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Estate Planning

Regardless of your age or financial situation, an estate plan is necessary to ensure that you, your loved ones, and your assets are protected—during your lifetime as well as after your death.

Traditionally, estate planning focuses on the distribution of assets at your death. However, estate planning has grown to mean much more than planning for what happens to property at your death, it is also about planning to minimize estate and income taxes, simplify or avoid probate administration, and for what happens to you and your property if you become mentally incapacitated.

Planning for Your Estate in the Event of Incapacity
Planning for issues involving health care and personal finances in the event of your incapacity have become increasingly more important. Statistics show that people are living longer but are not necessarily living healthier. Consider what would happen if you were to suffer a catastrophic illness or become incapable of managing your own affairs. This situation could occur either through a long, gradual process, such as a deteriorating medical condition, or through a sudden and unexpected accident or illness. If such an event were to happen, who would make your important legal, financial, and health care decisions? On what authority would this individual act?

Fortunately, there are some estate planning tools called advance directives that can help in dealing with these contingencies:

Legal and Financial Decisions.
A durable power of attorney grants authority to another person to make legal and financial decisions on your behalf in the event of mental incapacity. This person is called your agent or attorney-in-fact. A traditional power of attorney terminates upon your disability or death. However, a durable power of attorney will continue during incapacity to provide for your financial wellbeing. A durable power of attorney terminates upon your death. The powers granted can be broad or limited in scope. Some decisions a durable power of attorney can assist you with include your personal finances, insurance policies, government benefits, retirement plans, business interests and real estate.

Health Care Decisions.
In the area of health care decision-making, you may recall the Karen Ann Quinlan case. In 1979, the New Jersey Supreme Court granted permission to her family to disconnect Karen’s respirator, which her doctors believed was prolonging her life in a vegetative state. The case led to the enactment by various states of Natural Death Act Declarations (i.e., living wills).

living will generally allows you to state your preferences prior to incompetency regarding the giving or withholding of life-sustaining medical treatment. In most states, you must have a “terminal condition,” be in a “persistent vegetative state,” or be “permanently unconscious” before life-support can be withdrawn. The definition of these terms and the medical conditions covered may vary from state to state.

health care proxy or health care power of attorney allows you to appoint an agent to make health care decisions on your behalf in the event of incapacity. These medical decisions are not limited to those regarding artificial life-support. A health care proxy authorizes your agent to have access to your medical records, consult with your doctor, and make treatment decisions. This document and a living will can be invaluable for avoiding family conflicts and possible court intervention if you should become unable to make your own health care decisions.

The Alternative.
Failure to plan for your incapacity can result in the need for conservatorship or guardianship proceedings in your local courts. This process can be expensive, time consuming, and emotionally exhausting for your loved ones. The court will continue to oversee your care and asset management and your family will likely have to periodically report to the court regarding your financial and physical condition. Advance directives by durable power of attorney, living will, an health care proxy are generally inexpensive, easy to implement, and can help avoid this process. Further, they can allow you to appoint the individuals that you want to serve in these roles instead of the court making the decision.
Incapacity planning should be considered essential for all individuals, regardless of age or financial standing. In the absence of such documents, court intervention involving a great deal of time, expense, and possibly stress to your family, may be necessary to carry out your legal, financial, and health care wishes at precisely the moment when timeliness and ease of action are of the greatest importance.

Planning for Your Estate in the Event of Death.
Weather you know it or not, you have an estate plan. If you have not formally written out your plan, then your state has one written for you in its laws. The question becomes, who do you want in control – you or them? Upon your death property will pass to others through the legal process known as probate or dictated by the title of the property or through beneficiary designations. At a minimum, proper estate planning will simplify or avoid the probate process and make sure that the title of property and beneficiary designations are in line with the overall plan.

Simplifying or Avoiding Probate.
Probate is the judicial process used for transferring assets to your legal heirs. All questions concerning the disposition and the rights of heirs and creditors are determined during the probate process. If you have minor children, decisions regarding who will care for them will be determined during this process as well.

A last will and testament (will) informs the court overseeing the process how you want your estate to be administered. If you do not have a will, then the court determines how the process will be handled through the laws of intestate succession. Having a properly executed last will and testament puts you in control.

A will allows you to appoint a personal representative or executor to manage your estate, dictate how your want your assets distributed, and streamline the process by avoiding the necessity of surety bonds and inventories. It also allows you to tell the court who you want to serve as guardian for your minor children.

While a will can simplify probate, it does not avoid it. All wills must generally be probated to be enforceable. Depending on your jurisdiction, the probate process can be lengthy, costly, and is open to the public. Further assets are generally frozen or restricted during probate. However, there are ways to avoid the probate process.

Revocable Living Trust is one common tool that is used to help avoid the necessity of probate. By establishing a revocable living trust and transferring assets into while you are alive, you can provide for continued management of your financial affairs during your lifetime (in the event of incapacity, for example), at your death and for generations to come. Your revocable living trust allows for the assets you transferred into it to avoid probate and reduces the chance that personal information will become public record.

There are three important roles involved in a revocable living trust:

  • The Grantor (or settlor) – generally you – creates the trust and transfers assets into the trust.
  • The Beneficiary(ies) – often you, your family, and or charities of your choice – receive the income and/or principal according to your wishes.
  • The Trustee – typically you at first, then family members or a corporate trustee – manages the trust assets.

You can amend or revoke the trust’s provisions at any time during your life.  If you act as you own trustee, you manage your investments and financial affairs as if they are titled in your own name.  The trust survives your death and a successor trustee you appoint takes over to manage the assets for the benefit of your beneficiaries.  Because the trust exist beyond your death, the property titled in the trust does not need to pass through the probate process.

Beneficiary Designations.
While having the appropriate documents in place is the foundation of a complete estate plan, there is more to the process.  In many cases, your will or trust will not control the disposition of life insurance, annuities, IRAs, retirement plans, and many types of employee benefit plans.  Instead, the beneficiary designations you put on these types of accounts controls who will receive those assets.

It is important to name beneficiaries on accounts or place pay on death (POD) or transfer on death (TOD) designations on accounts when it is available to you. Some accounts have default successors established by the governing agreement. Failure to review can result in unintended recipients receiving the assets. If there are not defaults in place, then the assets typically become part of your probate estate which can result in delayed distributions, additional administrative costs, and unfavorable income tax treatment.  It is important to work with your attorney and financial representative to ensure that your beneficiary designations are in line with other planning you have done. 

To receive a complimentary copy of Estate Planning – Building a Foundation,  a guide to further your understanding of Estate Planning basics, please complete the contact us box at the top of this page. Under Subject write Estate Planning. If you would like to receive a print copy instead of an electronic copy please add your mailing address in the Your Message  box.

Periodic Review.
Once you have an estate plan in place and your beneficiary designations are in line with your wishes, it is important to periodically review the plan with your attorney and financial advisor.  Periodic review ensures that your plan remains up-to-date with any changes in the law or significant life changes such as births, deaths, divorces, purchase of real estate, etc.

By taking the time to work with an attorney that is experienced in estate planning and your financial advisor to put an appropriate plan in place, you are protecting your family and taking control of your legacy!