Although we live in a world where information is easily accessible through the internet, there are still many misconceptions surrounding estate planning. Most of us do not dedicate our time to learning more about topics like estate planning, because we may not know that we need an estate plan or realize the benefits associated with having one. There are some common beliefs you may have about estate planning that may be inaccurate: that having a will avoids probate, being married means everything a spouse owns goes to their surviving spouse, and a person does not need an estate plan if they own few assets. Education on the importance of an estate plan is key to saving the time, money, and heartache that can be associated with lack of planning. Take the time to understand the importance of having an up-to-date estate plan and learn how it not only contemplates what happens after your death, but also protects you and your loved ones if you become incapacitated.
While there are many reasons to establish and update an estate plan, we are going to focus on three.
Reason # 1: An estate plan lets your loved ones know what you want.
People tend to avoid thinking about death and dying and do not discuss these topics with their loved ones. While these topics often evoke strong emotions, it can be important to discuss with your loved ones several aspects of what you want to happen after you die. They may not know what steps to take when faced with loss and grief over your death. You should provide the important people in your life with up-to-date guidance through your estate plan, and in turn reduce any confusion or additional stress following your death. This is especially important if you have had any major changes in your life such as the birth or death of a loved one.
By having an up-to-date, comprehensive estate plan, you can decide and communicate what you want to happen with your money and property, but also make important decisions regarding the care of your minor children and pets and your own final arrangements. There are many benefits of conveying your wishes to your family through an up-to-date estate plan. There may also be appropriate strategies and documents for your particular family structure that you may not be aware of that can provide you and your loved ones with extensive benefits.
Reason # 2: An estate plan is a legally enforceable way to carry out your wishes.
You may think you do not need to memorialize your decisions about what will happen to your property after you die because you are confident that your loved ones will follow your wishes. However, it is hard to predict what will happen in the future, and when faced with financial difficulties, your loved ones may act differently than how you had hoped. For example, while you may think that adding a child to the title of your real property or bank accounts will protect you in the event of incapacity and avoid probate, doing so creates significant risks. Adding a child to your property grants them an ownership interest in that property, and when you die, your child will be the sole owner and can do whatever they want with that property. This could result in your child preventing siblings or other intended beneficiaries from sharing money or property after your death without recourse. Keep in mind that a child may do this out of what they perceive as necessity due to financial struggles or other issues. While this is only one scenario, this is an example as to why creating an enforceable estate plan with an experienced estate planning attorney will make sure that all you have worked so hard for will end up going to who you want without conflict.
Reason # 3: You get to choose what happens.
You may be hesitant to meet with an estate planning attorney to establish or update your estate plan for a variety of reasons, including a lack of education on the benefits of up-to-date estate planning. It is important to know that if you do not create your own plan or if your estate plan does not cover everything, the state has its own plan. The default estate plan, known as a state’s intestate statute, that controls the distribution of your money and property may not align with your wishes. The state’s plan will not take into consideration your unique relationships and family structure. If you are part of a blended family, a parent of minor children, a business owner, or part of an unmarried couple, you should strongly consider the consequences of not establishing a plan.
An estate plan can protect you from the consequences of incapacity that can occur as a result of an accident, injury, or illness. Without a plan, you could be faced with a court-supervised conservatorship or guardianship, in which the court will delegate the control of your person and property to a person whom you may not have chosen or would not want to serve in this capacity. As part of your estate plan, you can choose who can act on your behalf in the event of incapacity and avoid court involvement and the difficulties associated with it. However, it is important that you review your documents periodically to make sure that the people you have chosen to make sensitive decisions for you are still the people you want to do so.
Everyone should have a choice in their future. A qualified estate planning attorney can help you create a plan that illustrates your wishes. If you or your loved ones have any questions about creating or updating an estate plan, please give us a call.
Estate Planning Roll Call: Important Legal Tools You Should Have
As with any roll call, it is important to make sure that everyone is present and accounted for. Similarly, when assessing an estate plan, several legal tools, or documents, should be in attendance to accomplish the goal of a complete and comprehensive plan. You have likely heard the term estate planning, but you may not be familiar with which legal tools typically comprise a complete estate plan. We want to teach you about the legal tools that should be included in your plan and what benefits and protections each legal tool can provide.
Will or Revocable Living Trust
As with many other structures, a well-rounded estate plan must be built on a solid foundation. To establish a foundation for an estate plan, the use of either a will or a revocable living trust (trust) is necessary. Wills and trusts are legal tools designed to direct and control the distribution of money and property that you own. While a will can only provide direction at death, a trust has the added benefit of providing direction in the event of your incapacity during your lifetime, as well as upon your death. Consequently, there are multiple considerations that go into whether using a will or trust as a foundational tool makes the most sense for your situation.
