Estate Planning! The Cure to Unhappiness about Thick Stacks of Legal Papers!

Most of us think, “thick stack of legal papers”? Ugh! “No, thank you!” But when it comes to estate planning, it’s just the opposite. You see, legal problems in estates are often caused not by bad estate planning, but by Failure-To-Plan (“FTP”), even in estates where the person or couple thought they’d done everything right.

FTP is insidious and you don’t even know if you have it because it’s invisible! It’s the absence of a clause your estate plan needs after you’re gone and can’t add the clause anymore. It’s the missing Asset Protection Trust for the divorcing child. It’s the Special Needs Trust that they intended to get to but kept putting off because they couldn’t bear to truly face how serious their son’s mental illness was.

Avoidance of FTP is why our estate planning documents are so thick and why we include so many of them. I’ve heard clients say, I can’t even count how many times, “I just want a simple plan.” Sometimes I respond, “When? Simple now? Or Simple later?” There are exceptions, of course, but in general: the easier it is to plan now, the harder it will be to administer later.

Failure to Plan

This blog entry is meant to provide you, the reader, with an overview of the documents that our estate planning clients learn about top-to-bottom when they join the firm. That’s because we customize each document to each client’s unique situation, wishes, and friends and family. So, we have a thorough discussion with each client about each document with nearly infinite arrays always available depending upon client preference.

Because there are so very many documents, and some of them are hard to explain clearly in a quick blog article, I’ve broken this article into Parts. Today, is about the Big Four, which you should find in any trust-based estate plan. And the other three should be in any estate plan, trust or not.

Revocable Living Trust(“RLT”) is the centerpiece of most, but not all, estate plans in our firm. Properly funded, it avoids probate, reduces or eliminates estate tax, and can provide for you during your incapacity (it happens to 80% of people at some point) without any need for court involvement. After you’re gone, it is the most flexible tool available to plan for how and when your beneficiaries will receive their gifts from you and who will manage that process.

Will is a document that directs where your assets go when you die but it can only do that within the probate process. Since probate is typically more expensive, more time-consuming, more public, more rule-bound and less desireable for other reasons, we use the RLT to avoid it. However, just in case some of your assets were not properly transferred to your RLT during your life, your Will is there as a backup document to put those outlying assets through probate and into your RLT. A more expensive and time-consuming process than if you had properly put the assets into your RLT during your lifetime, but the Will is a good way to ensure your assets all go where you want them to go no matter what. It may be lengthier than you expect because we include a lot of “what if” scenarios in your Will to cover all of your bases.

Durable Power of Attorney for Finance (“DPOA”) is a lengthy document because we must list all of the powers that we want to be sure your Agent under the DPOA has all of those powers (e.g. the power to care for your pet). The DPOA becomes effective when you become incapacitated. You may be wondering if you have a trust, why you need a DPOA. It’s because, although your successor trustee can manage your RLT while you’re incapacitated – and handle all of your finances that way – the DPOA handles financial issues that are not related to your trust. These include, for example:

  • assets not in your trust, like retirement accounts (which may be payable to the trust as a beneficiary but which are never “owned” by the trust, you retain ownership for tax reasons);
  • financial issues that don’t deal with assets, like applying for Medicare when you turn 65, or dealing with claims with your health insurance company before then; and
  • non-financial, non-health powers that just don’t fit anywhere else (like caring for your pets or providing for your comfort).

Healthcare Power of Attorney (“HCPOA”) is usually a shorter document, depending upon how much experience the client has with medical care. The more experience, the more specific instructions they may wish to include, especially if they have a known chronic or terminal illness with predictable treatment options that they have strong opinions on. Otherwise, the primary purpose of the document is to convey decision-making authority over your healthcare decisions from you to the person you trust (named in the document) in the event that you are incapacitated and cannot make the decisions yourself. You also have an opportunity to name 1 or more backup decision-makers, which we strongly recommend.

Be sure to come back for more when we’ll be discussing the HIPAA release, the emergency wallet card, the guardian nomination and the memorandum of personal property!

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