Everyone who lived until September 11, 2001 shares a common experience. Although our individual circumstances are colorful, we remember looking at the harrowing images of destruction and misery and wondering why this tragedy happened. Since that fateful day, Americans have flocked to churches, synagogues, mosques and other places of worship in search of answers to questions regarding the meaning of life and the existence of suffering.
This national tragedy continues to affect us all to varying degrees. We face similar problems with environmental disasters such as hurricanes, hurricanes and wildfires, and personal struggles such as the COVID-19 pandemic and unexpected diseases. In each case, we promise the best we can. We can prepare ourselves for these unforeseen circumstances by planning what should happen in the event of a crisis. Basic property planning relieves stress in a time of crisis both for us and those we love. A basic estate plan includes five documents: a general power of attorney, a general power of attorney, a HIPAA power of attorney, a will, and a revocable trust.
With a property power of attorney, you appoint an “agent” who makes financial decisions on your behalf when you are unable to do so. This agent has the legal authority to act on your behalf and may be your spouse, parent, or trusted friend. Without this document, if you are missing or incapacitated, no one can act on your behalf. Without it, if you are missing or incapacitated and your family needs to refinance your home to pay the bills, this can only be done by someone who goes to court and declares you incompetent. Disability procedures usually require the services of a lawyer. This arduous process often leaves those involved emotionally drained.
The power of attorney for health care designates an “agent” to make health care decisions for you if you are unable to make these decisions on your own. With this document in place, you can rest assured that the person you trust will have the legal authority to make medical decisions on your behalf. You may also want to prepare a living will or similar document that expresses what you want to do in connection with end-of-life decisions.
The HIPAA license allows people you designate, such as agents or others, to access your protected health information. With this access to your health information, your chosen decision makers can make informed decisions.
The will has many functions. First, and most importantly, under the laws of most states, it is the only way you can designate who you wish will be the guardian of your minor children. Without a will, the court will decide who will be the guardian, regardless of your wishes. Unfortunately, no matter how much a judge cares, that judge doesn’t know and love your children as much as you do. Second, the will distributes any assets held in your individual name upon your death to the intended beneficiaries. Without a will, the state determines how and to whom you distribute your assets under “intestate succession” laws. Unfortunately, this collection list ignores your circumstances and often the assets don’t go to the desired person or the desired way. Third, a will designates someone as a personal representative or executor of the instructions set forth in your will. Certain types of wills, called streaming wills, may “pour” your assets “more than” into a revocable living trust (“RLT”), to be distributed according to their terms.
Even with a will, any assets you own upon death must go through a “will” to be distributed to those you designate. A probate is the process of transferring the right of ownership from the deceased person to the person who has the right to receive the property. Depending on the situation and situation, this process can be expensive, time-consuming, and emotionally draining for those left behind.
Preparing an RLT to retain legal ownership of your assets during your lifetime avoids probate. The RLT acts as a surrogate trust upon your death and gives the successor trustee the legal authority to collect assets, pay your debts, expenses, and taxes, and dispose of assets as set forth in the RLT. As a result, the assets avoid probate because the RLT owns the assets and the trust is not dead. Although the RLT retains legal title to the assets, you retain full control of the assets during your lifetime and can make changes to the RLT. If you become incapacitated, the person you have chosen as your successor will manage the assets for you, just like an agent under a property power of attorney. RLT provides great flexibility in allowing you to direct how and when assets will be used after your death. For example, you could include provisions that ensure that your children do not waste money but instead, keep the money for higher education.
Finally, as part of your estate planning, you need to think about how other assets will pass on when you die. Periodically review beneficiary assignments on your 401k, IRA, or other eligible plan assets. Oftentimes, circumstances change, and you need to update your beneficiary assignments to change with the times. This becomes increasingly important as retirement assets make up a larger and larger portion of the average person’s assets. Periodically, you should review your life insurance beneficiary designations and any other assets that are automatically transferred upon death. Many financial accounts have such designations.
Unfortunately, we cannot eliminate the possibility of tragedy in our lives. However, we can reduce our anxiety in times like these with a comprehensive property plan that provides instructions to our loved ones as to what should happen in the event of a tragedy. This article reviewed the basic documentation. There are other considerations such as special needs beneficiaries, creditor protection, income taxes, divorce protection, and estate taxes that affect your plan. A qualified estate planning attorney who focuses on this area of practice can help you structure your plan to achieve your goals.
Terina Stead, JD, MA (tax)
Associate Director of Education
American Academy of Estate Planning Lawyers, Inc.
9444 Balboa Street, Suite 300
San Diego, CA 92123
Phone: (858) 453-2128