The beginning of a new year is a good time to take a look at your estate plan to make sure it is up to date and sound. No estate plan in place? You are not alone; less than half of people actually have any estate planning documents in place. It is also a good time to put your estate plan in place.
In general, we recommend you review your estate plan at a regular frequency, at least once every 2-3 years, or when there is a life event like the following:
- Marriage, divorce, or illness, disability or death of your spouse
- Large increases or decreases in the value of your assets
- Changes in federal or state laws covering taxes and investments
- Any family member passes away, becomes ill, or becomes disabled
- Death or change in circumstance of your agent, executor or trustee
- The birth or adoption of a new child or grandchild
- When a child or grandchild becomes an adult
Reviewing your plan at regular intervals in addition to major life events will help ensure that your legacy, both financial and otherwise, is passed on in accordance with your wishes as smoothly as possible and the most appropriate persons will be able to handle your medical and financial affairs if and when needed.
Estate planning is all about these critical documents:
- The Durable Power of Attorney
This document allows someone you appoint to take care of you and your family during life, as opposed to after death. to step in and handle your finances and legal matters either immediately or in the alternative, in the event of your incapacity, whether through illness, dementia, or an accident as you designate. In the absence of a durable power of attorney, family members often must resort to going to court to be appointed conservator. This causes delay and expensive and unnecessary legal fees. It can also cause infighting by family members since you have not chosen who should step in.
- Health Care Power of Attorney
A health care agent steps in for you to make your health care and personal decisions when and if you become incapacitated. You should have a health care power of attorney in effect to avoid disputes among family regarding who should make your medical decisions if you cannot, and provide a clear point of contact for your medical professionals. Without a health care power of attorney, your family may need to resort to going to court to be appointed guardian. As I always say to clients, the lawyer is the only party who looks forward to going to court.
- Living Will
This medical directive sets forth your wishes concerning medical treatment you would or would not want, specifically end of life medical treatment. Most people do not want heroic measures to sustain life if there is no hope of recovery. That said, if your wishes are not clearly set forth in writing your family may argue and even litigate your wishes, think of the well-known Terry Schiavo case. In addition, without a Living Will you may be the recipient of medical treatment you would not want. In short, this document speaks for you when you cannot do so yourself.
- HIPAA Release
In addition to a health care power of attorney, everyone needs a HIPAA release. The HIPAA law prohibits medical practitioners from releasing your medical information to anyone, even to your spouse, without a release. You may well ask why a heath care proxy isn’t sufficient. There are a few answers: First, the health care proxy is “springing” in that it doesn’t get activated until or unless the patient is declared incapacitated. Second, while the health care proxy may only name one person at a time, you may well want a much broader group of people to communicate with medical providers, such as spouse and all adult children.
- Your Will
Your Will says who will inherit your estate after you die and who will be in charge of marshalling your assets, paying your debts and expenses, and distributing what remains according to your instructions. But there is a catch: although the Will gets all the notoriety the Will only controls the assets that are in your name alone at death and pass through probate transfer. There are many so-called “non-probate” transfers such that what the Will says does not apply in many situations, including: joint accounts that pass to the other joint owners, retirement plans and life insurance policies that go to designated beneficiaries, and property in trust that passes to the beneficiaries named in the trust document. That said, even if you intend for your estate to pass by non-probate transfer a Will can serve as a failsafe in case other means of passing on property fail.
- Revocable Trust
The documents listed above may be enough, but you may also want a revocable trust, sometimes called a “living” trust. A trust is a legal construct under which one or more people, the trustees, manage property or investments for the benefit of one or more people, the beneficiaries. In a revocable trust, typically at the start the same person acts as the creator of the trust, will also be trustee and beneficiary. Not much changes in their lives after they set up the trust but upon death the trust avoids probate for all assets owned by the trust. Financial institutions that are resistant to accepting durable powers of attorney appear to be more receptive to working with a successor trustee under a trust agreement. But more importantly, a trust is a terrific tool for intervening in the event of incapacity for the reason only the trustee can manage the assets. In the instance where the original trustor and trustee (e.g., an elderly parent) develops dementia and becomes unable to handle financial matters, the successor trustee may take over (e.g., trusted adult child or other family member) and protect the trust from mismanagement or theft. In addition to probate avoidance and incapacity protection, trusts are flexible in terms of how they are drafted. They can state any number of specifics on who receives property when, for instance, permitting its distribution over time to children and grandchildren.
The common myth is that estate planning is about death. However, most of these documents are more about life and planning for its uncertainties.