Welcome to 2024! The year 2023 left many feeling unsettled. Chat GPT burst onto the scene, and it seemed AI was destined to take over everything. War continued in Ukraine and broke out in the Gaza Strip. Finally, COVID-19 seems to be the new norm. Calendar year 2023 taught us some tough lessons, most of which focus on preparing for the unexpected and unthinkable. Creating an Estate Plan helps give us a feeling of control and peace of mind, knowing that your loved ones will endure when you leave this earth.
Simply put, an Estate Plan serves as a set of instructions regarding how you want your affairs handled if something happens to you. The plan sends a message to your loved ones that you care enough to tell them what to do in your absence. A basic Estate Plan consists of documents that provide instructions for what happens both during your life and at death. Those documents consist of a Living Trust, also known as a Revocable Trust (a “Trust”), a Will, a Property Power of Attorney, a Healthcare Power of Attorney, a Living Will, and a Health Insurance Portability and Accountability (“HIPAA”) Authorization.
Although we list Trust first, let’s start with a discussion of the Will. A Will determines distribution of your assets upon your death and allows you to select an individual or company to make the disbursements of those assets. The Will allows you to nominate guardians to care for any minor children that you have at your death. Finally, some states allow their residents to pass tangible personal property through a separate writing without the formalities required of a Will. These documents must follow state statutes concerning requirements for validity, but generally, these documents need only reference the tangible personal property sought to be distributed, the desired recipient of the property, and have the testator’s signature along with the date signed. Usually, states that allow a separate writing require that the Will contain a direction regarding passing the tangible personal property according to such document. These states typically do not have companion statutes that allow a Revocable Trust to reference the memorandum. If you do not have a Will, then your state’s intestacy laws will govern dispensation of your assets at your death. Often, the state’s distribution pattern does not match your own. Even if state laws match your desired disposition, state laws contain no provisions to account for a beneficiary’s specific circumstances, for example, a beneficiary with special needs. Finally, state intestacy laws may appoint a stranger to handle these important tasks.
Regardless of whether you have a Will or your state’s intestacy laws determine property division and distribution of your assets upon your death, the individual in charge must petition the court for permission to transact the business of your estate through a probate proceeding. Depending upon the laws of your state, probate can be a lengthy, costly, and public process. If you want to avoid probate and maintain your privacy, a Trust serves as a Will substitute and provides the opportunity for you to do that. With a Trust, you transfer the assets to the Trust during your lifetime and manage them as the Trustee. You avoid probate altogether by using a Trust because the Trust contains provisions regarding what happens upon your death and vests a successor Trustee with the power to make distributions from the Trust without court oversight. The Trust also protects against incapacity by giving a successor Trustee the power to make distributions from the Trust for your benefit should you become incapacitated. Due to cases of fraud, institutions more readily recognize a successor Trustee acting on your behalf than an agent under your Property Power of Attorney.
The Property Power of Attorney allows you to appoint someone as your “Agent” to act on your behalf concerning your financial affairs. If that Agent is unwilling or unable to act, you can appoint one or more successor Agents. Through the Property Power of Attorney, you give someone else (the Agent) powers you inherently already have yourself. Property Powers of Attorney come in several flavors. Some vest immediately meaning that the Agent has the power to make decisions regarding your financial assets right away and without regard to your ability to make those decisions for yourself. In most states, they also may vest upon incapacity meaning that the Agent’s powers “spring” into action only upon your incapacity. Practitioners refer to these types of Property Powers of Attorney as “springing” Powers of Attorney. You may hear the term “durable” in conjunction with the Property Power of Attorney. This means that the Property Power of Attorney continues to be effective notwithstanding your incapacity. A Property Power of Attorney that is not durable does not allow your Agent to act during your incapacity.
A Healthcare Power of Attorney allows you to appoint an agent to make medical decisions for you if you are unable to do so for yourself. If you can make these decisions, then your agent cannot veto any medical decision you make. A Living Will, sometimes called an “Advance Directive” expresses your wishes regarding end-of-life decisions. Without this document memorializing your wishes, doctors and medical professionals must keep you alive even if you have no reasonable chance of recovery notwithstanding that doing so only prolongs your suffering. Often the Living Will and Healthcare Power of Attorney are combined into one document. The Health Insurance Portability and Accountability Act of 1996 mandates that healthcare providers keep your protected healthcare information confidential. While most of us would agree that generally makes sense, sometimes you want others to have access to that information, especially the fiduciaries that you have nominated to act upon your incapacity. A HIPAA Authorization allows you to appoint one or more individuals to access or receive protected health information.
It’s important to keep your Estate Plan updated. Reviewing these documents often ensures that you always have trusted and capable individuals serving in these important roles and that you do not leave your loved ones wondering what to do upon your incapacity or death. While we hope 2024 will be better than the last several years, it’s important to begin the year by creating an estate plan, if you do not yet have one, or reviewing the plan that you already have in place to ensure that it accomplishes your goals. This will provide you and your loved ones with peace of mind for anything that 2024 brings. If the last few years have taught us anything, it’s to expect the unexpected. Even a basic Estate Plan provides peace of mind. Resolve now to get your estate planning done this year, sooner rather than later.
Tereina Stidd, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
- Use It or Lose It…Examining the Efficacy of the Spouse And Family Exclusion Trust or Spousal Lifetime Access Trust - February 20, 2024
- What You Need to Know about the Corporate Transparency Act - February 13, 2024
- There’s No Better Way to Say “I’ll Be There for You” than with an Estate Plan - January 23, 2024