So here it is, another new year is upon us and we are already looking forward to 2018 as a fresh start in so many areas of our lives. Some of us are thinking about the past year and its trials and tribulations and thankful that somehow, we got through it. Others are planning for the spring, walking through the stores and looking at the spring fashions which of course are a harbinger for the summer season and lazy days at the beach. Still more are setting up their calendars to address family, work and personal issues.
But in nearly every case, your family is never far from your thoughts and although you may be preoccupied with the tasks of a new year, 2018 should be the year that you do an estate plan to protect those you love. And if you already have one, then let this first month of the new year be the time that you pull out that plan and review it.
Yes, you may be the most responsible person in the world, someone who has all his or her ducks in a row. You may have completed an estate plan years ago and in that case, kudos to you. However, no matter how much we plan, life is never static. There are marriages, divorces, new property, sold property, new friends and fights with old friends. On and on…changes are always occurring.
So, before I review the reasons for an estate plan for those who do not have one, let me go over those things you should be reviewing if you have an estate plan in place.
1. Insurance Policies
One of the most overlooked items in an estate plan are documents that have beneficiary designations. Things like life insurance policies, IRAs and even pension plans could end up going to the wrong person due to out of date designations. It is important to review and update these documents annually or in the case of a marriage, divorce or death of a family member.
2. Review Guardianships and other documents
Make sure those people who may have named as guardians for you or your children are still the same. In many cases, younger parents name their own parents as guardians for their children if something happens to them. However, as those parents age and they become incapable of raising kids or may even be incapacitated or have died, new guardians may be necessary.
This may even occur if same aged friends are named as guardians. Is your
friendship still as strong as it was when you developed the estate plan? Did their lives changes? Maybe they had children or perhaps they moved out of state.
It is important to review all documents of your estate plan and make sure nothing has changed. Wills, Healthcare proxies and HIPAA releases all need a regular review. If major changes have occurred, consult with your attorney to make sure any changes made are legal and acceptable.
Now, let’s look at those who do not have an estate plan. After all, what’s the worst that could happen? Here are some stories from Forbes.com on the horrors of not having a plan in place.
Death causes sibling in-fighting:
"One client was a business owner with a $3 million estate. He passed away at age 62 with no will, no spouse and no kids. Nine siblings were left to fight over his assets. The family of siblings was probably dysfunctional before, but this brought out the worst in all of them. The whole process was ugly, and it took 18 months to close the estate.” –David Jackson, CFP, Kansas City, MO
Children get nothing, new wife gets everything:
"I had a friend whose father had remarried years after his first wife had passed away. The father had just retired when he suddenly required hospitalization. A week later, he died. He had no will, and at that time in Massachusetts, the default was that the current spouse got everything. The children were left with nothing—the new widow was nervous about having sufficient assets for the rest of her life, and so would not disclaim any of the inheritance. As a result, the widow and the children didn’t speak to each other for years.” –George Gagliardi, CFP, Lexington, MA
Life partner left without legal standing:
“My maiden aunt lived, worked and died about 25 years ago in another state without leaving a will. I know her intentions were to leave her assets, including their home, to her life partner, but she never did the paperwork. It took three years to settle everything because her siblings and parents had passed and the nieces and nephews were scattered all over the country. Imagine the heartbreak for her partner of having to sell the home and move since she could not afford to buy the house from the estate. All the funds were eventually disbursed to 11 others after time spent gathering death certificates and piling up legal fees.” –June Ann Schroeder, CFP, Elm Grove, WI
Life insurance ends up in the wrong hands:
“I had a client who was a married couple with two young children. The husband was my primary contact and, eventually, he became completely unreachable. After several months, I lost total contact. Eventually I found out the husband ended up addicted to gambling and alcohol. They divorced and he committed suicide. His life insurance named ‘spouse’ as beneficiary, but she was no longer his wife. It ended up going to ‘next of kin,’ which was their children. Sounds great, but since they were minors and there was no will that established a trust, the state stepped in to manage the money. The mother had to go back to work and hire a nanny for the children. She asked the state if she could take the money that she was paying the nanny so she could stay at home with the kids. The answer was no.” –Clark Randall, CFP, Dallas
Heirs are left trying to find everything:
“As wise as my own father was, he never got around to creating a will, or documenting his assets and their locations. He died one day before 9/11 and all these years later, I am still trying to finish up his estate. It was a monumental detective work just to try to figure out exactly what he had and where. To make matters worse, the assets were in multiple countries, and continents.” –Kashif Ahmed, CFP, Woburn, MA
So, you can see, an estate plan not only allows you to provide to those you wish to provide for, but it allows your loved ones to grieve your loss without the stress of dealing with the division of assets. It is the best gift you can provide to your family.
Here are the things you should have in place when developing an estate plan.
1. Durable Power of Attorney
This is the most important planning instrument for taking care of those you want to take care of while you are living. This tool appoints someone to step in and take care of your finances and legal matters should you become incapacitated through illness, dementia or by an accident. Should this be missing, family members, who may already be stressed, must go to court resulting in additional legal fees and unnecessary delays.
The concept of the durable power of attorney is simple, it allows you to name someone you trust while you are able to make decisions to act as your agent when you cannot. However, you do need to make decisions as to how many agents to appoint, whether to allow gifting, when the power of attorney should take effect and whether or not to grant trust powers. Reviewing this with an elder law attorney can help you sort through these details.
