Many people believe that if they have a will, their estate planning is complete, but there is much more to a solid estate plan. A good plan should be designed to avoid probate, save on estate taxes, protect assets if you need to move into a nursing home, appoint someone to make your health care decisions in the event you are unable to, and appoint someone to act for you if you become disabled.
All estate plans should include, at minimum, three important estate planning instruments: a durable power of attorney, health care proxy or other medical directives, and a will. In addition, trusts can be used to avoid probate, manage your estate both during your life and after you are gone. Trusts can also be used to protect assets during your life from lawsuits, creditors, and nursing homes.
1. Will
A will is a legally-binding statement directing who will receive your property at your death. If you do not have a will, the state will determine how your property is distributed. A will also appoints a legal representative (called an executor) to carry out your wishes. A will is especially important if you have minor children because it allows you to name a guardian for the children. However, a will covers only probate property. Many types of property or forms of ownership pass outside of probate. Jointly-owned property such as joint bank accounts, property in trust, life insurance proceeds, and property with a named beneficiary, such as IRAs or 401(k) plans, all pass outside of probate and aren’t covered under a will.
2. Power of Attorney
A power of attorney allows a person you appoint — your “attorney-in-fact” or “agent” — to act in your place for financial or legal purposes when and if you ever become incapacitated. In that case, the person you choose will be able to step in and take care of your financial and legal affairs. Without a durable power of attorney, no one can represent you unless a court appoints a guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship, your representative may have to seek court permission to take planning steps that she could implement immediately under a simple durable power of attorney.
Additionally, the standard power of attorney does not typically allow your agent to do trust planning and Medicaid planning on your behalf. These powers should be added to a durable power of attorney through an instrument called a Statutory Gifts Rider. Without the Rider, your agent may find themselves unable to protect your assets in the event of your disability, incompetency, or inability to plan for yourself. This is especially applicable to power of attorney documents drafted in 2009 or later, when New York State changed the laws regarding the power of attorney.
Many attorneys, myself included, consider the power of attorney one of the most, if not the most, important documents in an estate plan. Oftentimes people wait too long to execute a power of attorney. Once someone suffers from diminished capacity or is declared incompetent, a power of attorney cannot be lawfully executed. It is incredibly important to address your power of attorney and estate plan before it is too late.
3. Health Care Proxy and Medical Directives
Medical directives may encompass a number of different documents, including a health care proxy and a personal care plan. The exact document or documents will depend on the choices you make.
A health care proxy designates someone you choose to make health care decisions for you if you are unable to do so yourself, in addition to providing instructions for your agent as to your wishes. These instructions include what types of life support you will accept and for how long, and when you wish for your agent to withdraw life support.
A personal care plan is a document that provides instructions to your caretakers in the event that you are unable to communicate with them. This fully customizable plan allows you to document what you like to do, what you like to eat and drink, what you like to read and watch on TV, how often you wish to visit family, and how often you would like to go outdoors (just to name a few options). This document is important to have in place so that your caretakers can provide you with the things you enjoy should you be unable to tell them yourself.
4. Trust
A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” Trusts generally have one set of beneficiaries during those beneficiaries’ lives and another set — often their children — who begin to benefit only after the first group has died. There are two main reasons for setting up a trust, or trusts: (1) avoiding probate; and (2) asset protection. If you establish a revocable living trust (RLT) that terminates when you die, any property in the trust passes immediately to the beneficiaries. This can save time and money for the beneficiaries by avoiding the court’s probate process. Unlike wills, trusts are private documents and only those individuals with a direct interest in the trust need know of trust assets and distribution. Provided they are well-drafted, another advantage of trusts is their continuing effectiveness even if the donor dies or becomes incapacitated.
Irrevocable trusts also avoid probate while adding asset protection over property that is held in the trust. These trusts are very beneficial to protect property from creditors and to help the grantor (or donor) qualify for Medicaid should nursing home care be needed. Irrevocable trusts require the grantor to relinquish some direct access to their assets held by the trust, but allow the grantor to maintain full control over the trust and the trust’s assets.
5. Beneficiary Designations
Although not necessarily a part of your estate plan, at the same time you create an estate plan, you should make sure your retirement plan and life insurance beneficiary designations are up to date. If you don’t name a beneficiary, the distribution of benefits may be controlled by state or federal law or according to your particular retirement plan. Some plans automatically distribute money to a spouse or children. Although others may leave it to the retirement plan holder’s estate, this could have negative tax consequences. The only way to control where the money goes is to name a beneficiary. When planning with trusts, revocable and irrevocable trusts may be named as designated beneficiaries of life insurance policies and retirement plans. This aspect of planning, when coupled with life and legacy planning for your beneficiaries, can be extremely beneficial for assets passing under these accounts. Beneficiary designations should be discussed with your estate planning attorney to ensure your final wishes are carried out properly.
We will teach you about the key components of a great estate plan, and we will have a little fun while we’re at it!
At Jeffrey P. Reisner, Esq., it’s all about your life, your legacy, and your peace of mind. Give us a call at (315) 422-6666 in the Syracuse/Central NY region. We hope to see you soon!
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