Recent statistics in the United States indicate that 55% of Americans die without a will or estate plan, 25% of people over 75 have no will or estate plan, 92% of people under 35 have no will or estate plan, and 50% of parents have no will or estate plan. These statistics, although alarming, are not surprising given that many people believe they are too young to start thinking about an estate plan. Others thinking that estate planning is only for the wealthy, and even more people agree that estate planning is important but think they can put it off or add it to the list of other important things they need to do.
It is certainly in our human nature to delay putting together an estate plan given that it is prepared in anticipation of one’s passing, but it is the only way to ensure your wishes are honored after you pass, including what is done with your property, who will be the guardian of any minor children you have, who will inherit what from you, etc. It is important to not put off your estate planning in the event that something does happen to you. Still, it is an intimidating process to start. Let us help you. The following information briefly explains exactly what an estate plan is and what documents are included to help protect you both while you are living and once you pass away.
Core Document No. 1: Will
A will, also referred to as a last will and testament, is a document that states your final wishes in terms of who you want to inherit your assets. This includes giving your beneficiaries anything from your home or property, to your investments or jewelry, or even your stamp collection.
If you have children, you can also name guardians in your will. These are the people who would care for your children if you should pass away before they turn 18. Without a guardianship nomination, your family may find itself fighting in probate court over who will take responsibility for the minor child(ren), or worse, someone may become guardian that you did not want to become guardian.
If you die without a will, it means you have died “intestate.” When this happens, the government will determine what becomes of your assets, often dividing them in ways you wouldn’t choose if you were able to. Working with an experienced attorney will ensure your will is properly drafted and executed as part of your estate plan.
Core Document No. 2: Durable Power of Attorney
A Durable Power of Attorney is a legal document that allows for a trusted friend or relative to make financial and business decisions for you, (the “Principal”), should you become incapable of managing your own affairs. A Durable Power of Attorney goes into effect the moment it is signed. Power of Attorney documents allow your appointed Agent (the “Power of Attorney”) to address important matters such as paying bills, managing investments, accessing online accounts (such as email and Facebook), and running a business, if you have one.
The Durable Power of Attorney described above is considered to be “non-springing,” and it’s important to know that there is a second type of Power of Attorney, which is known as a “Springing Power of Attorney.” This type of Power of Attorney “springs” into action only after a specific event occurs. Typically, the “event” occurs when two doctors agree that you are incapacitated and can no longer make decisions for yourself. However, the determination of incapacitation can be tricky. Sometimes doctors disagree; sometimes people have good days and bad days or particular parts of the day that are troublesome, such as the “sundowning” which sometimes occurs with people with Alzheimer’s.
The majority of our clients choose the Durable Power of Attorney to avoid the issues associated with determining incapacitation. If you decide to choose a Durable Power of Attorney, you can continue to manage your own affairs until such time as you are unable and you need your Agent to step in and take over. You can also have your Agent step in for you as needed, such as when you are perhaps traveling cross country as part of your bucket list and there are issues at home that need tending to.
Core Document No. 3: Health Care Proxy
A Health Care Proxy is a legal document that allows you to name someone you trust to make important health and medical decisions for you should you become incapacitated and unable to make those decisions for yourself. This person is your “Health Care Agent.” Any individual over the age of 18 can be appointed as your health care agent; you can have more than one agent (e.g., your three children); and you can have alternate or successor agents as well. Successor agents would step in if your Health Care Agent is unable to act on your behalf if and when the need arises. The only exception to this rule is that you cannot appoint a health care facility, administrator, operator, or employee to be your Agent unless they are in some way related to you.
Once your Health Care Proxy is in place, conversing with your health care agent(s) about your health and medical treatment preferences is crucial. Your Health Care Agent will make decisions for you by taking into account your wishes as you’ve relayed them to him or her and their understanding of your religious and moral beliefs. Therefore, your Agent should know what treatments you would and would not wish to receive.
This includes your views on life-sustaining treatments. Make sure you know the long list of treatments that are considered “life-sustaining.” If you do not wish to have life-sustaining treatments like a machine to breathe for you, for example, do you wish to still have hydration (water to drink or IV fluids)? It’s not always easy to make these decisions but it is worth spending some time reflecting on your end of life wishes in this area.
While you are able to communicate your wishes, you still call all the shots. You can even override anything that you have written in your Health Care Proxy (or Living Will) in case you change your mind.
Once your Health Care Proxy is written and executed, you should provide copies of the document to your Health Care Agent(s), primary physician, and others who are important to your health care decision-making. Your Health Care Proxy should be signed in the presence of a notary public and two witnesses other than your Health Care Agent and alternate agent.
In conjunction with your Health Care Proxy, you can also create a Living Will. While technically not binding in Massachusetts, a Living Will is a description of the medical care you wish to receive if you become incapable of speaking or in some way become incapacitated. It can serve to capture the discussions you’ve had with your Health Care Agent about your wishes and can be a great reference point and guide for your Agent during what can be a particularly stressful time.
