What Estate Planning Documents Should Everyone Have?

This is the time of year when people start thinking about getting piles or files of paperwork in order in preparing for a new year and for taxes. A recent article “How to Prepare, Organize and Store Estate-Planning Documents” from The Street gives useful tips on how to do this.

First, the most important documents:

Estate Planning documents, including your Will, Power of Attorney (POA), Healthcare Proxy, Living Will (often called an Advance Care Directive). The will is for asset distribution after death, but other documents are needed to protect you while you’re alive.

The POA is used to name someone to act on your behalf, if you cannot. A POA can be created to be specific, for example, to have someone else pay your bills, or it can be general, letting someone do everything from paying bills to managing the sale of your home. Be cautious about using standard POA documents, since they don’t reflect every situation.

A Healthcare Proxy empowers someone you trust to make medical decisions on your behalf. The Living Will or Advance Care Directive outlines the type of care you do (or don’t) want when at the end of your life. This alleviates a terrible burden on your loved ones, who may not otherwise know what you would have wanted.

Add a Digital POA so someone will be able to access and manage your online accounts (subject to the terms and conditions of each digital platform).

Your Last Will and Testament conveys how you want your estate—that is, everything you own that does not have a surviving joint owner or a designated beneficiary—to be distributed after death. Your will is also used to name a guardian for minor children. It is also used to name an executor, the person who will be in charge of carrying out the instructions in the will.

A list of all of your assets, including bank accounts, retirement accounts, investments, savings and checking accounts, will make it easier for your executor to identify and distribute assets. Don’t forget to check to see which accounts allow you to name a beneficiary and make sure those names are correct.

Both wills and trusts are used to convey assets to beneficiaries, but unlike a will, “funded” trusts don’t go through the probate process. An experienced estate planning attorney can create a trust to distribute almost any kind of property and follow your specific directions. Do you want your children to gain access to the trust after they have reached a certain age? Or when they have married and had children of their own? A trust allows for greater control of your assets.

Finally, talk with your family members about your estate plan, your wishes for end-of-life medical care and what you want to happen after you die. Write a letter of intent if it’s too hard to have a face-to-face conversation about these topics, but find a way to let them know. Your estate planning attorney has worked with many families and will be able to provide you with suggestions and guidance.

Reference: The Street (Dec. 20, 2021) “How to Prepare, Organize and Store Estate-Planning Documents”

What a Will Can and Cannot Do

Having a will doesn’t avoid probate, the court-directed process of validating a will and confirming the executor. To avoid probate, an estate planning attorney can create trusts and other ways for assets to be transferred directly to heirs before or upon death. Estate planning is guided by the laws of each state, according to the article “Before writing your own will know what wills can, can’t and shouldn’t try to do” from Arkansas Online.

In some states, probate is not expensive or lengthy, while in others it is costly and time-consuming. However, one thing is consistent: when a will is probated, it becomes part of the public record and anyone who wishes to read it, like creditors, ex-spouses, or estranged children, may do so.

One way to bypass probate is to create a revocable living trust and then transfer ownership of real estate, financial accounts, and other assets into the trust. You can be the trustee, but upon your death, your successor trustee takes charge and distributes assets according to the directions in the trust.

Another way people avoid probate is to have assets retitled to be owned jointly. However, anything owned jointly is vulnerable, depending upon the good faith of the other owner. And if the other owner has trouble with creditors or is ending a marriage, the assets may be lost to debt or divorce.

Accounts with beneficiaries, like life insurance and retirement funds bypass probate. The person named as the beneficiary receives assets directly. Just be sure the designated beneficiaries are updated every few years to be current.

Assets titled “Payable on Death” (POD), or “Transfer on Death” (TOD) designate beneficiaries and bypass probate, but not all financial institutions allow their use.

In some states, you can have a TOD deed for real estate or vehicles. Your estate planning attorney will know what your state allows.

Some people think they can use their wills to enforce behavior, putting conditions on inheritances, but certain conditions are not legally enforceable. If you required a nephew to marry or divorce before receiving an inheritance, it’s not likely to happen. Someone must also oversee the bequest and decide when the inheritance can be distributed.

