Estate Planning -Things to consider before you travel
In these winter months, many of us will be traveling to visit friends and family. Before any trip, most of us create a list of things we want to take care of before we leave. If you have been procrastinating about putting an estate plan in place, use your next trip as your deadline to finally get this done. Most people believe that estate planning is only for the very wealthy, old or retired individuals. This is simply not true, estate planning is for everyone. Listed below are some things to consider that may get you motivated to put an estate plan into place before your holiday travel.
If you do not have an Estate Plan in place.
Every state has laws for distributing the property of someone who dies without an estate plan—but not very many people would be pleased with the results. State laws vary, but generally they leave a percentage of the deceased’s assets to family members. (Non-family members, like an unmarried partner, will not receive any assets.) It is common for the surviving spouse and children to each receive a share, which often means the surviving spouse will not have enough money to live on. If you have children that are minors, the court will control their inheritances until they reach legal age (usually 18), at which time they will receive the full amount. (Most parents prefer their children inherit later, when they are more mature.)
- If you have not named a guardian for your minor children.
A guardian for minor children can only be named through a will. If the parents have not done this, and both die before the children reach legal age, the court will have to name someone to raise them without knowing whom the parents would have chosen.
- If you are relying on joint ownership.
Many people add an adult child to the title of their assets (especially their home), often to avoid probate. But this can create all kinds of problems. When you add a co-owner, you lose control. Jointly-owned assets are now exposed to the co-owner’s creditors, divorce proceedings and possible misuse of the assets and the co-owner must agree to all business transactions. There could be gift and/or income tax issues. And if you have more than one child but only name one to be co-owner with you, fluctuating values could cause your children to receive unbalanced/unintended inheritances.
- If you have not planned for incapacity.
If someone cannot conduct business due to mental or physical incapacity, only a court appointee can sign for this person even if a valid will exist. (A will only goes into effect after death.) The court usually stays involved until the person recovers or dies and the court, not the family, will control how their assets are used to provide for their care. The process is public and can become expensive, embarrassing, time consuming and difficult to end.
Avoiding these situations can be accomplished by:
Giving someone power of attorney as a way to avoid the court process can be risky because that person can do anything they want with your assets with no real restrictions. For this reason, a living trust (revocable trust) is often preferred for incapacity planning. With a living trust, the person(s) you choose to act for you can do so without court interference, yet they are held to a higher standard as a trustee; if they misuse their power, they can be held accountable. Should you die your trust then becomes irrevocable and your trustee disburses your assets to your beneficiaries as indicated in your trust.
Someone also needs to be given the power to make health care decisions for you (including life and death decisions) if you are unable to make them for yourself. Without a designated health care agent, you could be kept alive by artificial means for an indefinite period of time. (Remember Terri Schiavo? The exorbitant costs of long term care, most of which are not covered by health insurance or Medicare, must also be part of incapacity planning. You may wish to consider long term care insurance to protect your assets.
Putting your plan in place before you travel will give you the opportunity to discuss your plan with family when visiting and help you travel with peace of mind, knowing that if you don’t return due to serious illness or death, you have made things much easier for those you love.
If you already have an estate plan in place
- Review and update your existing estate plan.
Revisions should be made any time there are changes in family (birth, death, marriage, divorce, remarriage), finances, tax laws, or if a trustee or executor can no longer serve. Again, be sure to allow enough time to have the changes made.
- Review titles and beneficiary designations.
If you have a living trust and did not finish changing titles and/or beneficiary designations, now is the time to do so. If a beneficiary has died or if you are divorced, change these immediately. If you have a beneficiary that is incapacitated or a minor, set up a trust for this person and name the trust as beneficiary to prevent the court from taking control of the proceeds.
- Review your plan for minor children.
If you haven’t named a guardian who is able and willing to serve and something happens to you, the court will decide who will raise your kids without your input. If you have named a guardian, consider if this person is still the best choice. Name a back-up in case your first choice cannot serve. Select someone responsible to manage the inheritance.
- Secure or review incapacity documents.
Everyone over the age of 18 needs to have these: 1) Durable Power of Attorney for Heath Care, which gives another person legal authority to make health care decisions (including life and death decisions) for you if you are unable to make them for yourself; and 2) HIPPA Authorizations, which give written consent for doctors to discuss your medical situation with others, including family members.
- Review your insurance.
Check the amount of your life insurance coverage and see if it still meets your family’s needs. Consider getting long-term care insurance to help pay for the costs of long-term care (and preserve your assets for your family) in the event you and/or your spouse should need it due to illness or injury.
- Organize your accounts and documents.
It used to be that we could just point to a file cabinet and say everything was “in there.” But now so much is done online that there may not even be a paper trail. Make a list of ALL of your accounts, where they are located, and the user names and passwords, then review and update it before each trip. Print a hard copy in case your computer is stolen or crashes and let someone you trust know where to find it. Clean up your computer desktop and put your financial and other important files where they can be easily found. Make a back-up copy in case your computer is stolen or crashes, and let someone know where to find it. Be sure to include on your master list any passwords that might be needed to access your computer and files.
- Talk to your children about your plan.
You don’t have to show them financial statements, but you can discuss in general terms what you are planning and why, especially when any changes are made. The more they understand your plan, the more likely they are to accept it and will help to avoid discord when your successor trustee steps in. It is very important to discuss your plan with your successor trustee so they fully understand what their roles and responsibilities will be should you become incapacitated or die. Acting as successor trustee can be a challenging role and you should do your best to make sure the person you have named is up to the task.
Find out more about how to keep your documents up-to-date and organized by attending one of our free monthly Estate Planning Seminars.