As the coronavirus pandemic continues to disrupt daily life and leave Americans uncertain of the future, you do not have to feel helpless. In fact, now is a great time to be proactive and organize your affairs in the event you or a loved one should fall ill. One of the most important things you can do (and should do) is get your estate plan in place. If you can answer the following questions or at least begin to think them through, you can get a jump-start on the estate planning process today.
1. Who Do You Want to Handle Your Financial Affairs?
One major issue that must be addressed during the estate planning process is the control of your money and property. This includes what will happen while you are alive and what will happen at your death. The person(s) you choose to put in charge of your money and property should be trustworthy, detail-oriented, financially savvy, and organized. To assist you with your financial affairs, you may decide to appoint someone to serve as your Agent (aka attorney-in-fact) under a financial power of attorney and/or a successor Trustee of your revocable living trust.
The agent is responsible for carrying out the financial transactions listed in the financial power of attorney document on your behalf while you are alive. The document can be tailored to meet your needs, granting your agent as much or as little authority as necessary or desired. You could grant your agent the authority to do everything you could do (known as a general durable power of attorney), or the agent could be instructed to only open a bank account for the purposes of depositing a specific check (known as a limited power of attorney). You also have the ability to specify when your agent’s authority to act on your behalf becomes effective. With a “springing” power of attorney, the agent can act only if you become incapacitated. The method used to determine whether you are incapacitated is stated in the power of attorney (note: in general, “springing” powers of attorney are not recommended). Alternatively, an immediately effective power of attorney allows your agent to act the moment you sign the document, even though you are still able to conduct your own financial affairs. This feature, however, does not limit your ability to carry out your own transactions – it merely provides that another person can carry them out in addition to you.
Another way a trusted individual can assist you is by serving as a successor trustee of your revocable living trust. When the trust is first created and you transfer money and property to the trust, you will likely serve as the initial trustee and will be in full control of the money and property, just as you were before your transferred it to the trust. In addition to being the trustee, you will also be the current beneficiary, allowing you to continue to enjoy the money and property even though they are technically owned by the trust. For the foreseeable future, this situation will work well. However, the true benefit of the trust arises when you are no longer able to fulfill the role of trustee. At that point, the trusted individual you have appointed as your successor trustee will step in and manage the money and property for you, without court involvement. Your successor trustee can also step up at your death without court involvement. But no matter when the successor trustee takes over, i.e., when you are unable to manage your affairs or upon your death, he or she is required to follow the instructions that have been detailed in the trust document. This means that the money and property will continue to be used for your benefit during your lifetime and for the benefit of those you have chosen at your death.
2. Who Will Communicate Your Medical Decisions to the Appropriate Medical Personnel?
In the event you are unable to communicate your medical wishes, your agent under an advance medical directive or medical power of attorney is the person who can make the life or death decisions on your behalf. Your health care agent should be level headed, able to act under pressure, and most importantly, able communicate your wishes, even if their own wishes or beliefs differ from yours. If you have family members that disagree with your choices, you may want to rethink before giving them the authority to make medical decisions on your behalf. It is also essential that you consider the individual’s availability to act for you. Medical emergencies can happen without warning. It is necessary that the person you choose as your agent is available in the required capacity to make those decisions for you. If the person you would like to choose is across the country, do they have the time and finances to travel? If your first choice has a demanding job or home life, can he or she be reached in a reasonable amount of time in the event a decision can be made over the phone?
Medical decisions are very personal. Even if you have the most capable person appointed as your health care agent, it is helpful if you can provide him or her with your wishes in writing. This can be a valuable tool for your agent. An advance medical directive or ‘living will” allows you to state your wishes regarding your end-of-life care: Do you want medication to help manage any pain? Do you want to be put on a ventilator if needed, etc.? While these decisions may take some soul searching, this information may be crucial in allowing your agent to make the best decisions on your behalf.
3. Who Will Look After Your Minor Children, Even if it is Just Temporary?
If you have a minor child, you know that they require some level of supervision. In case you are not able to take care of your minor child, and the other custodial parent is not available, you must make sure to appoint someone to step in and take care of your child, even if it is just for a short period of time. This person should have the ability to take on the mental, emotional, and possibly financial day-to-day responsibilities of raising your child. Because it is impossible to know in advance the amount of time your child would need to spend with them, you will also need to consider whether the person is geographically desirable or if your child would be required to move, even temporarily.
4. How Do You Want Your Money and Property Divided at Your Death?
When considering how to divide your money and property, think about what is in the best interests of each person. You do not have to give the money and property to your loved ones outright: You have options.
If you are concerned about giving a chosen beneficiary access to 100% of the money and property they will inherit, you could choose to stagger distributions over a period of time. For example, the beneficiary could receive 25% at age 25, 50% at age 40, and the remaining 25% at age 60. By staggering the distributions in this fashion, your younger beneficiary may be able to use the last portion as a nest egg for retirement.
In the event you would like to incentivize certain behaviors, you can set aside money or property to be distributed when a beneficiary accomplishes certain milestones (i.e., graduates college, stays sober for 180 days, gets their first full-time job). This can be helpful if you are concerned that the inheritance might derail a beneficiary from a productive path. By making the distributions contingent on certain behaviors, you can help ensure that they are staying on the right track even after you are gone.
For some beneficiaries, it may be more appropriate for any distribution to be solely within the complete discretion of the named successor trustee. Although this may sound harsh, there are many types of beneficiaries that can be safely provided for using this strategy. If your beneficiary has creditor issues, their creditors can only take the money or property that has been given to the beneficiary. So long as the money and property remain in the trust, and the trustee is not required to make distributions to the beneficiary, the money can stay out of the hands of the creditors. Additionally, a properly structured trust can prevent the beneficiary’s former spouse from taking the inheritance due to the limited control your beneficiary has over the money. This does not mean that your beneficiary will never receive any benefit from the trust – it just means that the trustee has the ability to ensure that distributions are truly in the best interest of the beneficiary, at the best time, and in the right amount.
David Lucas is an attorney in the Estates & Trusts and Business & Tax practice groups at Miller, Miller & Canby. He focuses his practice in Estate Planning and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning.