living will

Lamar Odom: A Lesson to Learn

Currently the news is packed with stories about Lamar Odom’s recent “long weekend” and resulting medical problems (just Google it, you’ll find plenty of stories). The pertinent facts, however, are this: 1) Lamar Odom is unable to make healthcare decisions for himself; 2) he does not have a Living Will specifying what his healthcare wishes are; 3) we are unaware if he has a health care power of attorney; and 4) his recent divorce has not yet been finalized because of a backlog in the courts. Whether he has a healthcare power of attorney that just hasn’t been updated or he does not have one at all (and, thus, the law controls), his soon-to-be ex-wife, Khloe Kardashian, is responsible for making his healthcare decisions.

Having an Estate Plan (and an up-to-date estate plan) is essential to ensure that your wishes are carried out – whether it be who receives your assets after you pass, who controls your finances if you are unable, who makes your health care decisions if you are unable, etc.

When a major life event occurs, you should ALWAYS make sure to discuss the impact that life event may have on your estate plan with an experienced professional. Otherwise, like in the case of Lamar Odom, your soon-to-be ex-spouse may be making healthcare decisions for you (and possibly inheriting part of your estate if you pass away without an estate plan or an up-to-date estate plan)!

While there are plenty of lessons to learn in the recent news concerning Lamar Odom (again, just Google it), not having an estate plan or an up-to-date estate plan is definitely one that most people are guilty of themselves and can easily be remedied by speaking with an experienced professional.

For more thoughts on this issue, check out this article written by David H. Lenok and titled “Odom and Kardashian: Why Living Wills Matter”

I hope this helps!

-Matt

© 2015 Matthew D. Brehmer and Crummey Estate Plan.

The Foundation – Part 1: Wills and Powers of Attorney

Many of my posts so far have focused on what some may consider “higher level” estate planning; but, what about the estate plan foundation that everyone needs? In this three part series, I am going to briefly cover the fundamentals and foundation of estate planning and some of what I typically go through with a client during an initial estate planning meeting:

Part 1 – Last Wills & Testaments and Powers of Attorney
Part 2 – Basic Probate Avoidance Strategies
Part 3 – Joint Revocable Living Trusts

There are three fundamental and “foundational” estate planning documents that every single person age 18 and older should have: 1) a Durable Power of Attorney; 2) a Healthcare Power of Attorney; and 3) a Last Will & Testament. The two Powers of Attorney govern your affairs prior to your death, while the Last Will & Testament governs your affairs after your death.

Before Death

Generally speaking, as soon as a person turns 18 years old they no longer have a designated person to make decisions for them. That is why it is important, no matter if you are 18 or 80 years old, to have both a Durable Power of Attorney (DPOA) and Healthcare Power of Attorney (HCPOA) to designate an individual(s) to make decisions for you if you are unable to do so yourself.

You designate a person(s) to handle your financial affairs in a Durable Power of Attorney. Most DPOAs are very broad, giving the person you designated broad authority to handle your financial affairs – for instance, managing your bank accounts, paying your bills, managing your assets, filing your tax returns, etc. However, you can limit this authority if you wish to. Additionally, a DPOA can either be immediate or springing. An immediate DPOA is effective immediately, while a springing DPOA is effective only after you are determined to be incompetent or incapacitated and unable to handle your own financial affairs.

You designate a person(s) to handle your healthcare decisions in a Healthcare Power of Attorney. It is important to understand that, like the springing DPOA, a HCPOA is only effective if you are incapacitated and unable to make decisions for yourself; if you can make decisions for yourself, those decisions will control. Generally, a HCPOA grants your healthcare agent with a general authority to make healthcare decisions for you; for example, that you have shared your wishes with this person and that this person will honor those wishes and do what is in your best interests. However, typically some of the more “hot button” issues are covered specifically in the HCPOA. For instance, whether your agent may consent to mental health treatment, long term nursing home care, removing your feeding tube, and if you are pregnant, whether or not they may still make decisions for you.

Also, typically included in a HCPOA is a Living Will and HIPAA consent; although, these may be in separate documents as well. The Living Will is where you detail your wishes if you are in a coma, vegetative state, etc.; for example, whether or not you want every life saving measure taken to prolong your life or if you want the proverbial so-called “plug pulled.” HIPAA consent is where you consent to certain people having access to your medical records.