2. Healthcare Proxy
Like the durable power of attorney, an agent you name for healthcare steps in and can make heath care decisions for you when and if you become incapacitated. What’s different here than a durable power of attorney is that it only takes effect when a doctor determines that you are unable to make decisions for yourself. Also, the healthcare proxy is just one person named by you so there is just a single point person dealing with your medical providers which eliminates any disagreements or arguments between multiple people. However, you should name an alternate in case the principal person is unable to act in your behalf.
So, let’s talk about healthcare proxies a little bit.
The major problem that usually arises in cases of incapacity is that the person named often has no idea what the person wants. Often, because it is a very difficult conversation to have in life, the healthcare proxy has a vague idea of the person’s wishes. To address this, I suggest that a medical directive be in place and the potential patient and agent have an honest and open conversation.
A general medical directive that can be included with the health care proxy can say:
If I am in a vegetative state or irreversible coma, please turn off all machines (usually referred to as “pulling the plug”)
Speak with the medical team regarding the balance of the benefits and any discomfort from the proposed treatment
You can also say, “do whatever it takes to keep me alive”.
3. The HIPAA Release
In addition to having the healthcare proxy, a HIPAA release is a necessity. HIPAA law keeps medical professionals from releasing medical information to anyone, even the spouse or children of the patient, without a release. So now you may ask, another piece of paper to add? Why isn’t the healthcare proxy enough?
Here are some answers, a health care proxy is “springing”, meaning that it does not get activated until or unless the person is declared incapacitated. So, imagine a loved one trying to find out what’s wrong or trying to decide care decisions without having all the details. And while the healthcare proxy may name just one person at a time, it may be your wish to have a number of people communicate with the medical team. The proxy named may not be the first person available to the doctors.
A HIPAA release that is signed and available eliminates problems between medical providers and loved ones.
4. Your Will
A simple tool that says who gets what when you die, who will be in charge of paying your bills, doing the final tax returns and distributing other property. But…
There is an irony here. Many people think the will is the end all and be all of distributing property after death but there is a whole set of laws governing the “probate process”. What the will says may not apply in many situations and this can be discussed with an elder law attorney.
5. Revocable Trust
Although the things we have previously discussed may be enough, you may also want to include a revocable trust, which is sometimes called a “living trust”. A trust is an estate planning tool that allows one or more people you name, called the trustees, to manage property or investments for the benefits of others, called the beneficiaries. In this type of trust, the same person acts as the creator of the trust, the grantor or donor, as trustee and as beneficiary.
Not much changes in their lives after they set up the trust. But it avoids probate by naming successor beneficiaries after the initial beneficiary passes away. While probate is not the worst thing that can happen to people, avoiding it can save heirs time, trouble and money.
Also, a trust is a great tool for intervening in the event of incapacity. Often, financial institutions can be resistant to recognizing durable powers of attorney but usually are much more open to accepting trusts when a successor trustee is named. It becomes even easier to work with a bank if the parent names one or more adult children as co-trustees. In such cases, the parent does not give up any autonomy but allows the child to assist in managing the finances. Even if the child remains distant from such management, the trust still allows them to view accounts and step in should a problem arise. This is especially important should a scam be detected with the account.
Trusts are also flexible in how they are drafted and can state specifics on when, how and who receives assets. The options and opportunities for creativity in a trust are almost limitless.
There is nothing more emotionally wrenching then young children being orphaned due to the death of young parents. In many cases, even those who develop a will early are hesitant to include such information in a will because just the thought is horrible or the parents cannot agree as to who will raise the kids.
Many parents I have spoken with are under the impression that just a verbal agreement with a relative or firend is enough if the worst case scenario does occur. This is incorrect.
If you have not outlined your wishes in a will, the court will usually decide who will raise the kids. In some cases, a lack of a will has led to custody battles or the person who the court feels is right to take the parental role does not want them. It is also important from a financial standpoint to outline how the children will be provided for from your estate.
7. Special Needs Trust
I just want to separate this trust and talk about it separately and I will explain why. A special needs trust is set up for a person with special needs to supplement any benefits the person with special needs may receive from government programs. A properly drafted special needs trust will allow the beneficiary to receive government benefits while still receiving funds from the trust.
Recently, we have seen young adults who were included in a trust and as members of the armed forces return home with disabilities that may be present for the rest of his or her life. It is imperative that in such a situation, the estate planning tools are reviewed and changed to reflect this new need.
Of course, every person with special needs is different, which means that every special needs trust is going to be different as well. The only way to determine which special needs trust is right for your family is to meet with an attorney who is a qualified estate planner.
As distressing as some people may think a discussion on estate planning is, most of the documents I talked about are about life and not death. Let 2018 be the year that you develop a plan that will allow your family to be taken care of when the time arises.
You can contact my office at 855-724-9400 and speak with the professional legal and fiduciary experts on developing an estate plan that works for you.
Attorney Connelly practices in the area of elder law. This area of law involves Medicaid planning and asset protection advice for those individuals entering nursing homes, planning for the possibility of disability through the use of powers of attorney for the both health care and finances, guardianship, estate planning, probate and estate administration, preparation of wills, living trusts and special or supplemental needs trusts. He represents clients primarily in the states of Rhode Island, Connecticut and the Commonwealth of Massachusetts. He was certified as an Elder Law Attorney (CELA) by the National Elder Law Foundation (NELF) in 2008. Attorney Connelly is licensed to practice before the Rhode Island, Massachusetts, Connecticut, and Federal Bars.