Estate Planning

There are two legal documents for managing finances that need to be in place before an incapacitating event ever happens:

Financial Power of Attorney

This legal document gives your agent the authority to pay bills, make financial decisions, manage investments, file tax returns, mortgage and sell real estate, and address other financial matters.

There are two types of financial powers of attorney: (1) durable, (2) springing. A durable power of attorney goes into effect as soon as it is signed, while a springing power of attorney only goes into effect after you have been determined to be mentally incapacitated.

Revocable Living Trust

This legal document has three parties to it: The creator who creates the trust, the person who manages the assets transferred into the trust (the Trustee), and the person who benefits from the assets transferred into the trust (the Beneficiary). In the typical revocable living trust situation you will be the creator, the Trustee, and the Beneficiary of your own trust. However, if you become incapacitated, then your Successor Trustee will step in and manage the trust assets for your benefit.

Your Revocable Living Trust should contain provisions to determine your mental status through a private process (such as a disability panel, the opinion of an attending physician, the opinion of two physicians, or some other method) instead of a public court process. In addition, the trust agreement should contain specific instructions about how to take care of you if you are declared mentally incapacitated.

If you have questions about planning for incapacity, please contact my office.

We have all heard about lawsuits where businesses are sued for their customers’ minor injuries, friends who lose their wealth in a divorce settlements, and acquaintances who receive huge unexpected tax bills or have to declare bankruptcy.
 
Asset protection trusts are designed to protect your beneficiaries from the effects of lawsuits, divorce, taxation, creditors, and bankruptcy.
 
What is An Asset Protection Trust?
 
An asset protection trust is a special type of irrevocable trust in which the trust funds are held and invested by the Trustee and are only distributed on a discretionary basis. The purpose of an asset protection trust is to keep the trust funds safe and secure for the benefit of the beneficiaries, instead of having the funds be an available resource to pay a beneficiary’s debts.
 
Asset Protection Trusts Equal Inheritance Protection
 
Leaving an inheritance outright to your child or grandchild without any strings attached is risky in this day and age of high divorce rates, lawsuits, and bankruptcies. Your beneficiaries may not have developed the financial skills necessary to manage their inheritance over the long run. There is also the very real risk that an outright inheritance left to your spouse will end up in the hands of a new spouse instead of in the hands of your children or grandchildren. Finally, a beneficiary may be born with a disability or develop one later in life that will end up rapidly depleting their inheritance to pay for medical and other bills.
 
There are a number of different types of asset protection trusts that you can establish to insure your hard earned money is used only for the benefit of your family:
 
• Trusts for minor beneficiaries – Minor beneficiaries cannot legally accept an inheritance, so a discretionary trust for a minor is a necessity.
• Trusts for adult beneficiaries – Adult beneficiaries who are not good with managing money, are in a lawsuit-prone profession, have an overreaching spouse, or have an addiction problem will benefit from a lifetime discretionary trust.
• Trusts for surviving spouses – If you are worried that your spouse will not be able to manage their inheritance, will remarry, or will need nursing home care, you can require your spouse’s inheritance to be held in a lifetime discretionary trust.
• Trusts for disabled beneficiaries – Disabled beneficiaries who receive an inheritance outright run the risk of losing government benefits and will need to spend down the funds to re-qualify, but an inheritance left to a special needs trust can be used to supplement, not replace, government assistance.
 
Drafting an Asset Protection Trust Your Way
 
Asset protection trusts designed for inheritance protection can be as rigid or as flexible as you choose. For example, a beneficiary can be added as a co-trustee at a certain age or after the beneficiary reaches a specific goal such as graduating from college. Another option is to name a corporate trustee, such a bank or trust company, but give the beneficiary the right to remove and replace the corporate trustee with another one.

If you’ve set up a Living Trust, congratulations!
 
You are definitely on the right track. But you are only half way there!
 
Many people believe that because they took the time to create a Living Trust, their estate will automatically avoid probate. Unfortunately, this belief is false!
 
The key to probate avoidance is proper asset ownership, including the full funding of your Living Trust.
 
What Assets Require Probate?

• Accounts and real estate titled in your sole, individual name [without a payable on death (POD) or transfer on death (TOD) designation]
• Accounts and real estate you own as a tenant in common
• Contract assets naming your estate as beneficiary

What Assets Avoid Probate?

• Accounts and real estate owned as joint tenants with rights of survivorship
• Accounts and real estate owned as tenants by the entirety
• Life insurance
• Retirement accounts, including IRAs, 401(k)s, and annuities
• Life estate property
• Payable on death (POD) and transfer on death (TOD) accounts and, in some states, transfer on death or beneficiary deeds

If you have questions about funding your Living Trust, please contact my office.

Many people believe that estate planning is nothing more than directing the distribution of your property after you pass away. This is not true!
 
Comprehensive estate planning is about more than just planning your legacy after death.
 
It is also about having a plan to manage your affairs if you become incapacitated during your life.
 
What Happens Without an Incapacity Plan?
 
Without a comprehensive incapacity plan in place, a judge can appoint a guardian or conservator to take control of your assets and health care decisions. This guardian or conservator will make all personal and medical decisions on your behalf as part of a court-supervised guardianship or conservatorship. Until you regain capacity or die, you and your loved ones will be faced with an expensive and time-consuming guardianship or conservatorship proceeding.
 
What Happens to Your Finances During Incapacity?
 
If you are legally incapacitated, you are legally unable to make financial, investment, or tax decisions for yourself. Of course, bills still need to be paid, tax returns still need to be filed, and an investment strategy still needs to be managed.
 