Core Document No. 4: HIPAA Releases
HIPAA Releases are also part of the core estate planning documents. HIPAA, the Health Insurance Portability and Accountability Act, was created in 1996 to protect the privacy of your health information. The act prohibits health care providers from releasing medical information about you to anyone unless you sign a medical release form allowing them to do so.
Your signed HIPAA medical release forms include the names of all the people you would like to have access to your medical information. Having these forms in place is especially important in the event you become unexpectedly incapacitated in some way and need the immediate help of your family members and/or friends.
Core Document No. 5: Final Disposition Instructions
Part of your core estate planning documents also includes your Final Disposition Instructions. The instructions listed in this document indicate the person or persons you would like to carry out your wishes as they relate to:
To be valid, your Final Disposition Instructions must be signed by you in the presence of a notary public and two witnesses. You can revoke this document anytime by destroying it, revoking it in writing, or by creating and executing a new set of Instructions.
If the person you have chosen to carry out your wishes agrees, it is expected that they will follow through on your instructions when the time comes to celebrate your life after you pass.
Do I need a Trust?
Whether or not you need a Trust depends on your estate planning goals and your unique situation, as the needs and goals of each client are different. Trust planning can be beneficial because it is a direct way to avoid the hassle and expense of having to go through the probate process, assuming of course that your estate plan is well-drafted and properly executed. In terms of the types of trusts that exist, the most common trust our clients choose to set up is called a Revocable Trust, also referred to as a Living Trust or Simple Trust.
A Revocable Trust is a trust created during a person’s lifetime and is designed to give the grantor (the individual creating the trust) the power and flexibility to control his or her assets. Because this type of trust is created during one’s lifetime, the grantor of the trust can also serve as the initial trustee. The trustee is responsible for administering the trust based on the instructions left by the grantor, including who you, the grantor, wishes to leave your assets to.
The primary benefit of choosing to be both the grantor and trustee of the trust is that you would maintain complete control over your assets during your lifetime; you could freely transfer assets in and out of the trust, and you could also freely change or revoke the trust at any time. Although there are many benefits to creating a trust, there are also some downsides as well. In order for a Revocable Trust to function as it’s designed to, which is often to avoid probate, you would need to transfer any real estate titled in your name to the trust, so that the trust owns the property. Other assets that should be transferred to the trust besides real estate includes bank accounts, stocks and bonds, and business interests.
If property and other assets are not transferred to the trust during your lifetime, then they would still need to go through the probate process. Similarly, another downside is that it can be costly to set up a trust depending on a client’s unique set of needs. However, clients should keep in mind that if they pass with only a will, then a probate attorney is likely needed to assist the Personal Representative in the probate process, which can also be costly. Given these considerations, it might be a better idea to pay a bit more now to ensure your estate plan is tailored to your needs rather than having your Personal Representative hire a probate attorney to handle your estate.
Do I need a Will and a Trust?
Regardless of whether you have a trust or not, you should always have a will to ensure your estate is left to those of your choosing. If you pass without a will, the state follows a rigid set of predetermined rules regarding who your estate will be left to, which might not be the same as who you had hoped.
If you decide to create a Revocable Trust, we will also draft a different type of will, which is commonly referred to as a pour-over will. The pour-over will works hand-in-hand with your trust. Any remaining assets in your estate that were not owned by the trust at the time of your passing would “pour-over” into the trust. Although a pour-over will would still need to be probated, the process would not be as complex as it would be if you had no trust at all. Because one of the primary goals of a Revocable Trust is to avoid probate, it is essential that you transfer your property to the trust during your lifetime.
What is the difference between a Revocable Trust and an Irrevocable Trust?
The main difference between a Revocable and an Irrevocable Trust is the ability to maintain control of your assets during your lifetime. With a Revocable Trust, the grantor (the individual creating the trust) has complete control of his or her assets and can entirely revoke the trust if they so choose. On the other hand, an Irrevocable Trust cannot be revoked by the grantor, and the grantor can no longer transfer assets out of the trust. The trustee is instead in charge of controlling and distributing the trust estate per the instructions contained within the trust. Despite the lack of control afforded to grantors, Irrevocable Trusts are beneficial to those who are indifferent about losing the ability to control the disposition of his or her assets, and are especially beneficial to those who need to properly plan for long-term care, such as MassHealth. Additionally, despite their rigidity, Irrevocable Trusts are more likely to prevent creditors from accessing trust assets.
Similarly, another common type of trust, which is a necessary estate planning tool in limited circumstances, is a Special Needs Trusts. These types of trusts are designed to provide for the needs of disabled individuals without jeopardizing his or her eligibility for government benefits.
Regardless of the type of trust you choose, or if you choose a trust at all, it is important for an experienced attorney to draft your estate plan based on your particular needs.