However, trusts can be used to set conditions on asset distribution. The trust documents are used to establish your wishes for the assets and the trustee is charged with following your directions on when and how much to distribute assets to beneficiaries.

Leaving money to a disabled person who depends on government benefits puts their eligibility for benefits like Supplemental Security Income and Medicaid at risk. An estate planning attorney can create a Special Needs Trust to allow for an inheritance without jeopardizing their services.

Finally, in certain states you can use a will to disinherit a spouse, but it’s not easy. Every state has a way to protect a spouse from being completely disinherited. In community property states, a spouse has a legal right to half of any property acquired during the marriage, regardless of how the property is titled. In other states, a spouse has a legal right to a third to one half of the estate, regardless of what is in the will. An experienced estate planning attorney can help draft the documents, but depending on your state and circumstances, it may not be possible to completely disinherit a spouse.

Reference: Arkansas Online (Dec. 27, 2021) “Before writing your own will know what wills can, can’t and shouldn’t try to do”

How Important Is an Estate Plan?

Estate planning is preparing for two things: incapacity and death. It includes making sure you’ve conveyed your wishes about medical care in the case of a serious or terminal illness, who you want to receive your possessions when you pass and a series of documents to tell your loved ones your wishes. A recent article from The Street, “Everyone Needs an Estate Plan,” explains how to make this happen.

The foundation of the estate plan is your will, aka Last Will and Testament. It’s used to name several individuals for key roles. One is a guardian for minor children—if you don’t have a will or fail to name a guardian, a court will decide who should raise your children. Another is the executor, the person who will be in charge of overseeing your estate and your instructions. If you have animal companions, you may name a person to be their caretaker. However, you may want to go a step further and create a pet trust to provide funds for their maintenance.

You’ll also want a Living Will. This is a document conveying your wishes, if you are no longer able to make healthcare decisions for yourself. It focuses on end of life care. Do you want to be kept alive with artificial means, and if so, which ones are acceptable? How would you want pain management to be handled? Do you want to donate your organs? Yes, it’s a little scary, but imagine your loved ones in a highly emotional state having to guess what you would have wanted. It’s better for you and your family to know what you would want.

A personalized Power of Attorney. Naming a person as a Power of Attorney lets them handle your financial affairs and act as your agent or representative. However, here’s a pitfall: using a standardized form can lead to trouble. You may want your POA to be able to manage your day-to-day finances, but there may be some things you’d prefer them not to do. A customized POA can be as broad or as narrow as you wish.

Healthcare Power of Attorney and HIPAA Authorization. Information and decision making about healthcare today is complicated today. Your representatives will need to have these documents to speak with your medical care providers, to make decisions and to gain access to your medical records. Without a HIPAA form, you won’t be able to see their medical records, even if you are a sibling or spouse. It’s best to have these documents in place long before they are needed.

The laws about these and other estate planning documents vary from state to state. Therefore, you’ll need to work with an experienced estate planning attorney in your area to make sure that all of your documents are valid. If you own a business or have a complex financial situation, there are many legal methods to protect your assets and convey them to your heirs.

Reference: The Street (Nov. 22, 2021) “Everyone Needs an Estate Plan”

Do You Need an Estate Plan or Will?

No one wants to squander a lifetime of sacrifice and hard work. However, if there is no estate plan, it’s entirely possible for this to occur. The aim of every estate plan, no matter how larger or small the estate, is to protect loved ones. What steps need to be taken are described in the article “Estate Planning for Everyone” from The Street. An estate plan can include almost any of your goals, and it’s not something to postpone.

Think of estate planning as a means of efficiently transferring the assets you’ve accumulated over a lifetime, while protecting your family from unnecessary expenses, stress and yes, taxes. Without an estate plan, the laws of your state and the federal government will determine who receives what, and your estate will be reduced considerably by taxes. The process will take months, or even years. If you have ever been divorced, own property in more than one state, own a business or care for a family member with special needs, the complications and costs grow exponentially.

