08 May Pandemic Takeaway: Everyone Needs an Estate Plan
As we step back and reflect on 2020 and the heartbreak of the coronavirus, there are some lessons that we can learn. As a country, we were ill-prepared to face a medical crisis of this magnitude. At times it has seemed like a science fiction movie that has come to life…and yet it is real. We can’t solve the larger problems of the country, but we can make some changes in our own lives to better prepare ourselves for what the future may bring.
As planners, one major weakness that we have seen is the lack of sufficient estate planning. Suddenly, people of all ages have been taken ill and many thousands have died. In some cases, both spouses have been simultaneously hospitalized. It is a misconception that estate planning is only for the elderly or wealthy. Everyone over the age of 18 needs an estate plan. This may seem counter-intuitive, but here is why it is true: estate planning isn’t just for the proper distribution of assets; it also establishes what happens if you are incapacitated.
The following is a short list of basic estate planning documents that everyone over 18 needs in place:
- Durable Power of Attorney (financial)
- Healthcare Power of Attorney
- HIPAA Authorization
- Living will
Durable Powers of Attorney name who can step into your shoes and manage your affairs if you are unable to do so; there is typically one for finances and one for healthcare. While many couples name each other as their DPOA, this pandemic has made it clear that it would also be wise to name another trusted party as a secondary DPOA. HIPAA authorization grants others the ability to be informed about your health if you are ill or hospitalized. Finally, the living will directs how you wish to be treated in the event of incapacitation or terminal illness. These documents should be reviewed every 3-5 years to make sure that they are current and complete. Drafting these documents is easily handled by your attorney and often comes along with more comprehensive estate planning. Lawyers and governments are adapting to the new rules of social distancing and are making provisions for remote signings of important documents. To ensure that your wishes are respected, give copies of your living will and HIPAA authorization to your doctor and/or hospital.
For adults who either own property or have minor children, the next step is drafting a will. Wills are used to establish guardians for minor children and to outline the property transfers that you wish when you die. Keep in mind that some assets will pass to your beneficiaries by operation of law and supersede the will. For example, retirement plan accounts (like IRA’s and 401(k)’s) normally have a named beneficiary. We recommend reviewing your beneficiary designations annually and updating whenever there are material changes (for example marriage, divorce, death, or birth) in your family. While you are at it, check the titling on all your financial accounts and assets and contemplate what will happen when you die. Joint tenant accounts will pass to the surviving member, but individual accounts will need to be probated unless you have added a transfer on death designation.
For more complicated situations wherein you wish to avoid probate, address incapacity, or protect your estate, a Revocable Living Trust is warranted. Although the more complex than a will, a trust can address a multitude of issues including asset protection from creditors, ensuring that beneficiaries from blended families (i.e. children from a prior marriage) are properly treated, and providing for beneficiaries with spendthrift issues or addiction problems. Unlike a will which simply distributes assets upon death, a Revocable Living Trust is a document that can span many years and allows one to retain control of the property even after death. We recommend reviewing the terms of your trusts and wills every 5 years before age 80 and every 3 years thereafter. Relocation to a different state should also prompt a review of your estate plan as each state has different laws and limits with regards to the estate and inheritance taxes, homestead exemption and property rights.
Finally, once your documents are prepared, discuss with your family, and give a copy to your Executor and the named Durable Power of Attorney along with a letter of intent explaining your wishes. While we may not have the ability to alter the future, with proper planning we can control how our own estates are handled.