Estate Planning

Do you Have an Estate Plan?

According to a 2021 Wills and Estate Planning Study, COVID-19 has significantly increased the demand for estate planning, but the overall percentage of Americans who are creating an estate plan has not significantly changed. In fact, the study found that, although COVID-19 has increased the awareness of the important of estate planning for young Americans because it has become increasingly clear that the future is not guaranteed, that two-thirds of Americans still don’t have basic estate planning documents. The primary reasons that two-thirds of Americans still don’t have estate planning documents is because they either haven’t made time to do it, or they don’t believe that they have enough assets to justify having an estate plan.[1]

We understand that for many, visiting an attorney is a much fun as visiting a doctor or an accountant. Nobody wants to visit these people unless they feel the need to do so. Also, we understand that confronting the simple truth that we are all going to die is unpleasant, but not confronting this fact and refusing to create an estate plan is unwise. We want to help you create a tailored and comprehensive estate plan that gives you peace of mind, knowing your assets are protected for you, your family, and your beneficiaries’ sakes.

Last Will and Testament

Even if you have not created an estate plan, chances are you have heard of a Last Will and Testament. In a Last Will and Testament, you are the testator, which simply means that you have made and executed a Last Will and Testament. When you create your Will, it is important that you designate an executor/executrix, who is the individual that will ensure the administration of the estate follows your wishes, and is the individual who ensures proper court procedures are followed until the administration of the estate can occur. Importantly, a Will also references who your beneficiaries are upon your death.

A Last Will and Testament is a crucial document for any basic estate plan. Even if you feel that your estate is small and simply want all of your assets to go to your spouse, you need to designate that in a legal document. If you do not, your children are entitled to a portion of the estate upon your death via intestacy, depending on how you and your spouse have titled your assets.

There is a common misconception perpetuated by popular media and nonattorneys that a Last Will and Testament will avoid probate. However, a Will merely serves as a guideline for the judge presiding over your probate, and tells him or her who your designated representative for the estate is, and who the beneficiaries are. A Will still requires probate proceedings before distributions can be made to your beneficiaries. Hiring an attorney to probate a loved one’s estate often costs the estate more than it would have cost the loved one to create a more advanced estate plan to avoid probate, and these assets are tied up in the estate until a final distribution is authorized by the judge (this process generally takes around nine months to two years). For this simple reason, we encourage our clients to use trusts, beneficiary deeds, and other probate avoidance mechanisms, rather than simply relying on a Last Will and Testament.

Trust

Trusts come in many different shapes and sizes, but on a basic level, is a legal construct that allows for assets to be placed within it.

Revocable Living Trust

The most common type of trust is a revocable living trust. In a revocable living trust, you are the settlor (the person who established the trust), the current trustee (the person with the ability to put assets in and take assets out of the trust), and the beneficiary during your lifetime. Because this type of trust is effective as soon as you execute it, this trust is commonly referred to as a revocable living trust.

The primary benefit of a revocable living trust is probate avoidance. Unlike a Last Will and Testament, which must be introduced in court to probate your assets and distribute them to beneficiaries, a revocable living trust bypasses probate by appointing a successor trustee. The successor trustee manages the trust upon your death or incapacity, and follows the guidelines that you have established in your trust to distribute your estate to your beneficiaries.

Irrevocable Trust

Irrevocable trusts truly come in many different forms, but the most common today are concerned with asset protection, tax implications for the estate, or both. Most people hear irrevocable trust and assume that such a trust cannot be changed once it is established. This is simply not the case for trusts that are well-constructed.

Irrevocable trusts can help persons with assets qualify for long-term care Medicaid, Veterans’ Aid & Attendance, and other benefits that you may not otherwise qualify for due to asset limitations. Another good use for irrevocable trusts is to deal with tax issues like the estate and gift tax. The estate and gift tax is not a concern at the moment for most individuals, as the current estate and gift tax exemption for 2021 is $11,700,000 per individual, or $23,400,000 for a married couple. If this a concern, irrevocable trusts and other more complicated estate planning may be right for you.

Special Needs Trust

When a person who is relying on public benefits for assistance due to a disability receives inheritance or direct assistance from a family member, this can disqualify that same individual from public benefits that he or she is relying on. Generally, these public benefits only allow the disabled individual to have $2,000. To allow for these individuals to retain more assets to improve their quality of life while not losing their public benefits, special needs trust exist. A special needs trust allows for the disabled individual to supplement their needs with these trust funds, while retaining SSI, Medicaid, and other “need-based” benefits.

Powers of Attorney

Powers of Attorney are a low-cost and efficient manner to decide who has the authority to carry out your affairs in the event you are either unwilling or unable to handle your affairs on your own behalf. Typically, persons appoint their spouse as the first agent and then their children, but any individual can be designated as an agent on a power of attorney. For example, I’ve seen children who go to college or take an extended trip overseas designated their parents as their agent on a power of attorney. Like estate planning, it is my firm belief that everyone who is over the age of eighteen have powers of attorney. Every estate plan our law firm drafts includes powers of attorney if the client desires, as we believe that powers of attorney are the cornerstone of every well-drafted estate plan.

There are two different powers of attorney that are part of a well-drafted estate plan—a Durable Power of Attorney and a Healthcare Power of Attorney. A Durable Power of Attorney designates an agent to take care of your finances in the event of incapacity. This includes everything from managing bills and taxes, to taking care of businesses and bank accounts. A Healthcare Power of Attorney designates an agent to handle any healthcare decisions on your behalf, such as medicines, treatments, and procedures, in the event of incapacity. While you don’t necessarily need an attorney to create powers of attorney, it is wise to have an attorney draft them for you. Statutory powers of attorney are too simplistic and do not have more specific provisions, such as ones that allow for your agent to help you protect your assets in the event of incapacity.

[1] 2021 Wills and Estate Planning Study. Retrieved from https://www.caring.com/caregivers/estate-planning/wills-survey.