Estate Planning for Life - What You Need and When You Need It
September 19, 2013
More than half of the U.S. population does not have any of the basic estate planning documents they need to protect themselves in the event of death or incapacity. Morever, a substantial majority of individuals in the U.S. does not have all of the documents to protect themselves and their family in the event of death or incapacity.
Failure to have an Estate Plan in place can result in the wasting away of your estate, pain and suffering for your family, huge Court costs and attorneys’ fees.
Moreover, the need for Estate Planning does not suddenly arise when you become middle-aged or older. Karen Ann Quinlan stopped breathing after returning home after a party at age 21. Terri Schiavo had a heart attack at home age 26, after which she fell into a coma and vegetative state. In both cases, the lack of any Estate Planning resulted in years of litigation and at least hundreds of thousands of dollars in attorneys’ fees.
The truth is that you need to have some form of Estate Planning in place from the day you become an adult. As your life changes, you will have to add to or change your Estate Planning planning, but you should never be an Estate Plan from that day forward.
Young Adults With Few Assets
In forty of the fifty States, including California, you become an “adult” when you turn 18 (the “age of majority”). The age of majority is (1) 19 in three states (Alabama, Delaware and Nebraska), (b) 21 in one State (Mississippi) and (3) 18 or some other age or upon graduation from high school in six States. Once you become an adult, you have the legal “capacity” to make your own legally binding decisions, and your parents lose the right to make them for you.
So what does this have to do with Estate Planning? Most significantly, it means that your parents no longer have the power or right to receive your medical information, make decisions about your medical care, or handle your bank or other accounts. In other words, if you have an accident or emergency, your parents (1) are not entitled to receive your medical records or make medical decisions on your behalf and (2) have no control over your bank accounts or other assets (e.g., they cannot pay your auto loan from your account).
Remember Karen Ann Quinlan? Quinlan became unconscious after arriving home from a party where she had consumed alcohol and Valium. She had been on a radical diet to lose weight. After arriving home, she was put to bed by her roommates, but was found not breathing fifteen minutes later. She received mouth-to-mouth resuscitation which resulted in improved color, but she did regain consciousness. She was later found to have suffered irreversible brain damage and to be in a “persistent vegetative state.”
After being in this condition for several months, her parents asked the hospital to remove their daughter from the ventilator, but the hospital refused. Eventually, the Quinlans had to tile a petition with the Court to obtain the authority to direct the hospital to remove the ventilator, but the Court refused. The Court’s order was later reversed by the Supreme Court of Massachusetts. Although the ventilator was removed, Karen Quinlan did not die until several years later.
Do not let this happen to you.. If you are a parent, speak to your adult or about-to-become- adult child and offer to have an Advance Health Care Directive, HIPAA Release and Living Will prepared for them so that you (or someone else they choose) has the legal right to make medical decisions for them if they become incapacitated or go missing. They should also have a Power of Attorney so that someone else has the legal power to to deal with their assets; for example, to use their bank account to pay their car payments or rent, or to sell their car or terminate a lease, depending upon the circumstances.
If you are an adult and your parents have not taken this stip, do this on your own. Although these documents must be prepared with care and preferably with the advice of an Estate Planning attorney you can download and use online forms for Powers of Attorney, Advance Care Directives and HIPPA Releases in several States, including California.
When You Have Children, Get Married or Acquire Significant Assets
Once you have children, get married, acquire assets in excess of whatever amount your State specifies as the maximum for an abbreviated procedure (e.g., the affidavit procedure for estates under $150,000 in California), you also need ast least a Will and/or Revocable Living Trust.
If you have children, you need a Will to appoint a Guardian for your minor children in the event of your death. You cannot appoint a Guardian for your children in a Revocable Living Trust, and even your decision to appoint a guardian in your Will is subject to approval of the Court. Thus, if you have children, you need a Will whether or not you are married. If you do not make a choice, the Court will appoint someone other than the guardian you prefer.
You should also create either a Revocable Living Trust or a Testamentary Trust (i.e., one which is created upon your death) to care for the needs of your children. The Trust should include provisions regarding how the money is to be spent while your children still minors and how the money is to be distributed (e.g., in stages, upon graduation from college, etc.) when your children become adults.
