Does Divorce Have an Impact on Estate Planning?

Does Divorce Have an Impact on Estate Planning?

Even the most amicable divorce requires a review and update of your estate plan, as explained in a recent article from yahoo! finance, “I’m Divorcing. Will That Impact My Estate Planning?” This includes your will, power of attorney and other documents. Not getting this part of divorce right can have long-term repercussions, even after your death.

Last will and testament. If you don’t have a will, you should get this started. Why? If anything unexpected occurs, like dying while your divorce is in process, the people you want to receive your worldly goods will actually receive them, and the people you don’t want to receive your property won’t. If you do have a will and an estate plan and if your will leaves all of your property to your soon-to-be ex-spouse, then you may want to change it. Just a suggestion.

State laws handle assets in a will differently. Therefore, talk with your estate planning attorney and be sure your will is updated to reflect your new status, even before your divorce is finalized.

Trusts. The first change is to remove your someday-to-be ex-spouse as a trustee, if this is how you set up the trust. If you don’t have a trust and have children or others you would want to inherit assets, now might be the time to create a trust.

A Domestic Asset Protection Trust (DAPT) could be used to transfer assets to a trustee on behalf of minor children. The assets would not be considered marital property, so your spouse would not be entitled to them. However, a DAPT is an irrevocable trust, so once it’s created and funded, you would not be able to access these assets.

Review insurance policies. You’ll want to remove your spouse from insurance policies, especially life insurance. If you have young children with your spouse and you are sharing custody, you may want to keep your ex as a beneficiary, especially if that was ordered by the court. If you received your health insurance through your spouse’s plan, you’ll need to look into getting your own coverage after the divorce.

Power of Attorney. If your spouse is listed as your financial power of attorney and your healthcare power of attorney, there are steps you’ll need to take to make this change. First, you have to notify the person in writing to tell them a change is being made. This is especially urgent if you are reducing or eliminating their authority over your financial and legal affairs. You may only change or revoke a power of attorney in writing. Most states have specific language required to do this, and a local estate planning attorney can help do this properly.

You also have to notify all interested parties. This includes anyone who might regularly work with your power of attorney, or who should know this change is being made.

Divide Retirement Accounts. How these assets are divided depends on what kind of accounts they are and when the earnings were received. The court must issue a Qualified Domestic Relations Order (QDRO) before defined contribution plans can be split. The judge must sign this document, which allows plan administrators to enforce it. This applies to 401(k) plans, 403(b) plans and any plans governed under ERISA (Employment Retirement Income Security Act of 1974).

Divorce is stressful enough, and it may feel overwhelming to add estate planning into the mix. However, doing so will prevent many future problems and unwanted surprises.

Reference: yahoo! finance (Feb. 3, 2023) “I’m Divorcing. Will That Impact My Estate Planning?”

Why Is Power of Attorney So Important for Estate Planning?

Why Is Power of Attorney So Important for Estate Planning?

One of the most overlooked and important documents in estate planning is the Power of Attorney. A recent article from Farm Progress, “Often overlooked estate planning issues: Powers of attorney,” explains how this document works and why it’s so important.

Most people will become incapacitated at some point in our lives, especially as we age. Some experts believe this number is as high as two-thirds of all Americans who, at some point in their lives, will become incapacitated. We are living longer and the chances of developing a condition to impair or rob us of the ability to make important health or financial decisions increases every year.

Powers of Attorney are just as important for young adults because the risk of disability or impairment is often actually higher than death for someone younger.

Designating a Power of Attorney gives you the control of choosing a trusted person to step in and act as your agent. A “Durable” POA remains in effect until it is revoked, or upon the death of the person who made it.

The person establishing the POA is the “principal.” The principal has the right to revoke the POA until they lack capacity to do so. The person or persons named to act for you through your POA is your “attorney-in-fact” or “agent.”