You must have these two essential legal documents for managing finances in place prior to becoming incapacitated:
 
1. Financial Power of Attorney. This legal document gives your agent the authority to pay bills, make financial decisions, manage investments, file tax returns, mortgage and sell real estate, and address other financial matters that are described in the document. Financial Powers of Attorney come in two forms: “Durable” and “Springing.” A Durable Power of Attorney goes into effect as soon as it is signed, while a Springing Power of Attorney only goes into effect after you have been declared mentally incapacitated.
 
2. Revocable Living Trust. This legal document has three parties to it: The person who creates the trust (you might see this written as “Trustmaker” or “Grantor” or “Settlor” – they all mean the same thing); the person who manages the assets transferred into the trust (the “Trustee”); and the person who benefits from the assets transferred into the trust (the “Beneficiary”). In the typical situation you will be the Trustmaker, the Trustee, and the Beneficiary of your own revocable living trust, but if you ever become incapacitated, then your designated Successor Trustee will step in to manage the trust assets for your benefit.
 
Health Care Decisions Must Be Made Too
 
If you become legally incapacitated, you won’t be able to make health care decisions for yourself. Because of patient privacy laws, your loved ones may even be denied access to medical information during a crisis situation and end up in court fighting over what medical treatment you should, or should not, receive (like Terri Schiavo’s husband and parents did, for 15 years).
 
So, you should have these three essential legal documents for making health care decisions in place prior to becoming incapacitated:
 
1. Medical Power of Attorney. This legal document, also called an Advance Directive or Medical or Health Care Proxy, gives your agent the authority to make health care decisions if you become incapacitated.
 
2. Living Will. This legal document gives your agent the authority to make life sustaining or life ending decisions if you become incapacitated.
 
3. HIPAA Authorization. Federal and state laws dictate who can receive medical information without the written consent of the patient. This legal document gives your doctor authority to disclose medical information to an agent selected by you.
 
Is Your Incapacity Plan Up to Date?
 
Once you get all of these legal documents for your incapacity plan in place, you cannot simply put them in a drawer and forget about them. Your incapacity plan must be reviewed and updated periodically and if certain life events occur – such as moving to a new state or going through a divorce.
 
If you have questions about incapacity planning, please contact my office.
 

Think for a moment about what would happen if you suddenly became incapacitated, or suddenly passed away.
 
Would your spouse or family know what to do?
 
Would they know who to call for help?
 
Would they be able to access (or even find) online accounts or files on your computer?
 
Would they know where to find important records and documents?
 
Organizing this information can alleviate unnecessary anxiety and turmoil if the unthinkable were ever to happen.
 
This basic list will help you start thinking of the critical information you would want your family to have.

• legal documents (will, living trust, health care documents);
• list of medications you are taking;
• list of your advisors (attorney, CPA, banker, insurance agent, financial advisor, physicians);
• insurance policies (health and life);
• year-end bank and investment account statements;
• storage facility location, access method, and inventory;
• list of other assets, including location, account numbers, date purchased and purchase price;
• safe deposit box location, list of contents and location of key;
• list of people to whom you owe money (mortgage, credit cards, etc.);
• list of people who owe you money;
• death or disability benefits from organizations;
• past tax returns.

Many of your records are probably on a computer or stored online. If you scan documents or receive financial statements electronically, your family may not even know they exist. Family photos may be stored digitally or online. Much of this information is password protected.
 
Actions to Consider

• Give current copies of your health care documents to your physicians and designated agent(s).
• Keep your original documents in one safe place, like a fireproof safe or safe deposit box. Make copies for the notebook described next.
• Buy one or two three-ring binders to organize your personal and financial information, or show your family where to find them on the computer. Include locations, contact information, and account numbers.
• Include a list of online accounts and how to access them (including passwords).
• Clean up your computer desktop and put important files in an easy-to-find desktop folder.
• Have a trial run. Ask your spouse or other family member (or your successor trustee or executor) to pretend that he or she needs to access needed information.
• At least once a year, review and update your notebook, computer desktop files and passwords for online accounts.

If you have questions about organizing your information, please contact my office.
 

Most professionals know that DIY estate planning can be very dangerous.
 
While completing the forms may seem easy and straightforward, a single mistake or omission can have far reaching complications that only come to light after a person has died.
 
The heirs could end up disappointed and confused. They could also end up paying much more in legal fees to try to sort things out after the fact than it would have cost in the first place.
 
Consider the following:

• Legal Expertise: Experienced estate planning attorneys have the technical expertise to draft documents correctly. They understand the technical terms and legal requirements in your state. Laws vary greatly from state to state, and a DIY program or kit may not tell you everything you need to know to make your estate plan work.

• Coordination of Assets: A will only controls assets that are titled in your name. You probably have other assets that are controlled by contract, joint ownership and/or beneficiary designations. These may include IRAs, 401(k)s, joint bank accounts, real estate and life insurance. A will does not control these assets. An experienced estate planning attorney will know how to coordinate these so that your assets are distributed the way you want to those you want to have them.

• Unmarried Cohabitants: Because laws are frequently changing and vary greatly from state to state, it is vital to have updated advice from a competent professional. Without proper planning, many rights may be limited for unmarried cohabitants.

• Complexity and Cost: Most people think their estate planning will be simple. But the reality is, most of us discover we do need some personalized planning. You may not even know that without the guidance of an experienced attorney. It is far better to spend a little more now and make sure your plan is created correctly than to try to save a few dollars and have things turn out badly later. You won’t be around then to straighten things out.
   
  If you have questions about estate planning, please contact my office.