It's time for a reality check on life's most important documents. Find out which documents you need to have and why.

If you look online for a list of life's most essential paperwork, you might come across a rap album called Paperwork, and an obscure Italian movie called Love Affairs and Paperwork. Since neither source offers much in the way of help or, arguably, entertainment, we've tackled the task for you here.

Living will and healthcare proxy

If a serious car accident should suddenly put you into a permanent coma, would your family know what to do? A living will takes the question out of the equation: it specifies clearly what type of life support, if any, you'd like to receive, should you become irrevocably incapacitated. More importantly, the living will frees your loved ones from having to make this stressful decision.

A healthcare proxy is necessary if your condition is serious enough that you can't communicate, but not so serious that death is imminent. The proxy gives a trusted individual the authority to make medical decisions on your behalf.

Once you execute these documents, don't forget to tell someone about them. If you hide the living will and proxy in a safe deposit box and no one knows they're there, they might as well not exist.

Giving power away

A durable power of attorney gives another person the authority to execute financial transactions and sign agreements on your behalf. This can keep your life moving forward, even when you're temporarily out of commission. If you're sidelined with a serious illness, for example, you don't have to put off closing your business loan-just send your trusted loved one to sign for you.

Planning for protection

If you'd rather leave more money to your heirs and less money to the tax man, create an estate plan. An estate planning specialist can guide you to an appropriate asset structure that avoids an unnecessary tax burden.

In addition, you should have a sit-down with your significant other to create a list of pre-retirement financial goals. Would you like to buy a first home? A vacation home? Have you always dreamed of sending your kids to an Ivy League school? Clarify these goals and create a financial plan to meet them.

Calculate the long term

A retirement calculator can help you determine how much savings you'll need to retire. An investment growth calculator can help you figure out how to accumulate the targeted level of savings. Your retirement plan should document what you need to save or invest monthly, and what types of investments can help you achieve your long-term growth targets.

Gathering these documents may be tedious, but your efforts will be rewarded. There's no doubt that adding structure to your life will reduce stress and leave you with more free time to listen to rap music and watch foreign films.

Published on June 27, 2008