The statistics on estate planning are rather startling: Two decades ago, about half of Americans had a Last Will & Testament. But today? Only about one in three of us have one. Similarly, only a third of Americans over the age of 55 have financial powers of attorney. By way of comparison, Pew Research indicates that 40% of U.S. adults use Instagram. Shockingly, the number of people in this demographic with advance health care directives is only slightly higher than the number of those posting pictures of their lunch on social media.
Why (other than the fact that our priorities may be slightly off)?
Americans fail to plan for the following reasons:
- “I’ll get around to it eventually.”
- “I don’t have enough assets to worry about.”
- “I’m too busy.”
- “Estate planning is for old people.”
- “Death? Disability? Blah. No thanks. I’d rather not think about it.”
Unfortunately, eventually comes too soon for too many people. What’s more is that, despite popular opinion, “estate planning” isn’t just about what happens to your assets when you die. Rather, it’s about ensuring proper access and control while you’re alive and well, and then delegating it to those whom you trust during times of incapacity and after you pass away. Ultimately, your estate plan should work to transition your estate with as little time, cost, stress, and court interference as possible. Everyone can benefit from having a comprehensive estate plan, regardless of “how much” you have.
So… what documents do I need?
General (or Financial) Power of Attorney
A General Power of Attorney allows you to designate another person to make decisions about your finances, such as income, assets, and investments. This authority can exist immediately, which can be helpful between married couples (who can act on each other’s behalf) or children who are present-day helpers. The General Power of Attorney can also remain effective when you are no longer able to make decisions yourself due to incapacity. Without this document, if you become incapacitated, you may leave your family no choice but to go to Probate Court to get a court-supervised guardianship for your finances, leading to increased time, cost, and stress for all involved.
Health Care Power of Attorney
Also known as a health care proxy, this important legal document allows you to name a person you trust to make health care decisions on your behalf if you are no longer able to make them on your own, including decisions related to end-of-life treatment. As with a General Power of Attorney, if you do not have a health care proxy when you are incapacitated, a court-supervised guardianship of your person (in addition to your estate) will likely be inevitable.
A Living Will is an advance directive that allows you to express your wishes regarding what medical treatments you want – or do not want – in an end-of-life situation, when you are permanently unconscious with no chance of recovery. Will you remain hooked up to machines, or will you be permitted to die comfortably but naturally? Perhaps more importantly… do you want decide what happens in this impossible situation, or will the burden fall on your family (assuming you’ve granted the legal authority to make the decision at all)?
In 1996, Congress enacted the Health Insurance Portability and Accountability Act (HIPAA), which, among other things, locked down your health care information from disclosure without your consent. While a Health Care Power of Attorney designates those who can make medical decisions for you when you are unable to yourself, a HIPAA waiver lets you choose who can talk to your doctors and other treating professionals and otherwise receive private and protected information about your medical condition, regardless of whether you are incapacitated or not. Hospitals and medical providers can be prosecuted for HIPAA violations (i.e. disclosing your medical information to unauthorized people).
Last Will and Testament and/or Living Trust
A last will and testament and/or a living trust allows you to accomplish a number of important goals:
- Naming beneficiaries and who among them gets what
- Name a guardian for minor children
- Choosing who handles your estate when you pass away (an Executor under a will; a Successor Trustee under a trust)
The key difference between the two is that one (the Will) all but guarantees Probate Court, and all the cost and delay that comes with it, while the other (the Trust), if formed and maintained properly, can actually avoid Probate Court.
By the way, the average cost of probate is 4%-7% of your estate, including a percentage of assets that pass to your beneficiaries outside of probate. And according to LegalMatch.com, approximately 25% of probate estates end up with legal fees and costs in the FIVE FIGURES.
Beyond the documents…
Estate planning can also help you accomplish any number of other goals. For example, trusts can maintain your privacy and help you protect your assets from creditors or predators like lawsuits, divorce, and long-term care costs. Trusts, created during life or at death, can also direct when and under what conditions your heirs will receive their assets, which is helpful if you think your children are not mature enough to manage an inheritance or have other circumstances in which an outright inheritance may be problematic. An effective estate plan can also help you minimize or eliminate all kinds of taxes, including income, capital gains, and estate/gift tax.
Remember, estate planning is about so much more than who gets what when you die. It’s about ensuring proper access and control of what you’ve worked so hard for, it’s about delegating authority to reduce or eliminate the risk of court-interference during life or after death, and ultimately, it’s about making things clearer, better, and easier for your loved ones.
We understand that the planning conversations can be uncomfortable. They also might be a little “boring.” But they’re also vital for all of us. Many of us become incapacitated later in life, and all of us eventually pass away. Someone will need to pick up those pieces when they fall, and they’ll either do it with no direction on someone else’s terms, or they’ll do it on your terms.
So… what are you waiting for?
Planning the right way is a process that takes a little time and a lot of thoughtfulness, and it should be done with the help and counsel of someone you can trust. If you’d like to speak with a Board-Certified Estate Planning Attorney, we’ve got you covered. We’ll be happy to have conversation with you at no cost. Just contact us. Let’s Talk!