standard admission paperwork a proxy that you can fill out. So, that’s really important.

The other thing that goes with that is a living will expressing your preferences about end-of-life care. Some lawyers who prepare these documents combine the language about that in the health-care proxy. So, you might have one document covering both those issues.

Everybody should have a will. Some people like also to have a living trust, which can serve a couple of different purposes both while you are alive and after you die. But even if you go that route and have a living trust--which some people prefer in certain states because it doesn’t need to be admitted to probate unlike a will and it doesn’t need to become a public record--you do need to have a will because there are some things that you can only do in a will, namely appoint a guardian for minor children. It's very important for young parents and even people who become parents later in life to take this step in a will. If they don’t do that, a court will do it for them.

The other reason to have a will, even if most of your stuff is being passed through a living trust, is because inevitably there are assets that don’t get put into the trust. So, the will can sweep things up even if your main transfer method is through the living trust. These two documents are very often confused. A lot of people don’t understand the difference between a will and a living trust.

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