The core of any estate plan is the answer to a few simple questions: how do you want future generations to carry out your wishes? Who would you like to take care of? And how do you want to be remembered? An estate plan can allow you to set up a roadmap for future generations, manage how and when wealth is distributed, create a legacy for your family and, if you are charitably minded, for your community.

A Will, or Last Will and Testament. This document is used to spell out how your assets should be distributed upon your death. It also includes naming a guardian if you have minor children and names an executor, the person who will be in charge of carrying out the directions in the will. You can also use a will to name gifts to individuals or institutions. Without a will, assets may be distributed in accordance with state law, which may not be the same as your wishes. Heirs will almost assuredly pay more in estate taxes and the family may find themselves battling over personal items.

The will forms the foundation of estate planning, but it is by no means the only document you’ll need.

Living Will. This is a legal document used to communicate end-of-life decisions. In some states, it’s referred to as an Advance Healthcare Directive. It often includes a Do Not Resuscitate (DNR) order, if you do not want life-extending treatments, like a breathing or feeding tube, blood transfusion, dialysis, or pain medication. The living will only work if the family knows where it is and shares it with your healthcare providers. Let loved ones know your wishes and tell them where the living will is located.

Power of Attorney—Healthcare and Financial. Power of Attorney, or POA documents, name people to manage specific tasks for you if you are incapacitated, whether by illness or injury. Don’t make the mistake of using a standard form because it may not reflect your wishes. For instance, you may want to name one person to handle your finances, but you may not want the same person to handle the sale of your home. The POA can be as broad or as narrow as you want, but only if it is created for your needs.

Without a POA, the family will need to go to court and have one or more people named to act as your guardian. This takes time, is expensive and extremely stressful. What if the court names a family member to make all of your decisions, and it is someone you don’t want? The matter will be out of your control.

Trusts are used to avoid certain assets passing through probate, minimize taxes and maintain privacy. Trusts are legal entities, funded with a wide range of assets, which are transferred out of your control and into the trust, where they are the responsibility of the trustee. When the trust is a “revocable living trust,” then you will likely serve as the trustee as long as you are able. The person who receives the assets at the direction of the trust is known as the beneficiary. There are numerous types of trusts, and your estate planning attorney will recommend the one that works best for your purposes.

Reference: The Street (Nov. 4, 2021) “Estate Planning for Everyone”

Is It Important to Have a Power of Attorney?

If you have a will, you have a document to tell others what you want to happen with your property after you die. However, if you are incapacitated and cannot make decisions about your finances or health, you need a Power of Attorney, says Ohio News Time in the article “Do I Really Need a Power of Attorney?”

A Power of Attorney (POA) names another person, referred to as an “agent,” to make decisions on another person’s behalf, known as the “principal.” The agent may need to manage the person’s finances, including paying a mortgage, utility bills and handling other money matters.

If there is no POA, the family faces a series of challenges. They will need to go to court and apply to become their loved one’s guardian. This process becomes expensive and time consuming. Anyone applying to become a guardian needs to be vetted by the court and any large decisions made for the ward must be approved by the court. The court is not required to make a family member a guardian, so it is possible for a person the family doesn’t even know to suddenly be empowered to handle their loved one’s finances.

It’s far easier to have a POA created when you have your estate created. When you update your estate plan, you’ll also want to review and update your POA.

A POA should never be a standard form, since few people’s lives fit into a standard format. For instance, you may want a POA to permit your agent to conduct all of your financial matters, but not to sell your home. You may want to name a specific person just to handle the sale of your home, if you are not able to return to living at home but will need to permanently stay in a long-term care facility. The POA is tailored to reflect your wishes and can be as broad or as narrow as you want.

It is also important to name “successor” agents. If the first person you name cannot or does not want to serve in this capacity, naming a successor agent will make the transition easier. In the event the successor does not want to serve, it may not be a bad idea to have a back-up to the back-up.

Speak with the people you are naming to serve as POA to ensure that they know what their responsibilities will be and confirm their willingness to serve. It is also important to be realistic: if they are the same age as you, will they be able to serve? It may be better to name an adult child to take on this role.

