By: Allen E.F. Rozansky, JD/MBA
As mentioned in a previous blog post, one of the three aspects of Estate ProtectionTM is estate planning. But what is estate planning? Many people may think, “I don’t have a family, so why do I need an estate plan." Or, “With the estate tax basic exclusion amount so high (currently $11,180,000/individual or $22,360,000/married couple, but scheduled to increase to $11,400,000/$22,800,000 in 2019 and further with inflation until 2026, but that’s another topic for another day) and the ability of a surviving spouse to use a deceased spouse’s unused exemption amount (referred to “portability”), why do I need an estate plan.” The answer is that no matter where you are in life or how many (or few) assets you own, it is essential to have an estate plan in place.
What’s an Estate Plan?
When people think of an “estate plan”, they usually think of signing a simple will that provides to whom their assets will pass upon their death and, if they have children, who will take care of them if both parents pass away. Although it is true that a will is the centerpiece of an estate plan, it should not be the only document in place.
A will (possibly coupled with a revocable trust, depending on where you live, the value of your assets, and other factors) does provide to whom assets will pass upon your death. But, it should also provide how those assets will pass - will they go to your heirs and beneficiaries outright or in a trust with certain restrictions on distributions? Your will and/or trust should also provide who will be the people who take care of your assets and your family upon your death (i.e.; guardians, custodians, trustees, personal representatives, and executors), including backup designations, so that there is no controversy if someone is unable or does not want to serve. And if you do not have a spouse or children, carefully drafting a will can be even more important. Without a will, your state’s probate code will dictate to who your assets will pass, and those may not be the people to whom you would like your assets to pass.
But a will or will/revocable trust combination, is not enough for a complete estate plan, as it only covers what happens to your things and who takes care of your family if you die.
Powers of Attorney and Other Documents
In addition to signing a will or will/revocable trust combination, it will be important to have documents in place that provide for a situation where something happens to you and you are still alive but unable to make decisions for yourself. Without such documents, your family or friends will need to first go before a judge and be given authority to make decisions for you, which may be complex, time-consuming, and expensive. In addition, there might not be agreement among your family and/or friends as to who should be authorized to make those decisions and what decisions might be best for you, resulting in arguments and consternation that may delay the making of important decisions. Instead, signing powers of attorney, both financial and medical, will avoid the need for court intervention and allow you to appoint the right person to make decisions for you.
A financial power of attorney (or a “general power of attorney”) allows your “agent” or “attorney-in-fact” to make a broad range of financial decisions for you and to act on your behalf regarding your financial affairs. Such actions that your agent may take on your behalf can range from depositing and writing checks for you, paying your bills, and changing your investment strategy should your financial needs change.
As to medical decisions, your agent under a medical power of attorney (or “Healthcare Proxy”) may take such actions as picking up your prescriptions to setting up doctor appointments, accessing your medical information, and arranging for your moving into an assisted living facility, should the need arrive.
In addition, your agent may be able to, if you choose, make an end-of-life decision for you, should you be in a vegetative or comatose state or have a terminal condition and your doctors agree that nothing left that can be done to help you. On the other hand, if you would rather not put that decision upon your agent, you can specifically state whether you would like to be kept on life support and artificial nourishment (e.g.; feeding tubes and IVs) or when you would like those provisions stopped. This direction can be made in your medical power of attorney or separately in a Living Will (or “Advanced Healthcare Directive”).
If you feel strongly about how your remains will be disposed of after your death, you should include in your estate planning documents specific instructions. Some people include such provisions in their wills. However, it is often the case that a will is not read or reviewed until after the funeral or cremation. A better practice is to put down your wishes in a separate document of which your family is made aware before your death. In most states, these instructions are merely a statement of your wishes. However, in some states, including Colorado, a written statement as to how you would like your remains disposed of will be binding on your family members.
Although an estate planning attorney will not be able to give you advice as to other non-legal matters, he or she should still raise certain issues with you during the estate planning process and connect you with the proper people to help you. For example, your estate plan may have significant effects on your income tax situation or on the proper reporting that must be made, which will require that you consult with an accountant or tax preparer. Similarly, part of a proper estate plan will include looking at your insurance coverages, including homeowners and umbrella insurance, life insurance, and long-term care insurance. Your estate planning attorney will not be able to sell you those policies, but a discussion should be had as to the extent they are necessary for you and your family and who might be able to assist you in that regard. Also, it will be important for all your advisors, e.g.; your attorney, accountant, insurance broker, and investment advisor, to discuss and collaborate, as no one of them will have all of the facts necessary to properly design your plan or be able to complete all the tasks necessary for its implementation.
No matter who you are or where you are in life, it is essential that you have a solid estate plan in place as a part of your overall Estate ProtectionTM plan. However, your estate plan should not simply consist of a will or even a will couple with a revocable “living” trust. In addition to those documents, signing financial and medical powers of attorney is important to make sure decisions can be made for you in the event you are unable. Also, your estate plan should include documents setting forth what should happen if you are in a vegetative or comatose state or have a terminal condition for which nothing further can be done, as well as what should happen with your remains after your death. And, finally, when designing and implementing your estate plan, it will be important for all your advisors to communicate and work together so that your plan works correctly and difficult issues are avoided as much as possible in the future.
(Mallon Lonnquist Morris & Watrous, LLC is a strategic business law firm located in Denver, Colorado, with practice focused in all major aspects of business, real estate, financial transactions, estate planning, tax, and related litigation. Allen E.F. Rozansky, JD/MBA is Senior Estate & Tax Counsel to the firm. Allen regularly represents clients in Estate ProtectionTM matters, including estate, income and capital gains, and asset protection planning, as well as business entity formations and operations, probate and estate administration, and probate and trust litigation. Allen can be reached by e-mail at firstname.lastname@example.org or by phone at (303) 722-8305.)