Will
A will as a foundational legal tool often requires that your property go through the probate process upon your death, although certain accounts and property can be transferred outside of probate through the use of beneficiary designations or if the account or property is jointly owned with a right of survivorship. Probate is the court-supervised process in which everything you own is transferred to your loved ones (also known as beneficiaries, or heirs if you do not have a will) at your death. In your will, you elect an individual to be in control of carrying out your wishes and state who gets your accounts and property at your death. This person is commonly known as the executor, executrix, or personal representative. Prior to being able to carry out your wishes, they must be formally appointed by the probate court. It should be noted that some states have restrictions on who can serve in the role of executor, executrix, or personal representative. It is very important that you meet with an experienced estate planning attorney to understand who to elect to serve in this role, as choosing the wrong individual can result in unnecessary delays.
Trust
Alternatively, the use of a trust as a foundational estate planning tool can allow you to avoid the probate process. However, a trust can only avoid probate when bank accounts and property that you own are retitled (also called funded) into the trust prior to your death or transferred to your trust at your death. Additionally, trusts have the added benefit of protecting your accounts and property that are part of the trust if you become unable to manage your own affairs.
You may be surprised to find out that even when utilizing a trust as a foundational legal tool, you still need a will. The type of will used in conjunction with a trust differs from a standalone will. Instead, a pour-over will is used, which essentially “pours” into the trust any accounts or property that were not titled in the trust at the time of your death. While a pour-over will ensures that accounts and property not funded into your trust during your lifetime are funded at your death, it also provides other essential benefits. A will allows you to nominate a guardian for your minor children and pets and direct your funeral arrangements (in some states).
A testamentary trust is another tool that may be appropriate for you in certain circumstances. The terms of the trust are stated in a will during your lifetime and the trust is created upon your death. Like with a revocable living trust, you can customize the provisions that control the distribution of money and property through the trusts. However, this type of trust is created during the probate process.
There are a variety of considerations that go into whether a will or trust is the right foundational tool, which is why it is best to speak with an experienced estate planning attorney to help ensure you choose the right one for your unique situation.
Financial Power of Attorney
You have likely heard the term power of attorney before. However, you may not realize that each financial power of attorney and the level and type of authority granted within it varies based on its contents. These legal tools can often be customized to accomplish specific goals, but may have some limitations depending on state law. It is helpful to first understand the roles within a financial power of attorney. The person who creates it is known as the principal, and the person who receives the authority through it is the agent. An agent’s role is to act as a fiduciary and on behalf of the principal for a variety of purposes.
Under a limited power of attorney, the agent is limited to performing very specific duties, such as executing a deed for a real estate transaction or transferring a vehicle. On the contrary, a general power of attorney allows the agent to step into the principal’s shoes and manage almost all aspects of their finances and property ownership to the extent of what is allowable under state law.
A financial power of attorney can take effect immediately (or as soon as the agent has officially accepted the role) or it can be springing. A springing power of attorney requires that a certain event occur before the agent can exercise their power. This is usually upon the declaration that the principal can no longer act for themselves. It is important to note that not all states allow for a springing power of attorney.
Lastly, there is a durable power of attorney. A durable power of attorney lasts through the principal’s incapacity, making it crucial for being able to grant someone authority to act for you if you cannot act for yourself.
Medical Power of Attorney
Our health and the way we manage it is largely dependent on our own beliefs and preferences. If you are unable to make your own medical decisions, you would likely want to make sure that the person making them for you is someone that you trust and who would follow your wishes. To have this control, your estate plan should include a medical power of attorney. A medical power of attorney is known by several names depending on what state you are in, such as a healthcare power of attorney or a designation of health care surrogate. You will designate an agent and several backup agents in your medical power of attorney to act on your behalf if your first choice is unavailable. You may be able to choose to delay the effect of the authority granted until incapacity if your state’s law allows.
Advance Directive
A comprehensive estate plan will also include an advance healthcare directive, also commonly known as a living will. An advance directive serves the important purpose of allowing you to decide what forms of end-of-life care you would like. Within this legal tool, you can memorialize your wishes as it relates to being placed on life support if you are in a persistent vegetative state or diagnosed with a terminal illness with no probable chance of recovery. This legal tool is commonly confused with a do not resuscitate order, which is not part of an estate plan and instead is typically filled out at the hospital and applies specifically to resuscitation.
HIPAA
Health Insurance and Accountability Act of 1996 (HIPAA) authorizations allow an individual to designate who the hospital or medical facilities can provide medical records and information to. These authorization forms became necessary following the enactment of the federal Health Insurance and Accountability Act of 1996, which provides guidelines to the healthcare industry for the protection of patient information. This is an important legal tool to have if you have multiple individuals who are not nominated under your medical power of attorney that you would like to have access to your medical information in the event of illness or injury. While these individuals will not have decision-making authority, they will be able to stay informed about your medical condition.