Without either or both of these Powers of Attorney, if you are determined to be incompetent or incapacitated and unable to handle your own affairs, a court will have to be petitioned to appoint someone to handle your affairs. This is time consuming, costly and the person appointed may not be the person you would have chosen to handle your affairs. Take for instance the Terri Schiavo case. Most people remember this case; it is where Terri Schiavo’s husband and parents argued for nearly 15 years on what she may or may not have wanted. Terri was in a vegetative state and her husband had petitioned the court to remove her feeding tubes, while her parents petitioned the court to keep her alive. Terri had no living will; therefore, it was up to a court to make the decision for her based on what they thought she would have wanted. It took 15 years! And, who knows if the court got it right. This is not the only case like this, it happens more often than you think. Save your family the trouble and burden of having to petition the court to make these decisions for you, contact a professional today to draft you the necessary Powers of Attorney.

After Death

Your Powers of Attorney will no longer be effective once you die. This is where your Last Will & Testament comes in and governs who handles your affairs (in some instances). I want to take this opportunity to clear up one of the biggest misconceptions I hear when it comes to Wills – A Will governs your estate, meaning that it details how your estate is going to be settled in probate, for instance, who is going to manage and administer your estate, who your estate is going to be divided among, who you want to be appointed guardian of any minor children, etc. The key word there was “probate.” Many people think that if you have a Will, you avoid probate. That is not true. Additionally, many people believe that all of your assets will be governed by or “go through” your Will when you die. That is also not true. In Part 2 of this series I will talk about the different strategies to avoid probate. And, if you implement one of these probate avoidance strategies, your Will will NOT control who inherits those assets when you die, the document you used to avoid probate will. This is very important to remember.

It is important for you to have a Will for many reasons. The three primary reasons for most individuals are: 1) you designate the person you want to administer your estate, 2) you designate the people or organizations that you want to inherit your estate (and how they inherit it) and 3) you designate the individuals you want appointed as the guardian of your minor children. If you do not have a Will, the court will have to designate a person to administer your estate and to be guardian of your minor children. This is not only time consuming and costly, the court may choose someone who you may not have chosen. And, the State, via its intestacy statute, will choose who will inherit your estate and when and how they inherit it. The intestacy statute is based on who the State thinks you would have wanted to inherit your estate if you had a Will. Again, this may not be the individuals you wanted to inherit your estate, and even if it was, you may have wanted to put some restrictions on and/or have some control over when and how they inherit it. The probate process can be long and costly enough with a Will, save your family the extra trouble and burden of having to probate your estate without a Will, contact an attorney today to draft your Last Will & Testament.

Conclusion

Any plan starts with a good and solid foundation, and that includes your estate plan. The estate planning documents that every person needs for a good and solid foundation is a Durable Power of Attorney, a Healthcare Power of Attorney and a Last Will & Testament. Until you have these, any other estate planning strategies may be fruitless and/or supported by a weak foundation. Make sure to check out Part 2 (Probate Avoidance) and Part 3 (Trusts) of this series when I post them. And, lastly, like with any topic I blog about, I am only scratching the surface of these topics, you must contact a professional in order to fully consider how these estate planning strategies will play out in your individual circumstances.

I hope this helps!

-Matt

 

© 2015 Matthew D. Brehmer and Crummey Estate Plan.

Beneficiary Designations: An Overlooked Estate Planning Tool

While a vast majority of the population has not prepared the “staple” estate planning documents that every person over the age of 18 should have, almost everyone has prepared a beneficiary designation form of some sort. When I say “staple” estate planning documents, I am talking about a Last Will & Testament, Health Care Power of Attorney (with a Living Will and HIPAA Authorization), and Durable (Financial) Power of Attorney. It is essential that every person have at least all of these documents to effectuate their estate plan; and, most importantly, they must all work together!

In honor of Halloween, in the following scenario, I am going to use Frankenstein, Frank for short, age 40. Frank is very proactive about preparing his estate plan – he does have a pretty dangerous job creating monsters so probably a good thing he’s proactive, right? Frank discusses his final wishes with his attorney and his attorney prepares him a perfect set of “staple” estate planning documents. Per his wishes, his Last Will & Testament states that everything is to go to his wife, if she survives him, and if she does not, then to be split equally among his children (age 15 and 13). Further, if his children are under the age of 25 at the time of his death, their share of his estate shall be held in trust until they are age 25. Great, Frank thinks he is all set to go, like many people would.

However, here’s the kicker: any asset that Frank has prepared a beneficiary designation form for, will NOT pass through his Last Will & Testament at the time of his death (unless he has named his estate as the beneficiary, which in most cases is not advised). That means that whomever Frank named as beneficiary on that form will get that asset at his death (the form may have been filled out 20 years ago when he just started working, was not married and had no children). His wishes as outlined in his Last Will & Testament will not control how that asset is distributed.