You may choose to have the POA in a “durable” form or a “springing” POA. The springing POA becomes effective only when you have been determined to be incapacitated. This sounds like a good idea. However, it comes with an issue: for the springing POA to become active, there must be proof of incapacity.

Depending upon your state, this may require a court to review documents attesting to your incapacity from a physician or health care provider. The durable POA is always in effect and your agent can step in for you immediately.

Everyone should also have a Health Care Power of Attorney, sometimes called a Health Care Proxy or a medical POA. The Health Care POA should be someone who can act quickly, so it’s optimal to name someone who lives nearby, in case there’s an emergency and decisions need to be made in a timely manner.

While it’s tempting to simply download a form from the internet, these two POAs are best prepared with an estate planning attorney, so they align with your state’s laws and your wishes. You may want someone to make all decisions for you, or you may want to limit their powers. Your estate planning attorney will be able to create a document to suit your specific needs.

It’s also important for your estate plan to address digital assets, since today so much of our financial and medical information is stored online. Your agent also needs to be able to access your digital life, to keep your life running smoothly and make informed decisions.

Reference: Farm Progress (Oct. 18, 2022) “Often overlooked estate planning issues: Powers of attorney.”

Why Do You Need an Estate Plan?

Why Do You Need an Estate Plan?

Everyone benefits from having an estate plan. If you own property, investments, or anything of value, you need an estate plan. If you have family or dependents, you need an estate plan. Estate planning directs how assets are directed, if you become incapacitated or when you die.

The checklist for creating an estate plan includes a will, powers of attorney and assigning beneficiary account designations. Using an estate planning lawyer ensures that your plan meets all legal requirements, according to the article “What is estate planning? A strategy to safeguard your family and your finances, and ensure your plans for them get carried out as you wish” from Business Insider.

In this usage, “estate” means the things you own. An estate plan inventories everything, including your home, cars, bank accounts, life insurance policies, retirement accounts and personal possessions. It outlines in writing exactly what you want to happen with your property. It also directs who you want to handle your affairs during life and after death and who you want to inherit your assets.

Why does estate planning matter? If you die without a will, your assets may get tied up in probate, where the court oversees the distribution of your estate according to your state’s laws. Without a will and the tax planning part of estate planning, your estate may shrink and your heirs receive less.

The will is just the start of a comprehensive estate plan. It details where you want your assets to go and names an executor who will oversee your estate. If you have minor children, the will is where you name a guardian to raise your children.

A durable power of attorney designates a person to act on your behalf for legal and financial matters if you become incapacitated. Without it, family members will not be able to file tax returns, collect government benefits, manage investments and handle any financial transactions. They’ll need to go to court and have a judge appoint someone to manage these and other tasks. It’s far easier and less expensive to have this document in place than to get the courts involved.

A health care power of attorney is your opportunity to name someone to make medical decisions on your behalf if you become incapacitated. This includes choosing doctors, deciding what tests to run and whether you want to have surgery or certain treatments.

You’ll want a living will to ensure your wishes for end-of-life decisions are followed. A living will also relieves your loved one of the enormous burden of determining “what Mom would have wanted” if you become terminally ill, enter the late stages of dementia, are seriously injured, in a coma, or near the end of your life. What extreme measures do you want to be taken to prolong your life? What would you not want to be done to maintain your life?

Beneficiary designations are the forms to be completed when you open a retirement account or purchase a life insurance policy. Beneficiary designations override any instructions for these accounts set out in your will, so its very important to review and update them regularly.

Trusts are used to take assets out of your probate estate. A trust is created by an estate planning attorney and upon death, assets are distributed according to the directions of the trust. If you own a lot of assets, trusts are a useful tool to avoid estate and inheritance taxes.

Digital asset protection trusts are a way to legally transfer domain names, social media accounts and other digital assets to heirs upon your death. Emails, text messages, cloud-based storage accounts, websites and social media accounts all need to be inventoried and a plan needs to be in place to protect these assets.