Appointment of Guardian
Planning for children is a high priority for parents. There are some states that have a separate legal tool for naming guardians of minor children. While a lot of states allow you to include this information in your will, it is important for you to meet with an estate planning attorney who can create a standalone tool if it is appropriate within your state of residence.
Temporary Guardianship or Delegation of Parental Powers
There are circumstances in which you may not be able to be with your children, commonly due to extended travel. This can be an appropriate circumstance for you to name a temporary legal guardian to make decisions on behalf of your minor child while you are unable to do so. There are state-specific guidelines for the length of temporary guardianships in addition to other limitations as to how and what decisions can be delegated to another individual.
Roll call complete! Now that you have learned more about what tools should be present in your estate plan, you can ensure that you have all of the essentials in attendance when you begin the estate planning process.
Do Not Become a Statistic
Estate planning is important for everyone. It is about protecting yourself, your loved ones, and your hard-earned money (even if you do not have a lot of it). However, the numbers do not lie: most people do not see the importance of estate planning. Whether you need to create an estate plan or update an existing one, do not put it off. The following are some scary statistics about the average American and estate plans. We are committed to working with our clients to make sure they do not become a statistic.
Most People Do Not Have a Will or Trust
Only one in three Americans have a will or trust.[1] This statistic is not surprising due to the amount of misinformation and fear around establishing an estate plan. One in three Americans who do not have a will or trust believe they do not have enough money or property to justify having an estate plan.[2] The belief that estate planning is only for the wealthy is just one reason people put off planning; other reasons include being too busy, viewing it as too complicated or expensive, or fear of discussing death.[3] While these may all be valid reasons, the benefits of planning far outweigh delaying the process.
People Do Not Always Tell Others That They Have an Estate Plan
Some people may not see the point in discussing death with their loved ones, but having this difficult discussion can serve several purposes. Surprisingly, 52 percent of people do not know where their parents keep their estate planning documents,[4] and only 46 percent of executors are aware that they are named in someone’s will.[5] It is important to discuss with your loved ones where your important documents are stored, as they may need to access your original documents for multiple reasons. Additionally, when establishing or updating a plan, you must tell the individuals named in your documents that they have been chosen to serve in these roles. These discussions should focus on what their responsibilities are and highlight your wishes. Some estate planning attorneys offer family meetings after creating an estate plan to educate the individuals named in your plan on the roles they will play.
Conflicts Are Common
According to a survey conducted by LegalShield, 58 percent of adults in the United States say they or someone they know have experienced familial conflicts due to not having an estate plan or a will.[6] Conflicts can arise from a lack of proper planning. Often these conflicts are related to arguments over how accounts and property should be distributed after a loved one’s passing. You should work with an experienced estate planning attorney to assist in establishing a plan that will reduce family conflicts and disagreements that could end in estrangement.
Now Is the Right Time to Create or Update Your Plan
Proper planning has always been important. American retirees expect to transfer more than $36 trillion to their families, friends, nonprofits, and additional beneficiaries over the next 30 years.[7] This figure indicates an increased need to have a comprehensive financial and estate plan. Now is the time to set your fears aside and begin or continue the planning process so that you can avoid becoming an estate planning statistic. If you or your loved ones have questions about creating or updating your estate plan, please give us a call.
[1] Rachel Lustbader, 2023 Wills and Estate Planning Study, Caring.com, https://www.caring.com/caregivers/estate-planning/wills-survey/ (last visited Oct. 1, 2023).
[2] Id.
[3] Abby Schneiderman, The Three Reasons People Avoid Estate Planning (June 24, 2020), https://www.forbes.com/sites/abbyschneiderman/2020/06/24/the-three-reasons-people-avoid-estate-planning/?sh=3f3b19f21d47.
[4] Bridging the Gap: The Importance of Estate Planning Through Generations, Cambridge Trust (Feb. 16, 2022), https://www.cambridgetrust.com/CT/media/CTMedia/Images/Insights/Insight_graphics/Q1-Client-Update-2022-Bridging-the-Gap.pdf.
[5] Id.
[6] Will(ful) Neglect: Survey Reveals Nearly 60% of Americans Unprepared for the Inevitable, Business Wire (Aug. 08, 2023), https://www.businesswire.com/news/home/20230808403417/en/.
[7] 2021 Estate Planning Report, Seniorliving.org (Mar. 16, 2022), https://www.seniorliving.org/finance/estate-settlement-annual-report/.