Why Everyone Needs an Estate Plan

Why Everyone Needs an Estate Plan

Estate planning means making plans to manage and distribute assets and caring for loved ones in the event of a person’s death or incapacity. It also involves the creation of legally binding documents to outline a person’s wishes for health care and financial matters. Estate planning ensures your wishes are carried out and is also used as a means to minimizes taxes, as explained in the article “Why Estate Planning Is Important Even If You Don’t Have Assets” from The LA Progressive.

Even if you don’t have significant assets, you still need to make decisions about your health care, which is done as part of an estate plan. Here are the fundamentals to get you started.

Will. This is a legal document with specific instructions regarding how your assets are to be distributed after death and who should be named as a guardian to care for minor children. The will is also used to name a person to serve as executor of your estate to carry out your wishes and manage distribution of assets.

Trust. A trust is a legal entity holding property or other assets on behalf of another person, known as the beneficiary. There are many different types of trusts, including revocable, irrevocable and charitable trusts.

The revocable trust allows you to maintain control over assets in the trust during your lifetime. After death, the assets in the trust are distributed according to the terms in the trust. An irrevocable trust can’t be changed or amended once it’s established. Charitable trusts are used to provide for a nonprofit organization.

Trusts are used to manage and distribute assets during a person’s lifetime and after their death. They are also used to remove assets from the taxable estate and can also be used to manage expenses associated with the distribution of one’s estate.

Healthcare Power of Attorney. This document allows you to name someone to make medical decisions on your behalf if you are incapacitated and can’t make decisions for yourself. These should be created with your personal situation in mind; a standard form may not permit the nuances you want to convey to another person. With a customized healthcare POA, you can specify the type of decisions your healthcare agent may make and describe any limitations you want over their authority.

Financial Power of Attorney. The financial POA allows you to name a person, called your “agent” or “attorney in fact,” to manage finances if you are too sick or injured to do so. This should also be a customized document, as you may want to limit your agent’s authority to pay bills or allow them to do everything from paying bills to managing investment accounts. The POA expires upon your death and the agent can’t perform any tasks once you have passed away.

Without an estate plan, the care of minor children and distribution of assets takes place according to state laws, which isn’t how most people want their decisions made. The solution is actually quite easy: talk with a local estate planning attorney and get started on creating your estate plan.

Reference: LA Progressive (Jan. 11, 2023) “Why Estate Planning Is Important Even If You Don’t Have Assets”

The Most Important Part of Estate Plan Is Planning for Living

The Most Important Part of Estate Plan Is Planning for Living

Most people think of estate planning as planning for death. However, a well-titled article “Planning for death probably isn’t the most important part of your estate plan” from Coeur d’Alene/Post Falls Press presents another reason for estate planning in clear terms. Estate planning is planning for the unexpected eventualities of life.

Estate planning documents address how things will work while you are still living but if you have become incapable of making your own decisions. In many cases, this is more important than distributing your worldly possessions.

Yes, you should have a will (last will and testament). But you should also have Power of Attorney documents—one for health care purposes and another for financial purposes.

The Power of Attorney document states who will be your substitute decision maker, or agent, if you are incapacitated or unable to make your own decisions while still living. This should be a personalized document prepared by an estate planning attorney to include the scope of tasks and the limits, if any, you want to set for your agent. The financial POA is an important one, as it gives your chosen agent the legal authority to make financial decisions on your behalf.

The health care power of attorney gives your agent the authority to make health care decisions on your behalf.

With both of these documents properly prepared and available, someone you name will be empowered to serve as your decision maker if necessary.

The will is used to state what happens to your possessions and assets when you die. It is also the legal document used to name your executor—the person who will be in charge of carrying out your instructions. The will tells the probate court how you want your estate to be administered after death.

Why do you need these and other documents? Your will only becomes effective after death. Your POA documents are effective if you become incapacitated. They are both part of your estate plan, which is a collection of legal documents and has nothing to do with whether you reside in a palatial estate.

Here’s how it might work. If you become seriously ill and cannot speak on your own behalf, but you have a Power of Attorney naming your daughter Carol to serve as your POA for healthcare and financial decisions, Carol will be able to pay bills, including paying the mortgage, keeping your car lease up to date, and taking care of all of the financial aspects of your life. If she is also named as your Health Care POA, she will be able to speak with your medical team, be involved in decisions about your course of care and follow the wishes you’ve expressed in your POA.

If you die, and Carol has also been named your executor, she will be able to transition into this new role by representing you through the probate process. She will be able to work with your estate planning attorney to have your will filed with the court and follow your directions for distribution of your assets.

Having only a last will and testament would not protect you while you are living. Having only a Power of Attorney would not protect your wishes after you have died. All of these documents—and there are others not mentioned here—work together to protect you during life and after you’ve passed.

Reference: Coeur d’Alene/Post Falls Press (Aug. 29, 2022) “Planning for death probably isn’t the most important part of your estate plan”

Who Is the Best Choice for Power of Attorney?

Who Is the Best Choice for Power of Attorney?

Picking a person to serve as your Power of Attorney is an extremely important part of your estate plan, although it is often treated like an afterthought once the will and trust documents are completed. Naming a POA needs to be given the same serious consideration as creating a will, as discussed in this recent article “Avoid powers of attorney mistakes” from Medical Economics.

Choosing the wrong person to act on your behalf as your Power of Attorney (POA) could lead to a host of unintended consequences, leading to financial disaster. If the same person has been named your POA for healthcare, you and your family could be looking at a double-disaster. What’s more, if the same person is also a beneficiary, the potential for conflict and self-dealing gets even worse.

The Power of Attorney is a fiduciary, meaning they are required to put your interests and the interest of the estate ahead of their own. To select a POA to manage your financial life, it should be someone who you trust will always put your interests first, is good at managing money and has a track record of being responsible. Spouses are typically chosen for POAs, but if your spouse is poor at money management, or if your marriage is new or on shaky ground, it may be better to consider an alternate person.

If the wrong person is named a POA, a self-dealing agent could change beneficiaries, redirect portfolio income to themselves, or completely undo your investment portfolio.

The person you name as a healthcare POA could protect the quality of your life and ensure that your remaining years are spent with good care and in comfort. However, the opposite could also occur. Your healthcare POA is responsible for arranging for your healthcare. If the healthcare POA is a beneficiary, could they hasten your demise by choosing a substandard nursing facility or failing to take you to medical appointments to get their inheritance? It has happened.

Most POAs, both healthcare and financial, are not evil characters like we see in the movies, but often incompetence alone can lead to a negative outcome.

How can you protect yourself? First, know what you are empowering your POAs to do. A boilerplate POA limits your ability to make decisions about who may do what tasks on your behalf. Work with your estate planning attorney to create a POA for your needs. Do you want one person to manage your day-to-day personal finances, while another is in charge of your investment portfolio? Perhaps you want a third person to be in charge of selling your home and distributing your personal possessions, if you have to move into a nursing home.

If someone, a family member, or a spouse, simply presents you with POA documents and demands you sign them, be suspicious. Your POA should be created by you and your estate planning attorney to achieve your wishes for care in case of incapacity.

Different grown children might do better with different tasks. If your trusted, beloved daughter is a nurse, she may be in a better position to manage your healthcare than another sibling. If you have two adult children who work together well and are respected and trusted, you might want to make them co-agents to take care of you.

Your estate planning attorney has seen all kinds of family situations concerning POAs for finances and healthcare. Ask their advice and don’t hesitate to share your concerns. They will be able to help you come up with a solution to protect you, your estate and your family.

Reference: Medical Economics (Feb. 3, 2022) “Avoid powers of attorney mistakes”