Reference: Business Insider (Sep. 22, 2022) “What is estate planning? A strategy to safeguard your family and your finances, and ensure your plans for them get carried out as you wish”

Do You Need a Power of Attorney?

Do You Need a Power of Attorney?

Did you know estate planning attorneys recommend anyone over age 18 have a power of attorney? Without one, even a long-married spouse may not be able to make financial or medical decisions if their spouse became incapacitated, according to a recent article “How to Set Up a Power of Attorney” from U.S. News & World Report. Naming someone and having the documents created to make them a Power of Attorney (POA) is part of creating an estate plan.

If someone becomes incapacitated, someone else—a family member or the state—has to be able to make decisions on their behalf. People hesitate sometimes, as they’re not sure about giving someone the power to make decisions. However, lacking one leads to problems in emergent situations.

While the 18-year-olds are usually the most upset when they learn their parents wish to be named as their POA, it is because they don’t realize how mom and dad have no legal authority over them once they become legal adults.

State laws vary for powers of attorney, so it is important to work with a local estate planning attorney who can create a POA specific to your needs and following the laws of your state.

How to get started with a Power of Attorney

The first, and possibly hardest, part of a POA is determining who should be named. The individual needs to be responsible, trustworthy and calm in emergency situations. Just because someone is related to you doesn’t necessarily qualify them to serve in this role. You should also name a secondary POA, in case the first is unable or unwilling to act on your behalf.

Next, have your estate planning attorney draft the document, which typically works in connection with other estate planning documents including your will, health care proxy and HIPAA release forms. You should have a Power of Attorney for finances and a Health Care Power of Attorney for medical care.

Be careful about what happens to copies of the documents and where they are stored. Some estate planning attorneys create documents to be stored in a fire and water-proof box at home, in the safety deposit box at a bank, or in the attorney’s fireproof safe. Others say you should never put important documents in a safety deposit box in a bank, because if the documents are needed and the bank is closed, the person won’t be able to step up and act.

The POA needs to be kept up to date, just like any part of your estate plan. Some financial institutions will refuse to honor a POA if they consider it out of date. Every three to five years, this document should be updated. It should also be updated if the person named POA becomes incapacitated, dies, or moves to another state.

Should You Have a Durable Power of Attorney?

Powers of attorney typically end when a person becomes incapacitated, which is exactly when you want to have a POA. A Durable Power of Attorney can make decisions on your behalf, even if you become incapacitated.

What is a Springing Power of Attorney?

Power of attorney for finances or healthcare can be effective immediately when the documents are signed or take effect under predetermined circumstances, such as when the principal becomes incapacitated. This is known as a springing power of attorney because it “springs” into effect at a specific time. It seems like a good idea, but a word of caution: the springing power of attorney requires a doctor’s evaluation of incapacity. This often takes time, which can be the one thing you don’t have in an urgent situation.

Reference: U.S. News & World Report (July 21, 2022) “How to Set Up a Power of Attorney”

Why Do I Need a Will?

Why Do I Need a Will?

Perhaps getting hit by a cement truck is too blunt for some, but unexpected things happen all the time. An estate plan, including a will and other important documents, is good preparation, especially for caregivers of people with special needs. A recent article from Forbes titled “Where There is a Will, There is a Way” explains the steps everyone, especially caregivers, need to follow.

Creating a last will and testament

This is the foundation of an estate plan. Without a will, the court will distribute assets to children equally. If a disabled person receiving government benefits receives an inheritance, they will become ineligible and lose access to services. The court will also assign guardianship to minors or disabled individuals, if there is no will. A will, in tandem with proper estate planning, ensures protection for an individual with special needs, including naming a guardian of your choice.

Having a General Durable Power of Attorney for Finances

A POA allows you to name a person you trust to manage finances, real estate property, investments, or any aspect of your life, if you become incapacitated. A POA should be created for your needs, so you may decide in advance what you do and do not want your agent to be able to do for you.

