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I stumbled on a story earlier this year of a widower who faithfully paid the premiums on a large (over $1 million) life insurance policy. When he had a massive stroke, his children moved him to be close to them, and closed his bank account. Months later, his children discovered the policy in their father’s paperwork, but by then it was too late –the company had no option but to cancel the policy after months of missed payments.

It may be perfectly understandable that you don’t want to tell your children that you have a large insurance policy on your life. But in the event of sudden incapacity, you should have someone chosen to step in and take over the finances. That person is going to need some help from you, namely some organization of important paperwork, instructions on what to do, and finally some authority to take action.

Organization

It is helpful for anyone who has to step into a situation to have a starting point. I like to recommend to my clients that they add to their trust binder life insurance policy statements and retirement account statements. Other important information would be banks and investment accounts, and any other financial investments (notes, rentals, etc). Knowing where to go to get these important papers can be as simple as “look in my fire safety box located …” and then making sure that crucial papers are there to find.

Instructions

The person taking over your finances in the event of incapacity will have a lot of discretionary decisions to make. The legal documents you create should convey authority to make decisions (discussed in more detail below) but they don’t necessarily tell your agent how or what to do. Your agent may appreciate knowing how you would want them to exercise their discretion, and that involves telling them in writing preferably, but also in conversation what you want done.

Authority

It does no good to be organized and have clear communications if you don’t give your agent any authority to act. In certain circumstances your agent may be forced to seek a conservatorship either of the person or the finances or even both. A conservatorship is a court supervised process granting someone the authority to make financial and personal decisions for someone else. The process can be expensive and time consuming, and at times very unwieldy. The way to avoid that process is by granting that authority ahead of time through a Durable Power of Attorney which grants the agent you select the ability to act on your financial affairs, and the Advance Health Care Directive, which grants the agent you select the ability to act on your medical affairs. These two important documents protect you and your estate in the event you become incapacitated.

If something happened to you, do you know who would step in for you? Would that person know where to go, what to do, and would they have the authority to act?

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