In addition to the POA, everyone should have a Health Care Power of Attorney. This permits a named person, also known as an agent, to discuss your health with doctors and other providers and make decisions about your care. You’ll also want a HIPAA Release, so a person you wish has access to medical records.

The POA is often considered a simple add-on to an estate plan. However, it is actually a very important document to protect you while you are living. Without it, your spouse or adult children will have many more barriers to be involved in your care and make decisions on your behalf.

Reference: Ohio News Time (Oct. 15, 2021) “Do I Really Need a Power of Attorney?”

What a Will Won’t Accomplish

Everyone needs a will. A last will and testament is how an executor is named to manage your estate, how a guardian is named to care for any minor children and how you give directions for distribution of property. However, not all property passes via your will. You’ll want to know what a will can and cannot do, as well as how assets are distributed outside of a will. This was the topic of “The Legal Limits of Your Will” from AARP Magazine.

Retirement and Pension Accounts

The beneficiaries named on retirement accounts, including 401(k)s, pensions, and IRAs, receive these assets directly. Some states have laws about requiring spouses to receive some or all assets. However, if you don’t keep these beneficiary names updated, the wrong person may receive the asset, like it or not. Don’t expect anyone to willingly give up a surprise windfall. If a primary beneficiary has died and no contingency beneficiary was named, the recipient may also be determined by default terms, which may not be what you have in mind.

Life Insurance Policies.

The beneficiary designations on an insurance policy determine who will receive proceeds upon your death. Laws vary by state, so check with an estate planning attorney to learn what would happen if you died without updating life insurance policies. A simpler strategy is to create a list of all of your financial accounts, determine how they are distributed and update names as necessary.

Note there are exceptions to all rules. If your divorce agreement includes a provision naming your ex as the sole beneficiary, you may not have an option to make a change.

Financial Accounts

Adding another person to your bank account through various means—Payable on Death (POD), Transfer on Death (TOD), or Joint Tenancy with Right of Survivorship (JTWROS)—may generally override a will, but may not be acceptable for all accounts, or to all financial institutions. There are unanticipated consequences of transferring assets this way, including the simplest: once transferred, assets are immediately vulnerable to creditors, divorce proceedings, etc.

Trusts

Trusts are used in estate planning to remove assets from a personal estate and place them in safekeeping for beneficiaries. Once the assets are properly transferred into the trust, their distribution and use are defined by the trust document. The flexibility and variety of trusts makes this a key estate planning tool, regardless of the value of the assets in the estate.

Reference: AARP Magazine (Sep. 29, 2021) “The Legal Limits of Your Will”

When Should You Update Your Estate Plan?

Updating an estate plan is not usually the first thing on one’s mind when large life events occur. However, if you fail to update your estate plan, over time the plan may not work—for you or your loved ones. Reviewing estate plans at least once every three or four years will help to reach your goals and protect your family, explains the article “Do I Need to Update My Estate Plan?” from Arkansas Business.

Two key documents are used to distribute your assets: your last will and testament and trusts. As your children and other family members mature, those documents should change as may be needed.

If you have a revocable trust, you need to review the dispositive provisions and the trust funding. One of the biggest mistakes in estate planning, after failing to have an estate plan, is failing to fund or manage the funds in a trust.

Trusts are created to avoid probate and establish a process for distributing assets in case of disability or death. However, if assets are not retitled to be owned by the trust, or if the assets don’t have an appropriate beneficiary designation to transfer assets to the trust at the time of your death, they won’t perform as intended. As new assets are purchased, they also need to be incorporated into your estate plan.

Relationships you have with people who have responsibilities for your estate plan may change over time. Those need to be updated, including the following:

Trustee—The person or institution administering and managing a revocable trust, when you can no longer do so.

Guardian—The individual who will have legal authority and responsibility to raise your minor child(ren).

Executor—The person who is in charge of administering and managing your estate.

Health Care Agent—The person you authorize to make medical decisions in the event of incapacity.