Creating a Durable Power of Attorney for Healthcare

This important legal document, paired with a HIPAA release form, allows someone of your choice to take charge of your healthcare, talk with healthcare providers and make decisions based on your expressed wishes. You may name more than one person for this role but doing so could make it harder if the two people don’t agree on your care.

Naming a Guardian

This is a critical step if you are a caretaker for a person who will likely be unable to manage their own affairs, even after attaining legal age. By naming a guardian in your will, you can select the people who will be in charge of your special needs family member or minor children. Without a guardian named in your will, the courts will make this decision.

Drafting a “Letter of Intent”

A letter of intent is a guide with important information only you know. It is especially important for caretakers. Explaining in detail your disabled individual’s preferences can make a huge difference in the quality of their lives when you are no longer available. What are their likes and likes, what people do they enjoy spending time with and what foods do they prefer, etc. If your children are minors, this letter is an opportunity to describe your preferences for how they should be raised, including religious preferences, vocational choices and even nighttime rituals.

Providing Financial Security

If your family includes a loved one with Special Needs, you can protect their ability to have funds for things not covered by government benefits through a Special Needs Trust. Your estate planning attorney will create an SNT with a trustee and a secondary trustee to oversee the funds and ensure that they are used for qualified expenses.

Reference: Forbes (July 6, 2022) “Where There is a Will, There is a Way,”

What Is Power of Attorney and Is It Important?

What Is Power of Attorney and Is It Important?

Most people realize the importance of the last will and testament. However, they remain unaware of the importance of a durable power of attorney. This document authorizes another person to act on your behalf while you are alive and expires upon death, as explained in a recent article titled “Power of attorney likely to be first vital estate document” from The News-Enterprise.

The power of attorney is used to give authorization regarding legal and financial matters. It can be tailored to be as broad or as narrow as one wishes. A healthcare proxy, also known as a healthcare power of attorney, is used to give authorization for medical decisions.

The general Power of Attorney is used when a person is unable to act for themselves due to illness or injury. It is also needed when a person is unable to act on their own behalf because of mental incapacity. The POA is also used for when someone prefers to have another person manage their financial affairs.

Spouses use POAs to handle day-to-day financial tasks, from dealing with insurance companies to managing bank accounts, loans, or other financial matters. If one spouse cannot attend a real estate closing, for instance, the other will need a POA so they may represent their spouse.

Some people think just adding another person to an account will work the same way as a POA. However, this is not accurate. A co-owner might be able to pay bills. However, their ability to do anything else will be limited. They won’t be able to amend the account, unless both parties are present, for instance.

POAs are state-specific documents, so any Power of Attorney, whether for healthcare or finances, should be created by an estate planning attorney in the state where you live and any state where you own property.

Some powers, including the ability to make gifts of the principal’s property or to change beneficiaries for retirement accounts or life insurance policies, may sound as if they are far beyond what’s needed when these documents are first drafted. However, unexpected things happen at all stages of life, and situations arise where these powers are needed. Seemingly simple tasks become far more complicated, if the POA doesn’t permit these types of additional powers.

If there is concern about broad powers, the document can include limited language. For instance, a POA can include a limit on gifting the principal’s property pursuant to any previously documented wishes. This will allow gifting to be completed, but only to the terms already indicated. However, be careful about broad limiting language, like limiting gifts to annual gift exclusions. Prohibiting an agent from acting in ways to protect the principal’s property and best interest could be counterproductive.

Drafted by an experienced estate planning attorney to suit the specific needs of the individual, a power of attorney can make it possible for a trusted individual to conduct your wishes and protect your best interests. Make sure that you have one and update it whenever you update your overall estate plan.

