Estate Planning

January 2, 2018 - Posted by: admin - In category: taxes - No Responses

What is estate planning?

Estate planning is LIFE PLANNING, first and foremost. When we meet with clients, often the most important things for them all relate to life planning issues such as asset protection, financial planning, tax planning, business planning and succession and caring for themselves and their loved ones now and into the future. One of the many myths about estate planning is that this stuff is ONLY about end of life planning. While it is true that end of life planning is part of estate planning, it is NOT the most important thing or the thing that many of our clients are primarily looking to address through their estate plan. Again, through proper estate planning, you are able to consider, enhance and address life planning issues for yourself and your loved ones, both now and into the future. Then, at the appropriate time and in the right manner, you are also able to address the end of life issues as noted below.

When someone passes away, his or her property must somehow pass to another person. In the United States, any competent adult has the right to choose the manner in which his or her assets are distributed after his or her passing. (The main exception to this general rule involves what is called a spousal right of election which disallows the complete disinheritance of a spouse in most states.) A proper estate plan also involves strategies to minimize potential estate taxes and settlement costs as well as to coordinate what would happen with your home, your investments, your business, your life insurance, your employee benefits (such as a 401K plan), and other property in the event of death or disability. On the personal side, a good estate plan should include directions to carry out your wishes regarding health care matters, so that if you ever are unable to give the directions yourself, someone you know and trust can do that for you.

Why is it important to establish an estate plan?

If you have anything or anyone you care about, then it is important to plan ahead and make provisions to protect such things and/or people (in no particular order of importance). Further, estate planning relates first and foremost to you, your plans, your hopes, your dreams and your objectives. So at its core, the answer to the question “why establish an estate plan” is that by doing so, you are able to clearly set forth your vision for yourself, your loved ones and your stuff. Sounds like an obvious thing, a real no-brainer, right? Then why is it that so very many people neglect to consider and to address these things?

Sadly, many individuals don’t consider estate planning, for a variety of reasons, most of which are related to misinformation and misunderstanding about estate planning in general. Unfortunately, there are many “myths” about estate planning. We have also written a book titled “20 Myths of Estate Planning: What you don’t know CAN hurt you.” Click here to learn more about that book and to get a copy.

One such myth, one common misunderstanding that keeps some folks from addressing their estate planning is the mistaken belief that estate planning is ONLY about end of life planning–death planning. In short, they buy into “Myth #4” (discussed elsewhere on this website and in our above-referenced book). As we say so very often (because its true), estate planning is LIFE PLANNING first and foremost–it is about addressing and planning for life issues such as asset protection, retirement, financial planning, investment planning, paying for college, caring for you, your spouse and/or other loved ones, charitable giving and a multitude of other LIFE issues. A proper estate plan will also include provisions for end of life, but again, this is done in the much larger and more important context of life planning considerations, considering such things as who is left behind, how your passing will affect them and what will be left for them to receive and for them to do.

If you don’t make proper legal arrangements for the management of your assets and affairs after your passing, the state’s intestacy laws will take over upon your death or incapacity. This often results in the wrong people getting your property and can also result in higher fees and expenses such as unnecessary taxes, legal fees, accounting fees and court costs. If you pass away without establishing an estate plan, your estate would likely pass through probate, a public, court-supervised proceeding. Probate can be expensive and can tie up the assets of the deceased for a prolonged period before beneficiaries can receive them. Even worse, your failure to outline your intentions through proper estate planning can tear apart your family as each person maneuvers to be appointed with the authority to manage your affairs. Further, it is not unusual for bitter family feuds to ensue over modest sums of money or a family heirloom. Think of how your children fought over the last cookie or last piece of candy when they were younger. Unfortunately, most of us don’t really change all that much as we grow older in this regard–rather, when there is something to get, something that we want, all too often our “childish” and “selfish” natures show through. Regardless, relying on your child or children to “to the right thing” when the time comes is NOT really much of a plan, at least not a very wise plan. It is far better, in almost all instances, to make formal and clear arrangements that your legally authorized representative will be required to follow. This better approach greatly increases the likelihood that things will go smoothly when that time comes and greatly decreases the chances of contention and problems among those who will be left behind.

What does my estate include?

A great many people buy into the common myth that they don’t have an “estate” simply because they are not wealthy.

The truth, the reality is that your estate is simply everything that you own, anywhere in the world, including:

Any real estate that you own, including your home, even if that real estate is subject to a loan and/or mortgage;
Your business–including if you own only a portion of such business and including if such ownership is through the medium of an LLC, a corporation of some other legal entity;
Your share of any bank accounts, investments accounts or other “accounts”, whether held alone or with another person;
The full value of your retirement accounts;
Any life insurance policies that you own and also life insurance proceeds that you will receive in the future from policies owned by another person and for which you are the beneficiary;
Any property owned by a trust, over which you have a significant control; and
Your gun collection, your stamp collection, your antique collection and just about any other asset you own or otherwise have a full or partial interest.

