While nobody likes to dwell on it, the possibility of something bad happening to them is always somewhere in the back of most peoples' minds. Indeed, on any given day, anyone could die in some sort of accident or other tragic event.

The 10th anniversary of the September 11 attacks is a vivid reminder of this - and of how important it is to have your financial affairs in order in case you did die suddenly. If you did and your affairs weren't in order, your surviving loved ones might be strapped financially or have a slew of legal matters to contend with on top of having to deal with the emotional pain of your loss. (For some ideas on which insurance you should carry, check out 5 Insurance Policies Everyone Should Have.)

TUTORIAL: Intro To Insurance

But what does it mean, exactly, to "have your affairs in order"? It means you should have a will, living will, financial durable power of attorney and health care proxy. While this may sound complex and costly, you can take care of it all through a qualified estate planning attorney. And the cost generally isn't all that bad. Many people will tell you the peace of mind you get is well worth the price tag.

Here are some basics on the four legal documents virtually everyone should have to make sure their affairs are in order.

Last Will and Testament
This document relates your wishes about many important things including how to divide your belongings, who you'd like to be in charge of your estate and who you want as the guardian(s) of your minor children if you have any. People who die without a will are said to have died "intestate." When that happens, their assets are distributed according to state law. The danger with that is the state may not act according to the wishes of the deceased.

Financial Durable Power of Attorney
A durable power of attorney names an "attorney in fact," a person who can make non-medical decisions for you if you become incapacitated. The document commonly allows the attorney in fact to do things like access bank accounts and investments, pay bills, sell assets - anything the incapacitated person could normally do with their money or property. Since a durable power of attorney may put you in a vulnerable position, be sure to name an attorney in fact who you're certain will act in your best interests.

Health Care Proxy
A health care proxy is similar to a durable power of attorney except it names a "health care agent," someone to make medical decisions for you if you're incapacitated. The document gives your healthcare agent the authority to do things like have you admitted to a hospital or other healthcare facility, authorize medical or surgical treatments for you or even stop treatment if your agent believes that's what you would want. Although you can spell out what medical interventions you do and don't want in the document, be sure to discuss these wishes with your health care agent, too.

Living Will
Whereas a health care proxy addresses medical conditions that may or may not be terminal, a living will details your wishes for treatment when you're incapacitated and death is imminent or you're in a permanent vegetative state. Specifically, the document tells your loved ones and caregivers whether or not to keep you alive artificially with a mechanical ventilator or other machines. A living will may also include instructions about whether or not to resuscitate you if you stop breathing or your heart stops.

The Bottom Line
In addition to seeing an estate planning attorney about the four legal documents described here, have a qualified financial advisor review your life insurance coverage. If you're underinsured or lack coverage, make it a top priority to get life insurance as soon as possible. You'll sleep a lot better knowing your affairs are in order and your loved ones won't have to worry about money or a whole bunch of legal issues if something happened to you. (To help protect your investments from unseen danger, read Tips For Recession-Proofing Your Portfolio.)

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