Reference: The News Enterprise (June 25, 2022) “Power of attorney likely to be first vital estate document”

The Most Common Estate Planning Mistakes

The Most Common Estate Planning Mistakes

Estate administration is the process of managing the estate when a loved one has passed. For the inexperienced executor, there are pitfalls to be avoided, warns the article “Top 5 Probate and Estate Administration Mistakes” from Long Island Press.

The biggest mistake is creating an estate plan from generic documents on the internet. Wills must meet many technical legal requirements to be valid. All wills are admitted to probate and the court scrutinizes wills carefully to be certain the wishes of the person who died (the testator) have been followed. A will created without the guidance of a skilled estate planning attorney is more likely to be found invalid and more easily challenged.

Neglecting to deal with Medicaid liens before distributing an inheritance can create huge financial problems for family members. Medicaid is required by law to attempt to clawback assets to recover the cost of care. Some states are more aggressive than others. Medicaid may attach a lien to any real estate owned by the Medicaid recipient and collect it at the time of their death.

The value of asset protection planning, including the use of a Medicaid Asset Protection Trust (MAPT), in a timely manner, cannot be understated.

Leaving heirs and beneficiaries in the dark about the estate plan and distribution wishes often creates a sense of something bad being planned. Surprise revelations about the estate are only good in movies. In real life, this can lead to litigation and family fights. Litigation can take the form of a will contest, a trust contest, a contested accounting, or an action to remove the executor.

Talk with the family about your plans, so there is less tension created over the future of your estate.

Taxes can undermine your wishes, if your estate plan does not include tax planning. There are numerous methods used to minimize tax liabilities. However, they must be put into place in advance.

The executor has to file a final income tax return on behalf of the decedent for the year of death and also file an estate tax return. The executor is also responsible to obtain an estate tax identification number (EIN) from the IRS and open an estate bank account used to pay taxes and debts.

Will your executor, spouse or heirs be able to locate your critical information? If your legal, financial and online information is not organized, your executor may spend a long time digging through old paperwork, most of which is likely to be out of date and irrelevant. Spare your executor the time and emotional impact of wasted hours reviewing old records. No one needs your checking accounts from the 1970s!

Information on everything from assets, tax returns, funeral and burial arrangements, life insurance policies, Social Security and Medicaid or Medicare cards, deed for home and title for your cars, should all be organized to help your family find the information they need.

While you are alive, your family will need access to documents like your Power of Attorney, Health Care Power of Attorney, and Advance Health Care Directives.

By planning and making an effort in advance to manage your affairs, you enhance your legacy. Leaving a mess behind will be remembered, perhaps more so than organized documents.

Reference: Long Island Press (May 4, 2022) “Top 5 Probate and Estate Administration Mistakes”

Does an Elder Orphan Need an Estate Plan?

Does an Elder Orphan Need an Estate Plan?

Estate planning for the future is even more important for elder orphans than for those with a spouse or family members, according to this recent article “Savvy Senior: How to get help as an elder orphan” from The Virginia Gazette. There is no one single solution, but there are steps to take to protect your estate, health and provide for long-term care.

Start with the essential estate planning documents. These documents will protect you and ensure that your wishes are followed, if you become seriously ill or when you die. These documents include:

A durable Power of Attorney to designate someone to handle financial matters in the event of incapacity.

An Advanced Health Care Directive, including a Living Will, to tell your health care provider what kind of care you want if you become incapacitated.

A Health Care Power of Attorney, naming a person of your choice to make medical decisions on your behalf, if you are unable to do so.

A Will to direct how you want your property and assets to be distributed upon your death and to name an Executor who will be in charge of your estate.

Your best option to prepare these documents is an experienced estate planning attorney. Trying to do it yourself is risky. Each state has its own laws for these documents to be valid. If the documents are not accepted, the court could declare your will invalid and your directions will not be followed.

People with families typically name a responsible adult child as their power of attorney for finances, as executor or for health care decisions. If you do not have adult children, you may ask a trusted friend or colleague. Name a person who is younger than you, organized and responsible and who will likely be available and willing to service.