Another common point of failure for estate plans: neglecting to update beneficiary designations for assets like life insurance, retirement plans and any asset that customarily passes to an heir through a beneficiary designation.

A regular review of your estate plan with your estate planning attorney also allows your plan to incorporate changes in tax laws. The last few years have seen many significant changes in tax laws, and more changes are likely in the future. Strategies that may have been extremely effective five or ten years ago are probably outdated and might create costs for your heirs. A review with an experienced estate planning attorney can prevent unnecessary tax liabilities, unexpected inheritances and family feuds.

Reference: Arkansas Business (Sep. 2021) “Do I Need to Update My Estate Plan?”

Common Estate Planning Mistakes and How to Avoid Them

Every family has one: the brother-in-law or aunt who knows everything about, well, everything. When the information is wrong, expensive problems are created, especially when it comes to estate planning. Estate planning attorneys devote a good deal of time to education to help prevent unnecessary and costly mistakes, as described in the article “Misinformation, poor assumptions result in major planning mistakes” from The News-Enterprise.

The most common is the idea of a “simple” estate plan. What does “simple” mean? For most people, the idea of “simple” is appealing—they don’t want to deal with long and complicated documents with legal phrases they don’t understand. However, those complex phrases are necessary, if the estate plan is to protect your interests and loved ones.

Another mistake is thinking an estate plan is a one-and-done affair. Just as people’s lives and fortunes change over time, so should their estate plan. An estate plan created for a young family with small children won’t work for a mature couple with grown children and significant savings.

Change also comes to family dynamics. The same cousin who was like a sister during your teen years may not be as close in values or geography, when you both have elementary school children. Do you still want her to be your child’s guardian? An updated estate plan takes into account the changing relationships within the family, as well as the changing members of the family. A beloved brother-in-law isn’t so beloved, if he divorces your favorite sister. When families change, estate plans need to be updated.

Here is a huge mistake rarely articulated: somehow not thinking about death or incapacity might prevent either event from happening. We know that death is inevitable, and incapacity is statistically probable. Planning for both events in no way increases or decreases their likelihood of occurring. What planning does, is provide peace of mind in knowing you have prepared for both events.

No one wants to be in a nursing home but telling loved ones you want to remain at home “no matter what happens” is not a plan for the future. It is devastating to move a loved one into a nursing home. However, people with medical needs need to be there to receive proper care and treatment. Planning for the possibility is better than a family making arrangements, financial and otherwise, on an emergency basis.

Do you remember that all-knowing family member described in the start of this article? Their advice, however well-intentioned, can be disastrous. Alternatives to estate planning take many shapes: putting the house in the adult child’s name or adding the adult child’s name to the parent’s investment accounts. If the beneficiary has a future tax liability, debt or divorce, the parent’s assets are there for the taking.

Properly done, with the guidance of an experienced estate planning attorney, your estate plan protects you and those you love, as well as the assets you’ve gained over a lifetime. Don’t fall for the idea of “simple” or back-door alternatives. Formalize your goals, so your plans and wishes will be followed.

Reference: The News-Enterprise (Aug. 24, 2021) “Misinformation, poor assumptions result in major planning mistakes”

 

Do I Need to Update My Estate Plan?

Given a choice, most people will opt to do almost anything rather than talk about death and life for others after they are gone. However, estate planning is essential to ensure that your life and life’s work will be cared for correctly after you’ve passed, advises the article “Is Your Estate Plan Up to Date?” from NASDAQ.com. If you own any assets, have a family, loved ones, pets or belongings you’d like to give to certain people or organizations, you need an estate plan.

Estate planning is not a set-it-and-forget it process. Every few years, your estate plan needs to be reviewed to be sure the information is accurate. Big life changes, from birth and death to marriage and divorce—and everything in between—usually also indicate it’s time for an update. Changes in tax laws also require adjustments to an estate plan, and this is something your estate planning attorney will keep you apprised of.