Once you come to this realization, that you DO have an estate, you are then in a position to consider what you think should happen to this stuff, during ALL stages of life–while you are alive, in the event you became disabled and following your death. Since at least 2 out of those 3 life stages are certainly applicable (you are alive now and you will eventually die), and given that we have already established that you DO have an estate, it is just simple logic to then come to an understanding that estate planning is relevant and important for you, for your loved ones and for your stuff (your property). By the way, even though the contents and size of your estate will likely change over time, you should NOT wait until later to consider and engage in estate planning. Rather, if you do proper planning now, the foundation of such planning will continue to have application over time, including when you obtain a sizable fortune. The inverse is also true–that good planning done now will still benefit and protect you, your loved ones and what remains of your assets in the future, after you have spent, used and otherwise disposed of many of your current assets.

How do I name a guardian for my children?

The simple answer is that naming a guardian for minor children is typically done in Utah through a Will. When used in combination with a living trust estate plan, this Will is often referred to as a “Pour-Over Will”. In any event, should the need for a guardianship for minor children arise, the appointment of a guardian would be a court proceeding and it is altogether fitting that this is the case, given the vital importance of ensuring that a guardian is the right person to care for a child. While you can avoid court proceedings (probate) with regard to your assets by properly establishing, funding and maintaining your trust, you are NOT able to automatically appoint a guardian for your minor children through your trust agreement. Again, the appointment of a guardian will require a court-supervised procedure.

If you have children under the age of eighteen, you should designate a person or persons to be appointed guardian(s) over their person and property. Of course, if a surviving parent lives with the minor children (and has custody of them) he or she automatically continues to remain their sole guardian. This is true despite the fact that others may be named as the guardian in your estate planning documents. You should name at least one alternate guardian in case the primary guardian cannot serve or is not appointed by the court.

The sad reality is that very FEW parents of minor children have done ANY estate planning and this includes executing a Will that will nominate a guardian for their children in the event that something were to happen to both parents. By the way, naming beneficiaries for life insurance does NOT accomplish the needed appointment of a guardian. This is a totally separate consideration and process.

What estate planning documents do I need?

Estate planning is NOT one-size-fits-all stuff. Therefore, although we can talk in generalities, the simple truth is that not everyone needs or is best served by a full-blown, comprehensive estate plan. That being said, many people are in a situation where it does make sense to engage an estate planning attorney to draft and implement a full and complete estate plan–one that has been customized to such person (or persons), including their current life circumstance, their goals and objectives, their financial situation and also considers and accounts for other individuals who now or will in the future have involvement with such person and/or person’s assets. Because everyone is different, estate planning should consider and address these differences from person to person. Again, this is NOT one-size-fits-all stuff!

Below is a broad overview of various components of a comprehensive estate plan. Again, even when each of these components is warranted and utilized by your estate planning attorney, each of these should be customized for you and your circumstances.

A comprehensive estate plan will often include the following documents, prepared by an attorney based on in-depth counseling which takes into account your particular family and financial situation.

A revocable living trust can be used to hold legal title to and provide a mechanism to manage your property. You (and your spouse) are the normally trustee(s) and beneficiaries of your revocable living trust during your lifetime. You usually also designate one or more successor Trustees to carry out your instructions in case of death or incapacity. Unlike a will, a trust usually becomes effective immediately—rather than waiting for your death. This very important characteristic means that your trust can do MUCH MORE than a Will, in that a trust can be your method of doing a great deal of “life planning”—including protecting against disability, divorce, lawsuits and other things that can occur in your life or the lives of your loved ones on any given day.

Normally, your living trust will be “revocable”, which will permit you to make changes whenever and however you desire to do so and even to terminate the trust. One of the potential benefits of a properly established and maintained trust is the ability to totally avoid probate and thereby also avoid the public nature and potential expenses and delays that can be associated with probate. By the way, “living trust” is the term used to specify that this trust has been established by you during your life. There are also testamentary trusts, which are established after a person’s death, normally through such person’s will. There are pros and cons of testamentary trusts, but one of the reasons we don’t use these more is that such testamentary trusts do NOT avoid probate, as they are established through the will after the same has been admitted to probate. Therefore, a testamentary trust does not provide the very commonly sought-after probate avoidance benefit.

If you have a living trust-based estate plan, you should also have a short-form will, also known as a pour-over will. For those with minor children, the nomination of a guardian must be set forth in a will. The other major function of a pour-over will is that it provides a mechanism for gathering any “stray assets” (i.e. assets not properly funded into the existing trust upon the death of the trust-maker (the grantor)) and transferring such stray assets into the trust, to be administered along with the other parts of the trust estate. In this regard, the pour-over will is really a backup plan (assuming there are no minor children), a safety measure, designed to be used only in the event that something has slipped through the cracks. It is ALWAYS better to ensure that there are no stray assets existing outside of the purview of the trust.

