Estate Planning – What IS an estate plan?

 

When thinking about the term “estate plan,” many people think estate plans are only for the wealthy. This is not true. Estate plans are important for everyone, regardless of wealth, health, and marital status. A typical estate plan consists of a Will, a Durable Power of Attorney, and a Health Care Proxy. If you die intestate (without a Will), Massachusetts has very clear rules about how assets are distributed. These rules may not be in line with what you want. If you would like a choice in how your assets are distributed upon your death, the disposition of your remains, and who controls the process then you need an estate plan.  

 

Estate planning is all about five essential documents. Here they are in order of importance:

1. The Durable Power of Attorney

The most important estate planning instrument for taking care of you and your family during life, as opposed to after death, is the durable power of attorney. This appoints one or more people you trust to step in and handle your finances and legal matters in the event of your incapacity, whether through illness, dementia, or an accident, and whether the incapacity is temporary or permanent. In the absence of a durable power of attorney, family members often must resort to going to court to be appointed conservator. This causes delays and expensive and unnecessary legal fees. It can also cause infighting by family members because you have not chosen who should step in.

 

 

2. Health Care Proxy

Like the durable power of attorney, a health care agent steps in for you to make health care decisions when and if you become incapacitated. Unlike a durable power of attorney, it only takes effect when a doctor determines that you are unable to make decisions yourself and you can only appoint one individual to serve at a time. This is so that there will be a single point-person in dealing with medical professionals and no possibility of disagreement or stalemate between co-health care agents. You can and should name one or more alternates to the principal agent.

 

3. HIPAA Release

In addition to a health care proxy, everyone needs a HIPAA release. The HIPAA law bars medical practitioners from releasing medical information to anyone, even to the spouse of a patient, without a release. You may well ask why a heath care proxy isn’t sufficient. There are a few answers: First, the health care proxy is “springing” in that it doesn’t get activated until or unless the patient is declared incapacitated. Second, while the health care proxy may only name one person at a time, you may well want a much broader group of people to communicate with medical providers. The agent may not always be available or may not be the first person on the scene.

 

4. Your Will

Your will determines who will get your assets when you die, it provides for the disposition of your remains, and who will be in charge of paying your bills, filing your tax returns, gathering your stuff and distributing it according to your instructions. But here’s the irony: although the will gets all the recognition and there’s a whole set of laws governing the so-called “probate” process, these days most assets pass outside of probate. What the will provides does not apply in many situations, including: joint accounts that pass to the other joint owners, retirement plans and life insurance policies that go to designated beneficiaries, and property in trust that passes to the beneficiaries named in the trust document. Only what you own in your own name alone passes under the will. In addition, while the will requires a lot of formality – two witnesses and you all signing at the same time – these other forms of passing on property usually require only the signature of the owner, or sometimes simply filling out a form online.

 

5. Revocable Trust

The documents listed above may be enough, but you may also want a revocable trust, sometimes called a "living" trust. A trust is a construct under which one or more people, the trustees, manage property or investments for the benefit of one or more people: the beneficiaries. In a revocable trust, typically at the start the same person acts as the creator of the trust (settlor), 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, money, and frustration.

For assistance in creating an estate plan that is designed around your needs, call Kelliher & Beyer, LLP.