Married couples can rely upon many statutory protections, especially in California, which is a community property State. For example, if you and your spouse purchase a home as community property, which is typical, the property automatically passes to the surviving spouse, whether or not you have children.
However, in many States, separate property of the deceased spouse will have to be shared with the parents or other relatives of the deceased spouse unless there is a Will or Trust which provides otherwise. In order to ensure that the surviving spouse gets what he or she needs, you need either a Will or a Trust.
Acquiring Assets (Especially a Home)
The more assets you have, the more likely it is that you need a Will and a Revocable Living Trust to preserve your Estate. As I mention above, the State of California currently has an “Affidavit” procedure for estates with $150,000 or less in total assets and real estate worth up to $50,000 in value and “Simplied Probate Procedures” for estates which have a value up to $150,000, after excluding certain assets (e.g., out-of-state real property). The value of your assets depends upon its market value, regardless of whether the asset has a lien on it (such as a mortgage or “Deed of Trust”).
If you own a home or condominium in any metropolitan area in California, you will almost certainly need a Revocable Living Trust, since even the most basic home in these areas costs more than $150,000.
Special Needs Planning
If you have a child who is born with a disability, or who becomes disabled, or if your spouse or other loved one is suffering from a disability which is going to require public benefits, you need to add Special Needs Planning to your Estate Plan.
If you have an Estate Plan prepared by a WealthCounsel® attorney, your Revocable Living Trust already includes what a default “Supplemental Needs Trust” for your beneficiaries, but you should consider creating a standalone plan if you have a child or other love one who you already needs public benefits.
Marriage at a Later Age or Remarriage After Death or Divorce
If you marry at a later age, or remarry after a death or divorce, you should definitely consult with an Estate Planning Attorney.
First, and especially if one of the couples or both of you have substantial assets and/or your own children, you should decide whether you want to enter into a Marital Agreement. A Marital agreement can be used to retain the separate nature of the property each of you brings into the marriage.
You also need to decide what happens to the separate and community (or joint) property upon your death to avoid disinheriting your own children. For example, after the first to die, do you want your assets to go to your spouse, or to your spouse and children from the prior marriage?
International Issues for Married Couples and Singles
There are a several estate planning issues which arising with respect to Estate Planning for U.S. citizens living abroad, foreign citizens who own property in the United States, U.S. citizens who own property in foreign countries, and foreign citizens who are residents of the United States.
If you fall into one of these categories, you need to consult with an Estate Planning attorney immediately to find out what issues you need to address.
Asset Protection Trusts
If you or your spouse is a profession which engenders lots of claims (e.g., a medical doctor, lawyer or owner of substantial residential real estate), and if you have enough assets to justify the expense, you should consider creating an Asset Protection Trust in one of the several U.S. States which have them, or even offshore.
For most individuals, the best asset protection is good old-fashioned insurance, plus umbrella insurance, which is relatively inexpensive. However, there are now several U.S. States which permit the creation of specially designed asset protection trusts. Although the effectiveness of these Trusts has not yet been fully tested, they offer at least some protection at a relatively low cost.
Offshore Trusts are more expensive, but they seem to offer greater protection for your assets and might be appropriate in some cases.
Planning for Alzheimers and Other Types of Disability
If you or your spouse are suffering from alzheimers or another ailment which may require long term care, you should consult with an Estate Planning or Elder Care Attorney to see what you can due to preserve as much as possible of your Estate, while at the same time ensuring your elibility for governmental benefits.
Upon the Death of a Spouse
You should see your Estate Planning attorney shortly after the death of your spouse. The isues which need to be addressed at this time depend upon what sort of Estate Plan you had while you were married. For example, if you have an AB Trust, the assets of a couple need to be separated and assigned to different Trusts.
Moreover, even in the simplest estate, an Estate Tax Return has to be filed to preserve the deceased spouse’s marital deduction. This feature of the Estate law did not come into effect until 2010, and was made permanent in the Estate Law passed on January 2, 2013.
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