If the person you name as executor lives in another state, you will need to check with your estate planning attorney to see if there are any special requirements.

If you do not have a friend or even a distant relative you feel comfortable assigning this role to, your estate planning attorney may be able to suggest alternatives, such as an aging life care manager. These professionals are trained in geriatric care and often have backgrounds in social work or nursing.

If you are reluctant to complete the legal documents mentioned above or start having them prepared and then fail to complete them, you may face some unpleasant consequences. A judge may appoint a guardian to make decisions on your behalf. This guardian is likely to be a complete stranger to you. They will be legally empowered to make all decisions for you regarding your health care, end-of-life care and even your burial and funeral services.

Unless you are comfortable with a court-appointed person making health care and other decisions for you, call an estate planning attorney and start making plans for the future.

Reference: The Virginia Gazette (April 1, 2022) “Savvy Senior: How to get help as an elder orphan”

Is It Important for Physicians to Have an Estate Plan?

Is It Important for Physicians to Have an Estate Plan?

When the newly minted physician completes their residency and begins practicing, the last thing on their minds is getting their estate plan in order. Instead, they should make it a priority, according to a recent article titled “Physicians, get your estate in order or the court will do it instead” from Medical Economics. Physicians accumulate wealth to a greater degree and faster than most people. They are also in a profession with a higher likelihood of being sued than most. They need an estate plan.

Estate planning does more than distribute assets after death. It is also asset protection. An estate planning attorney helps physicians, dentists and other medical professionals protect their assets and their legacies.

Basic estate planning documents include a last will and testament, financial power of attorney and a medical power of attorney. However, the physician’s estate is complex and requires an attorney with experience in asset protection and business succession.

During the process of creating an estate plan, the physician will need to determine who they would want to serve as a guardian, if there are minor children and what they would want to occur if all of their beneficiaries were to predecease them. A list should be drafted with all assets, debts, including medical school loans, life insurance documents and retirement or pension accounts, including the names of beneficiaries.

The will is the center of the estate plan. It will require naming a person, typically a spouse, to be the executor: the person in charge of administering the estate. If the physician is not married, a trusted relative or friend can be named. There should also be a second person named, in case the first is unable to serve.

If the physician owns their practice, the estate plan should be augmented with a business succession plan. The will’s executor may need to oversee decisions regarding the sale of the practice. A trusted friend with no business acumen or knowledge of how a medical practice works may not be the best executor. These are all important considerations. Special considerations apply when the “business” is a professional practice, so do not make any moves without expert estate planning assistance.

The will only controls assets in the individual’s name. Assets owned jointly, or those with a beneficiary designation, are not governed by the will.

Without a will, the entire estate may need to go through probate, which is a lengthy and expensive process. For one family, their father’s lack of a will and secrecy took 18 months and cost $30,000 in legal fees for the estate to be settled.

Trusts are an option for protecting assets. By placing assets in trust, they are protected from creditors and provide control in complex family situations. The goal is to create a trust and fund it before any legal actions occur. Transferring assets after a lawsuit has begun or after a creditor has attached an asset could lead to a physician being charged with fraudulent conveyance—where assets are transferred for the sole purpose of avoiding paying creditors.

Estate planning is never a one-and-done event. If a doctor starts a family limited partnership to transfer wealth to the next generation but neglects to properly maintain the partnership, some or all of the funds may be vulnerable.

An estate plan needs to be reviewed every few years and certainly every time a major life event occurs, including marriage, divorce, birth, death, relocation, or a significant change in wealth.

When consulting with an experienced estate planning attorney, a doctor should ask about the potential benefits of revocable living trust planning to avoid probate, maintain privacy and streamline the administration of the estate upon incapacity or at death.

Reference: Medical Economics (Feb. 22, 2022) “Physicians, get your estate in order or the court will do it instead”

How Important Is an Estate Plan?

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”