A Will also referred to as a Last Will and Testament, is primarily designed to transfer your assets according to your wishes. A Will also typically names someone to be your Executor, who is the person you designate to carry out your instructions. If you have minor children, you should also name a Guardian as well as alternate Guardians in case your first choice is unable or unwilling to serve. A Will only becomes effective upon your death, and after it is admitted by a probate court. Among other things, this also means that a Will-based plan does not contain and really cannot contain much in the way of “during life” protections, such as protections and plans for disability and other life issues. Again, a Will is totally ineffective and dormant during the life of the maker of said Will. In essence, a Will is your request letter to the probate court, to the effect of “Dear Judge, if you’re reading this, I’m dead. I would therefore respectfully request that you do the following with my stuff…”

For those individuals who choose a Will-based plan (i.e. they elect not to establish a trust), the Will should be much more comprehensive than a shorter Pour-Over Will referenced above. This is because in this scenario, the maker of the Will is relying mainly upon the Will to facilitate and execute on all aspects of the estate plan. Therefore, since the Will is then needed to do more, the Will needs more words and pages to meet these stated objectives (as well as to ensure that the Will is legal and valid under Utah law—or whatever applicable state law).

A Durable Power of Attorney for Property allows for others to handle your financial affairs in the event that you become disabled. If it is a “durable” Power of Attorney, this means that it will remain legally effective even if the maker of such Power of Attorney becomes disabled and/or otherwise legally incompetent. Such a Power of Attorney is NOT limited to disability, as it can be utilized and implemented at any time a person desires to give legal authority to another person to act in the name of the first person. However, while such a legal instrument can be helpful and useful in a variety of contexts, it can also create significant problems and unintended consequences for the unwary and uninformed. Many of the horror stories you have heard about children stealing money from their parent’s bank accounts, selling other assets owned by a parent (including the home being lived in by such unsuspecting parent) and other horrors have their genesis in a power of attorney. For this reason, you want to be VERY careful about when you use a power of attorney, when it becomes effective, what is permitted under such power of attorney and who is appointed and empowered under the same.

As a general rule, we normally don’t appoint anyone but a spouse as the current power of attorney (in normal circumstances) and when we need to designate a non-spouse as an agent under a power of attorney, we most often do so only under a “springing” power of attorney. This means that in that instance, the non-spouse obtains legal authority to act in the name of the other person ONLY if the first person (normally the elderly parent) is unable to act for himself/herself AND the other spouse is not around or able to act. A Power of Attorney becomes ineffective following the death of the maker of the same—for this reason, a Power of Attorney is NOT helpful in doing end of life planning.

Unless you have a properly drafted power of attorney, it may be necessary to apply to a court to have a guardian or conservator appointed to make decisions for you during a period of incapacity. This guardianship process can become time-consuming, expensive, emotionally draining and often costs thousands of dollars.

As noted above, there are generally two types of durable powers of attorney: a present durable power of attorney in which the power is immediately transferred to your agent (also known as your attorney in fact); and a springing or future durable power of attorney that only comes into effect upon your subsequent disability, as determined by your doctor, a court or through another specified process. Anyone can be designated as agent under a power of attorney, and most commonly it will be your spouse or domestic partner, a trusted family member, or friend. Appointing a power of attorney greatly increases the likelihood that your wishes are carried out as you want them, allows you to decide who will make decisions for you, and is effective immediately upon subsequent disability or otherwise according to the terms of the power of attorney. As noted above, it is possible and sometimes wise to have a power of attorney take effect prior to disability. As with all other estate planning tools and arrangements, these things should be used with great care, after consultation with a qualified estate planning attorney and only as such legal instruments have been designed and customized specifically for the person who will utilize the same. For this reason, it is NOT a good idea to simply download a form from the internet and/or to just copy some papers from another person. That would be somewhat akin to “borrowing” another person’s medical drug prescription. NOT a good idea!

Under Utah law, as well as under the laws of most other states, you are permitted to appoint someone you trust to decide about medical treatment options if you lose the ability to decide for yourself. You can do this by using a Durable Power of Attorney for Health Care or Health Care Proxy where you designate the person or persons to make such decisions on your behalf. You can allow your health care agent to decide about all health care or only about certain treatments. You may also give your agent instructions that he or she has to follow. Your agent can then ensure that health care professionals follow your wishes. Hospitals, doctors and other healthcare providers must follow your agent’s decisions as if they were your own.

A Living Will informs others of your preferred medical treatment should you become permanently unconscious, terminally ill, or otherwise unable to make or communicate decisions regarding treatment. In conjunction with other estate planning tools, it can bring peace of mind and security while avoiding unnecessary expense and delay in the event of future incapacity. The Utah Legislature has implemented the Utah Advance Care Directive form, which is the combination of the above-referenced health care directives (Health Care Proxy and Living Will). While you are not required to use this state-approved form, it is normally a very good idea to do so, as using this state form will increase the likelihood that your wishes are honored by the facility and health care professions involved in your medical care at the applicable time. This is a form that you can obtain on the internet and fill out by following the instructions that accompany the same. Even so, it can be confusing, so it is never a bad idea to get professional guidance when working with this form.

Many medical providers will refuse to release information, even to spouses and adult children authorized by durable medical powers of attorney, on the grounds that the 1996 Health Insurance Portability and Accountability Act, or HIPAA, prohibits such releases. Therefore, in addition to the above documents, you should also sign a HIPAA authorization form that allows the release of medical information to your agents, your successor trustees, your family and other people whom you designate.

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