Who Needs Estate Planning?
Estate planning isn’t about how much money you have; it’s about protecting what you have for you during your life, and for those you love after you’re gone. It ensures what you have gets to the people you love, the way you want, and when you want.
If you were to die today, are you comfortable that everything will be taken care of the way you want? Have you left instructions about what will happen to you and your assets if you were to become disabled and unable to manage your affairs? Are you confident that your wishes regarding long-term care are known and will be followed? Estate planning is legally ensuring that your affairs will be handled the way you want by providing sufficient instructions for your loved ones.
Estate planning really is for everyone. It doesn’t matter if you have $40,000 or $400,000. You still have to plan for the future whether it’s to name a guardian for your minor children, or to ensure your children don’t blow through your assets if you unexpectedly die or become disabled.
Estate planning can only be done by attorneys. Banks, financial advisors, and brokerage firms may offer to create your “estate plan”, but they can only help you with the financial planning aspects of your estate. You are probably also concerned with asset protection, providing for your long-term care in the case of your disability, and stating your wishes regarding health care. You need an experienced estate planning attorney, with extensive knowledge in probate law, estate administration, trusts, asset protection, Medicaid laws, income tax, estate tax, and gift tax to draft the legal documents for you. An experienced estate planning attorney will work with your financial advisor and accountant to create the best plan for you. It can be as simple as a Will, Health Care Power of Attorney, and Power of Attorney for Property, but it can also include a revocable probate-avoidance trust, asset protection trusts, and many other strategies tailored to your life and values.
Keep Your Estate Plan Current
Once completed, your estate plan should be reviewed and kept current with life events such as birth, death, marriage or divorce of anyone included in your plan. In addition, you should review your plan if there is a significant increase or decreases in your finances, or if the laws related to your estate plan change. An attorney that focuses on estate planning will keep your plan current on changes in the law.
Wills
If you own assets in your name alone, they may pass from you to the people you love, as long as you leave a Will. Without a Will, your assets pass according to the State’s rules, also known as intestacy. The State’s intestacy statute may not pass your assets to the people you care about.
Also, you should know that:
- Assets will pass through your Will to your loved ones if the Will is written properly.
- You can reduce your estate tax liability by using a trust in a Will.
- You can protect the ones you love by creating a trust in your Will that can protect that person from creditors.
- You can protect disabled beneficiaries by creating a Supplemental Needs Trust for them, which preserves assets for family, while keeping their eligibility for public benefits.
- Your Will must go through probate.
Powers of Attorney and Living Wills
Everyone should have a Power of Attorney for Property and, an advance directive that provides for the appointment of an agent to make health care decisions or instructions about his or her wishes regarding health care. States differ on the advance directives that they recognize regarding health care. Illinois recognizes the Health Care Power of Attorney and Living Wills; other states may use Health Care Proxies to designate an agent and may have different rules or reject Living Wills.
Powers of Attorney allow you to decide while you are well who will make decisions for you if you become sick or disabled, either temporarily or permanently. You have a lot of flexibility in whom you may appoint for each power. You may appoint a single person to exercise both powers, and you may appoint one person to make decisions regarding your property, and another to make decisions regarding your health. You may also choose for more than one person to act together to make decisions for your health.
Powers of Attorney allow your agent to pay bills, have access to financial and Medicaid records, and make other decisions that are necessary to make sure you can get treatment, pay doctors, or for Medicare. If you lack a Power of Attorney, your family may have to seek guardianship of you if you become disabled. This process involves the Court, several lawyers, and usually at least $4,000 to $50,000. A Power of Attorney may cost about $200, and it allows your family to focus on helping you immediately. As you can see, it is important to give your family the tools to help you if you cannot help yourself.
Powers of Attorney are very powerful documents. They allow a trusted person to care for you, pay bills, and make decisions. On the other hand, the Power of Attorney for Property can be seen as a “blank check”. It generally allows your agent to access your assets and to buy or sell property in your name. It is possible to limit these powers within the Power of Attorney for Property, or to leave binding instructions for your affairs through the use of trusts. An attorney can help you set up your estate so your loved ones may act to help you during disability, but also preserve your wishes through legally binding instructions.
Living Wills
A Living Will is a document in which you instruct your physician to withhold life prolonging treatment in the event of imminent death. While a Heath Care Power of Attorney may contain instructions on your wishes for the appointed agent, a Living Will provides instructions to physicians. In practice, the Living Will can become restrictive and can end up conflicting with your wishes. On the other hand, your agent, acting under the Health Care Power of Attorney, can better evaluate the particulars of your condition in light of your wishes and make a decision for you, especially if your condition is one that you could not foresee. You can have both a Health Care Power of Attorney and a Living Will, but you must be careful that they do not conflict.
Trusts
A trust is a contract between the Grantor (the person who creates the trust), the Trustee (one who controls the trust) and the beneficiaries (those entitled to benefit from the trust). You, as Grantor, determine how the trust will be operated by the Trustee and who benefits, how, and when.
Revocable Living Trusts
You can create a trust that permits you to be Trustee and gives the right to receive full benefits from it. This is typically referred to as a Revocable Living Trust and is often used as a substitute for your Will. It permits you to keep total control and access to all your assets during your life, and provides for the distribution of your assets to your beneficiaries at your death. You can look at your Revocable Living Trust as your Book of Instructions. A well established advantage of Revocable Living Trusts is the avoidance of probate, which is required if you use a Will to distribute your assets after death. Other advantages of a Revocable Living Trust, when properly drafted, may include:
- Asset protection for your spouse after your death.
- Special needs planning for disabled beneficiaries.
- Asset management and protection for children who are not proficient with handling money.
- Disability planning, in case you become disabled prior to death.
- Asset protection for your children (if they are in bad marriages or to ensure that your assets don’t go to the in-laws).
- Keeping your affairs private (as opposed to open for public review in probate.
- No Court intervention required (handled entirely by Trustee you name in accordance with your detailed instructions).
- Plan for proper management of your business in your absence.
Unfortunately, very few living trusts actually provide these benefits. Only an experienced estate planning attorney will know how to incorporate these protections into your plan. While a Revocable Living Trust has many advantages, it does not protect your assets from a nursing home, lawsuits, bankruptcy, or other creditors. Please go to Medicaid Asset Protection Planning for additional information.