Good thing Frank was advised of this. Frank takes heed of this advice and updates his beneficiary designation forms to carry out the same wishes as under his Last Will & Testament. However, typically this is not as simple as just updating the names on the form. Frank needs to ensure that the form is prepared properly, which includes drafting to make sure that any shares his children may receive will be held in trust until they are age 25, identical to his wishes under his Last Will & Testament.

It is important to remember that if he had not updated his beneficiary designations, his “real” final wishes would not have been carried out after his death; his $200,000 IRA may have gone to his ex-girlfriend that he named as beneficiary when he was 20 years old. On the other hand, if he had updated his beneficiary designation but done so improperly, again, his “real” final wishes may not have been carried out after his death; his $200,000 IRA may have gone outright to his two financially immature children, then age 18 and 20, instead of being held in trust until they were 25.

Now Frank was proactive, think about all the people who have not had the “staple” estate planning documents prepared or had their beneficiary designations reviewed to ensure that they are correctly filled out; is their estate going to be distributed as they really intended? Further, Frank’s estate plan was relatively simple; most people’s circumstances and wishes are much more complicated than his. This makes conjunctive planning even more so important – attorneys must advise clients as to both their Last Will & Testament (or Trust) and any beneficiary designations that they may have made to ensure that they are all consistent and carry out the client’s final wishes.

Types of Assets

If you have any of the following assets, you have most likely prepared a beneficiary designation form at some point:

  • Any retirement accounts, including 401(k)s, IRAs, pension plans, profit sharing plans, etc.;
  • Life insurance;
  • Brokerage accounts; and/or
  • Annuities.

In addition, most States now allow owners to name a beneficiary for any real estate property they own (i.e., transfer on death designation) and any bank accounts they have (i.e., payable on death designation). Now, think about all of the assets you have or may have at death. For most people, besides your tangible personal property (e.g., household goods, automobiles, etc.), the above list of assets covers a majority of your estate. That is why beneficiary designation planning is ESSENTIAL to estate planning today.

Non-Probate

A Last Will & Testament directs how and to whom your executor or personal representative should distribute your probate property. However, if you have prepared a beneficiary designation form for one of the types of assets listed above, that asset will not go through probate and therefore, the distribution of that asset will not be controlled by your Last Will & Testament. The distribution of that asset will be controlled by the beneficiary designation form that you filled out, possibly haphazardly and without much thought and advice.

While avoiding probate is great news and on the top of most people’s estate planning goals, the beneficiary designation form must be filled out correctly in order to properly effectuate your final wishes. This is something that should be discussed with an attorney so you can ensure that it is done correctly and that when fully considering the big picture, your final wishes are carried out. The big picture includes all of your assets and how and to whom they will be distributed to at your death, whether that distribution is controlled by beneficiary designations, your Last Will & Testament, and/or your Living Trust.

Naming Your Beneficiaries

Depending on your estate plan, you may choose to name an individual, trust, estate, charity and/or any combination of these as the beneficiary to one or more of the assets listed above. However, this decision is not as easy as just filling in a blank on a beneficiary designation form. There are numerous considerations to contemplate and discuss with an experienced attorney before making any final decisions. Some of the issues that may arise depending on your estate plan include (all of which will be discussed in future posts):

  •  How to effectively and efficiently leave the asset to multiple beneficiaries, whether the asset should be split up immediately among the multiple beneficiaries, held in trust for some or all of the multiple beneficiaries, spread out over future generations, etc.;
  • How to protect the asset from the beneficiary, whether the beneficiary is too young, financially immature, disabled, has creditor/divorce concerns, etc.;
  • How to minimize the tax consequences, whether it is the impact of estate tax, generation-skipping transfer tax, income tax, deferring tax, etc.;
  • How to comply with the complex IRA (or any asset listed above) rules, whether you are naming an individual, estate, trust and/or charity as a beneficiary and the different consequences of naming each; and/or
  • How to prepare and implement an estate plan that considers the big picture and ensures that your estate is distributed effectively and efficiently, according to your final wishes, with the least amount of time and cost involved.

Conclusion

With beneficiary designations possibly controlling the distribution of a majority of a person’s estate, estate planning must include beneficiary designations and how they affect the person’s final wishes as outlined in their Last Will & Testament and/or Living Trust. This is why both the long trusted “staple” estate planning documents and beneficiary designation forms are important and required for every person today. This will, in many cases, inevitably lead to attorneys and financial advisers being required to work together to ensure that the client’s estate plan is carried out correctly. The issues that may arise are complex and the consequences may be severe, therefore, you need to seek professional advice before finalizing your beneficiary designation forms.

– Attorney Matthew D. Brehmer

 

© 2014 Matthew D. Brehmer and Crummey Estate Plan.