Note: This is the first article in Beach Cities Estate Law’s educational series aimed at the over 2/3 of American adults who do not have an estate plan. If you currently have an up-to-date estate plan, consider “paying it forward” by passing this article along to a friend, family member, colleague, or client.

At Beach Cities Estate Law, we not only help people plan for some of the most difficult times in their lives, we also guide their loved ones when those times come. We see how smooth it can be when the proper plan is in place, as well as what goes wrong when there is no plan, or the plan is not the right plan.

Part of our mission is to educate the public about estate planning, de-mystify, and simplify the estate planning process.

This first article in our educational series sets the stage for subsequent articles by exploring the barriers to estate planning and clarifying the definition of an estate plan.

 

Why People Don’t Do Their Estate Planning?

If you would rather do ten other tasks than sit down and think about your estate plan, you’re not alone!  No one likes to think about death or incapacity—that happens to other people, to older people, not to me. However, as the pandemic has taught us, death can be sudden and unexpected. It could happen to any of us at any time. We don’t know what the next “coronavirus” will be, or when it will occur. We don’t know when someone driving recklessly may crash into our car.

We all wish to have a long healthy life and to die peacefully in our beds in our old age. And for some of us, that will happen. But some of us will die unexpectedly and too soon. Our mortality is a reality we must all squarely face, especially when there are others in our lives who rely on us financially or emotionally.

Even if you are not someone who ordinarily procrastinates, putting a proper estate plan in place is something easy to push aside to another day. It’s hard to imagine anything with as many barriers to completion:

• There is no requirement or law that obligates you to make an estate plan
• There is no set due date
• It involves thinking about and discussing topics that most people find uncomfortable
• So many aspects of it are confusing and filled with unknowns.
  • What exactly is an “estate plan”?
  • Why are there are so many different documents with long mysterious names—durable power of attorney, revocable living trust, advance health care directive, HIPAA authorization…?
  • And so many titles—executor, trustee, guardian, conservator…?
  • How do I go about finding a lawyer?
  • How much should I expect to pay for this?
• There are so many misconceptions about it:
  • Some people think they are too young to need an estate plan
  • Or that they don’t have enough assets to worry about it
  • Or that they need to have all of their important documents organized and all of their decisions made before they make an appointment to see an attorney
  • Or that it is going to take a lot of time and attention to complete
  • Or that if they don’t have any children or family members, it is not that important

Whew… no wonder 2/3 of American Adults don’t have an estate plan!

So, let’s get started on clearing up the confusion. We’ll begin, in this article, by discussing what exactly is an estate plan.

 

What IS Estate Planning?

In essence, an estate plan is something that you put in place, usually by one or more written documents, to detail what you would like to happen to you, your assets, and any people who depend upon you for care and support, both upon your death (which is inevitable) and if you were to become incapacitated (which, although not inevitable, is not unlikely either). Most importantly, through an estate plan, you designate persons who you trust to carry out these plans.

Put another way (for those of us who like lists), an estate plan consists of:

• One or more written documents
• Covering what happens in the following areas upon your death or incapacity:
  • How you will be cared for (upon incapacity)
  • Who will care for any minor children or other dependents
  • Who will receive your assets (upon death)
  • Who will carry out your wishes

Planning for Your Care Upon Incapacity

Your physical and mental health and well-being are far more important than any monetary or physical item that you may possess. Therefore, the first item to address in any estate plan is documenting who will take care of you in the event you become incapacitated, or too ill (either physically or mentally) to care for yourself.

You could become incapacitated due to illness, an accident, or old age. A proper estate plan allows you to name the persons who you would want to make health-care decisions for you if you are unable to do so, as well as to care for you and your finances during that time.

I cannot stress enough the importance of incapacity planning. This is literally a choice that can have life-or-death consequences. Without a proper plan in place, you could have loved ones fighting about what medical procedures you would have wanted, or whether you should or should not be placed on life support. Or, in the financial realm, you could have children skimping on quality care for you as you age to preserve their inheritances.

