Estate Planning

What is estate planning?

Why is estate planning important for me?

What does my estate include?

How do I name a guardian for my children?

What estate planning documents should I have?

Q: What is estate planning?

When someone passes away, his or her property must somehow pass to others.  Any competent adult has the right to choose the manner in which his or her assets are distributed after his or her passing.  (The main exception to this general rule involves what is called a spousal right of election, which disallows the complete disinheritance of a spouse in most states.) A proper estate plan involves strategies to minimize potential estate taxes and settlement costs as well as to coordinate what would happen with your home, investments, business, life insurance, employee benefits (such as a 401K plan) and other property in the event of death or disability.  On the personal side, a proper estate plan should include directions to carry out your wishes regarding health care matters, so that if you ever are unable to give directions yourself, someone you know and trust would do that for you.

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Q: Why is estate planning important for me?

Sadly, many families do not undertake proper estate planning because they do not believe that they have “a lot of assets,” or believe that their kids can just come in and divide their assets by themselves.  If you do not make proper legal arrangements for the management of your assets and affairs after your passing the state’s intestacy laws will govern.  This often results in the wrong people getting your assets, and may result in much higher estate taxes.
 
Specifically, if you die without a will ("intestate") the transfer of your assets is accomplished through a public court-supervised proceeding called administration, that generally takes a year or more. These public proceedings can be expensive and time-consuming.  Worse, your failure to outline your intentions through proper estate planning can tear apart your family, as several individuals may maneuver to be appointed with the authority to manage your affairs.  It is not unusual for bitter family feuds to ensue over modest sums of money or a family heirloom.

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Q: What does my estate include?

Your estate is everything that you own, anywhere in the world, including:

• Your home or any other real estate that you own
• Any interests you may have in any business
• Your share of any joint accounts
• The full value of your retirement accounts
• Any life insurance policies that you own
• Any property owned by a trust over which you have a significant control
• All of your personal property

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Q: How do I name a guardian for my children?

If you have children under the age of eighteen you should designate a person or persons to be appointed guardian(s) over their person and property.  Of course, if a surviving parent lives with the minor children (and has custody over them) he or she automatically continue to remain sole guardian.  This is true despite the fact that others may be named as guardians in your estate planning documents.  You should name at least one alternate guardian in case the primary guardian cannot serve or is not appointed by the court.
 

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Q: What estate planning documents should I have?

A comprehensive estate plan should include the following documents, prepared by an attorney based on in-depth counseling which takes into account your particular family and financial situation:

A Living Trust can be used to hold legal title to and provide a mechanism to manage your property. You and/or your spouse can be the Trustee(s) and/or beneficiaries of your trust during your lifetime.  You can designate successor Trustees to carry out your instructions in case of death or incapacity. Unlike a Will, a Trust usually becomes effective on its execution. Your Living Trust may be "revocable," which allows you to make changes and even to terminate it.  One of the benefits of a properly funded Living Trust is the fact that it will avoid or minimize the expense, delays and publicity associated with probate. 

If you have a Living Trust based estate plan you may also need a Pour-Over Will.  A Pour-Over Will is used first to name a guardian for minor children. Second, it protects against intestacy in the event any assets have not been transferred into the trust on the date of death. It can also revoke any previous Wills that you have executed.  Its function is to "pour" any assets left out of the Trust into it so they are ultimately distributed according to the terms of the Trust.

A Will, also referred to as a "Last Will and Testament", is primarily designed to transfer your assets according to your wishes. A Will also typically names someone you select to be your Executor, who is the person you designate to carry out your instructions. If you have minor children you should also name a Guardian (and alternate Guardian in case your first choice is unable or unwilling to serve). A Will only becomes effective upon your death and after it is admitted by a probate court.

A “Durable Power of Attorney” allows your financial affairs to be carried on in the event that you become disabled. Unless you have a properly drafted Power of Attorney it may be necessary to apply to a court to have a guardian appointed to make decisions for you while you are disabled.  This guardianship process is time-consuming, expensive and emotionally draining.

There are generally two types of durable powers of attorney: a "present" durable power of attorney in which the power is immediately transferred to your attorney in fact; and a "springing" or future durable power of attorney that only comes into effect upon your subsequent disability as determined by your doctor or other specified contingency.  When you appoint another individual to make financial decisions on your behalf that individual is called an "attorney in fact". Any adult can be designated, most commonly your spouse or domestic partner, a trusted family member, or friend.  Signing a Power of Attorney allows you to decide who will make decisions for you during your disability or unavailability.

The law allows you to appoint someone you trust - for example, a family member or close friend, to decide about medical treatment options if you lose the ability to decide for yourself.  You can do this by signing a Health Care Proxy.  You may specify instructions that your Health Care Agent must follow.  Your agent can then insure that health care professionals follow your wishes.  Hospitals, doctors and other health care providers must follow your agent's decisions as if they were your own.

A Living Will informs others of your preferred medical treatment should you become unable to make or communicate decisions regarding treatment. Almost all states have instituted Health Proxing or Living Will laws to protect a patient's right to refuse medical treatment.  Even if you receive medical care in a state without Living Will laws the document is useful to a court trying to decide your medical care.  In conjunction with other estate planning tools, it can bring peace of mind and security while avoiding unnecessary expense and delay in the event of future incapacity.

Some medical providers have refused to release information, even to a spouse and adult children, authorized by durable medical powers of attorney, on the grounds that the 1996 Health Insurance Portability and Accountability Act, or HIPAA, prohibits such releases.  In addition to the above documents, you should also sign a HIPAA compliant authorization form that allows the release of medical information to the individual whom you designate.

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