Reviewing and updating an estate plan is a straightforward process, once your estate planning attorney has created an initial plan. Keeping it updated protects your wishes and your loved ones’ futures. Here are some things to keep in mind when reviewing your estate plan:

Have you moved? Changes in residence require an update, since estate laws vary by state. You also should keep your advisors, including estate planning attorney, financial advisor and tax professional, informed about any changes of residence. You’d be surprised how many people move and neglect to inform their professional advisors.

Changes in tax law. The last five years have seen big changes in tax laws. Estate plans created years ago may no longer work as originally intended.

Power of Attorney documents. A Power of Attorney authorizes a person to act on your behalf to make business, personal, legal and financial decisions. If this document is old, or no longer complies with your state’s laws, it may not be accepted by banks, investment companies, etc. If the person you designed as your POA decades ago can’t or won’t serve, you need to choose another person. If you need to revoke a power of attorney, speak with your estate planning attorney to do this effectively.

Health Care Power of Attorney and HIPAA Releases. Laws concerning who may speak with treating physicians and health care providers have become increasingly restrictive. Even spouses do not have automatic rights when it comes to health care. You’ll also want to put your wishes about being resuscitated or placed on artificial life support in writing.

Do you have an updated last will and testament? Review all the details, from executor to guardian named for minor children, the allocation of assets and your estate tax costs.

What about a trust? If you have minor children, you need to ensure their financial future with a trust. Your estate planning attorney will know which type of trust is best for your situation.

A regular check-up for your estate plan helps avoid unnecessary expenses, delays and costs for your loved ones. Don’t delay taking care of this very important matter. You can then return to selecting a color for the nursery or planning your next exciting adventure. However, do this first.

Reference: NASDAQ.com (July 28, 2021) “Is Your Estate Plan Up to Date?”

 

What You Need to Know about Probate

We often read about celebrities who die without an estate and how everything they own must go through probate. The article titled “What to know about probate” from wmur.com explains what that means, and what you need to understand about wills, probate and estate planning.

Probate is a process used to prove that a person’s will is valid and to supervise how their estate is handled. It involves a court that focuses on this area. Much about the process depends upon the state in which it’s taking place, since these laws vary from state to state.

When someone dies without a will, they have failed to provide instructions for the distribution of their property. Their assets will still be distributed, but the laws of the state will determine what happens next. The state follows intestacy laws, which outline pre-set patterns of distributing property. In one state, property will go to the spouse and children. In others, the spouse may get everything.

Other decisions are made for your family when there is no will. If you have not named an executor, the court will appoint someone to oversee your estate. The court will also appoint a person to raise your children, if no guardian has been named for minor children. A family member may be chosen, but it may not be the family member you wanted to raise your kids, or it may be a stranger in a foster home.

Another reason to have a will is that probate can take a few months, or, depending on where you live, a few years, to complete. If there is litigation, and not having a will makes that more likely, it would take longer and will undoubtedly cost more. While this is going on, assets may lose value and heirs may suffer from not having access to assets.

Probate is also costly. There are legal notices to be published, court fees, executor fees and bond premiums, appraisal fees and attorney expenses.

Having an estate plan also means tax planning. While the federal estate tax as of this writing is $11.7 million per individual, it will not be that high forever. If the proposals to lower the federal estate tax to $3.5 million per person come to pass, will your estate escape estate taxes? What about your state’s estate or inheritance taxes?

Probate is also a very public process. Once a will is admitted as valid by the court, it becomes a public document. Anyone and everyone can view it and learn about your net worth and who got what.

With all these drawbacks, are there good reasons to allow your estate to go through probate? In some cases, yes. If multiple wills have been found, probate will be needed to establish which will is the correct one. If the will is confusing or complex, probate could provide the clarity needed to settle the estate. If beneficiaries are litigious, probate may be the voice of authority to quell some (but not all) disputes. And if the estate has no money and a lot of debt, it may be the probate court that sorts out the situation.

Every estate is different. Therefore, it is important to speak with an estate planning attorney to have a will, power of attorney and any health care directives created and properly executed. Every few years, these documents should be reviewed and revised to keep up with changes in the law and in your personal life.

Reference: wmur.com (July 29, 2021) “What to know about probate”