The following documents are typically used in planning for incapacity:

• Advance Health Care Directive (also known as a Power of Attorney for Health Care)
• Durable Power of Attorney for Finances
• Authorization for Release of Protected Health Information (also known as a HIPAA Release)

Planning for the Care of Your Children or other Dependents

For those of you with a child or children under the age of 18, almost as crucial as planning for your own incapacity is planning for who will take care of those children if you die or become incapacitated while the children are still minors. The consequences of not planning are dire: your children could be placed in the foster care system pending a resolution (and a possible court battle) about who should be designated as the guardian, or your children could be placed with a sibling who is financially secure and who appears perfect on the outside, but who emotionally abuses his spouse and children.

As part of your estate plan, you will name someone as the guardian, so that you can be assured that your children will be cared for by a loving, responsible person you have chosen, if the time comes that you are not able to care for them.

Guardians are named in the following documents:

• Nomination of Guardians
• Will

Planning for the Transfer of Your Assets

This is what most people think about when they hear the words “estate plan”—planning for who will receive your assets when you die. Assets can be transferred through a variety of documents, the most common of which are listed below.

• Will
• Trust
• Beneficiary Designation (for a life insurance policy or a retirement plan)
• Pay-on-Death Designation (for a bank or brokerage account)
• Joint Ownership (for example, a joint bank account or a home owned in joint tenancy)

 

Naming Fiduciaries to Carry Out Your Plans

No matter what type of plan you are making, selecting others to implement the plan is unavoidable. (The term “fiduciary” is a catch-all term that is used to refer to someone who holds a position of trust and confidence in relation to another person; anyone named to serve a role in an estate plan is a fiduciary.)

For estate planning, although a fiduciary will have a different title depending on the document in which they are named, the various roles can be divided into two groups, financial and personal.

Financial Fiduciaries

Financial fiduciaries are the persons who you will entrust to manage financial affairs. The same persons are typically named to serve in more than one role.

• Executor: Named in a will; manages a deceased person’s probate estate.
• Trustee: Named in a trust; manages the assets in that trust, either while that person is living and incapacitated or after their death.
• Financial Agent or Attorney-in-Fact: Named in a financial power of attorney; manages a person’s assets that are NOT owned in a trust while that person is living and incapacitated.
• Guardian of the Estate: A person appointed by a court to manage the assets of a minor child.
• Conservator of the Estate: A person appointed by a court to manage the assets of a person who is incapacitated.

Personal Fiduciaries

Personal fiduciaries are the persons who you will name to personally care for you or your children.

• Health Care Agent: A person named in an Advance Health Care Directive to make health care decisions for another person.
• Guardian of the Person: A person appointed by a court to have authority over and make decisions on behalf of a minor child, for all matters other than finances.
• Conservator of the Person: A person appointed by a court to have authority over and make decisions on behalf of a person who is incapacitated, for all matters other than finances.

Wrap-Up

At the end of the day, when you complete the estate planning process, you should have a little fireproof box tucked away in the back of your closet containing your estate plan—a set of nicely organized documents giving instructions about your wishes to the persons you trust most. And, those people will know who they are, where the box is located, and what they need to do when the time comes. In addition, you will have peace of mind knowing that your affairs are in order!

We sincerely hope that when you put your nice little fireproof box together, it sits in the back of your closet and will not be used for many years. Should it need to be, however, then you will be one of the prepared ones, and you will have saved your loved ones from the agony of trying to put your affairs in order in your absence, and possibly from long legal battles.

Over the course of this series of articles, we will delve deeper into some of the topics mentioned above, with the goal of educating and clearing up misconceptions about estate planning. If you have not yet put your estate plan in place, we hope this series provides you with valuable information that will bring you closer to doing so. In the meantime, if we can be of any assistance to you as you move ahead with your estate planning, please call us at 424-400-2125 or visit our website at www.beachcitiesestatelaw.com.