Reduce Your Stress With an Up-To-Date Estate Plan

Everyone who lived through September 11, 2001, shares a common experience. Although colored by our individual circumstances, we remember looking at the horrific images of destruction and misery and wondering why this tragedy occurred. Since that fateful day, Americans have flocked to churches, synagogues, mosques, and other places of worship seeking answers to questions regarding the meaning of life and the existence of suffering.

This national tragedy continues to affect all of us to varying degrees. We face similar issues in environmental calamities such as hurricanes, tornadoes, wildfires, and in personal struggles such as the COVID-19 pandemic and unexpected illnesses. In each instance, we prepare the best that  we can. We can prepare ourselves for these unforeseen circumstances by planning what we should do should in the event a crisis strikes. 

A comprehensive estate plan relieves stress at the time of a crisis, both for us and for those people in our lives whom we love. The core estate plan includes six (6) legal documents when probate avoidance is desired. 

These estate planning documents are your: Last Will and Testament, Revocable Living Trust, Durable Financial Power of Attorney, Health-Care Power of Attorney, Advance Medical Directive, and HIPAA Waiver Authorization.

Durable Financial Power of Attorney

Your Durable Financial Power of Attorney allows you to designate an “Agent” who will make financial decisions for you if you are temporarily or permanently unable to do so for yourself. Your Agent is held to a fiduciary standard of care regarding the management of your financial assets and will be vested with the legal authority to act on your behalf. This person may be your spouse, a parent, or a trusted friend. Without this legal document in force, if you become ill, injured, or incapacitated, no one can act on your behalf. As a result, if you suffer an illness or become incapacitated, and your family needs to manage your assets, pay your bills, or refinance your house, a Guardianship proceeding would need to be initiated by going to court and having you declared incompetent. Incapacity proceedings are often an arduous, protracted, humiliating, and expensive alternative, compared to working with a competent estate planning attorney to prepare your Durable Financing Power of Attorney.

Health-Care Power of Attorney and Advance Medical Directive

A Health-Care Power of Attorney designates your “Agent” to make health care decisions for you if you are unable to make them for yourself, due to an illness, injury, or incapacity. With this legal document in place, you can rest assured the person you trust will have the legal authority to make medical decisions for you, which can save your life, if you are not able to communicate your wishes to any health care providers. You also may desire to prepare an Advance Medical Directive, commonly known as a Living Will, which expresses what your wishes in the event that you suffer a catastrophic illness and end-of-life decisions need to be made in your behalf.

HIPAA Authorization

A HIPAA Authorization allows people whom you designate, such as your Agents or other individuals, to receive information from your doctors, hospital personal, and other medical care providers about your health condition.

Last Will and Testament

Your Last Will and Testament has several functions. First, and most importantly, this legal document allows you to specifically designate one or more individuals you desire to serve as the Personal Guardian to raise your minor children. Without a Will the court will decide who will be appointed as Personal Guardian for your minor children, which may not have been consistent with your wishes. Unfortunately, no matter how competent the judge may be, that judge does not know and love your children as you do, nor know your wishes. Second, your Will appoints your Executor to oversee the settlement of your estate. This person is charged with the fiduciary responsibility of properly collecting your assets in the event of your passing, paying all final debts, taxes, and administrative expenses, and distributing assets that are held in your individual name at your death to your intended beneficiaries. Without a Will, the state determines how, to whom, and when your property will be distributed, which assets will be distributed to your heirs under the laws of “intestate succession.” Unfortunately, distribution of property under your state’s intestate laws ignores your specific desires and family circumstances. As a result, your assets often do not go to the desired person, in the desired manner and at the desired time. Certain types of Wills, called pour-over Wills, may “pour” your assets “over” upon passing into a Revocable Living Trust (“RLT”), to be distributed to your designated beneficiaries as you desire under the specific terms of your trust.

Even with a Will, any assets you own at death must go through “probate” to be distributed to your designated beneficiaries. Probate is the court sanctioned process of transferring title of property from the person who died to  one or more people who have the right to receive the property in the event of your passing. Depending upon the state where your financial assets and real estate are located, this process can be expensive, time-consuming, and emotionally draining for those family members left behind.

Revocable Living Trust

Establishing a Revocable Living Trust (RLT) to hold legal title to your assets during your lifetime avoids the probate process to settle your estate. Your RLT acts as a Will substitute upon your death and vests the successor Trustee with the legal authority to collect assets, pay your debts, expenses, and taxes, and distribute your assets in accordance with the terms and provisions forth in your RLT. As a result, all assets held in your RLT avoid the costs, delays, and publicity of a probate proceeding because your RLT, which owns your assets, is never exposed to the probate process. Even though an RLT holds legal title to your assets, you retain complete control of the assets during your lifetime and can make changes to the RLT. If you become incapacitated, the person you have chosen as your successor Trustee will manage the assets for you, much like the Agent under your Property Power of Attorney, which also avoids a Guardianship proceeding for all assets owned by your trust. RLTs provide great flexibility in allowing you to direct how and when the assets will be used by your designated beneficiaries after your death. For example, you can include specific provisions that ensure your children do not squander money but, rather, have access to the income and principal of the trust for their health, education, maintenance, and support.

Finally, as part of your estate plan, you need to seriously consider how other assets you own, which distribute by Beneficiary Designation, pass to your family members upon your passing. Therefore, we urge you to periodically and carefully review the beneficiary designations of your tax-deferred retirement plan accounts, including your 401k, IRA, or other qualified plan assets. Often, personal, family, tax laws, and financial circumstances change, and you may desire to update your beneficiary designations to take into account these multiple changes. This becomes increasingly important, especially since retirement assets comprise a larger and larger portion of the typical person’s total assets. Periodically, you should also review the beneficiary designations on file with  life insurance companies where you are the insured, including company provided and personally owned life insurance policies. You should also review any bank account or brokerage accounts you own which assets may transfer automatically at death to a beneficiary, resulting from including a joint owner, or as a result of a transfer on death or payable on death designation on such accounts.

While we cannot eliminate the possibility of tragedy in our lives, please don’t let a personal tragedy become a financial disaster for your family.  

You do have the power and ability to significantly reduce anxiety for yourself and your loved ones by establishing a comprehensive estate plan that provides instructions to your loved ones regarding what should happen if tragedy occurs. 

This edition of Estate Planning Matters reviewed the core comprehensive estate planning legal documents which individuals who own property should have in place in order to protect themselves and their loved ones. Other issues which need to be considered include beneficiaries with special needs, asset protection strategies, as well as the impact of state income taxes, inheritance taxes, and potential changes in federal estate tax laws.