What is estate planning, how does it affect you and why should you and your family do it?
Estate planning is one of the greatest gifts you can give to your family. Think of estate planning as a good preventative medicine, like eating vegetables and exercising. If you do it ahead of time: (1) you will feel better; (2) it will guard against your later incapacity, illness, and death; and (3) your family will feel better knowing that you are taking care of yourself and them.
What happens to you if you are in a car wreck? You have a debilitating accident?You develop a terminal illness? Or you begin to suffer from memory loss? Estate planning is for everyone regardless of whether you are 18 or 80.
Estate planning is nothing more than several documents which tell your family, your friends, your doctors, your financial institutions, the courts and the public what you want to have happen in case something happens to you. For example, everyone has heard of wills and trusts. But have you ever heard of a medical power of attorney, a financial power of attorney, a declaration of guardian, a physician’s directive, or an agent to control disposition of remains?
A good estate planning attorney usually, but not always, requires at a minimum, a will, a medical power of attorney, a financial power of attorney, a declaration of guardian, a physician’s directive, and an agent to control disposition of remains. A good estate planning attorney may also tell you, depending upon your situation, that you should make sure you designate a specific person to inherit your non-probate assets–assets in your bank accounts, brokerage accounts, IRAs, 401Ks, profit sharing plans, and life insurance policies.
A will passes title to your property (both real and personal property) on your death to the persons, businesses, entities or charities of your choice. Real property is land and all of the improvements upon it. Personal property is everything else like cash, stocks, bonds, mutual funds and other tangible or intangible rights, including for example, intellectual property rights.
If you don’t have a will, Texas will decide for you where your property goes upon your passing. If your parents are alive and you have no children and no siblings–all of your property, if you are not married, will go to your parents, split equally.
If you don’t have a will and you have three adult children but one of them does not need any of your property, or you don’t want one of them to get any of your property, and you are unmarried, your three children will inherit all of your property in equal shares.
If you have a child from a prior relationship and are now married and you want your wife to inherit your property, guess what? Your wife will get half of your property assuming it is all community property and your child from your prior relationship will get ½ of all of the property you have accumulated with your wife, even if you have been married to your wife for twenty-five years and even if you are estranged from your child and you don’t want your child to inherit anything from you.
Having a proper will in place ensures that you have a say in what happens to your property when you die instead of the state of Texas.
Do you always need a will? No. Consider this example. You have worked hard your whole life building a successful business. You sell your business and make 1.5 million dollars in cash. You invest the cash in a money market account at Fidelity or Merrill Lynch. Do you need to pay lawyer $3,500, $5,000, or $10,000 to draft an elaborate estate plan with a will, trusts and other documents with names you cannot pronounce? You may need an elaborate estate plan but you may not. . . . ask your estate planning attorney. If you have a wife and two children who are over the age of 18, you can simply fill out a “transfer on death form” with the brokerage designating your wife and two children as equal beneficiaries on your account. If you die, the brokerage will pay the funds in the account to each of your three beneficiaries without the need to probate a will to obtain the funds in the brokerage account.
Medical Power of Attorney
You need a medical power of attorney so that someone else can “step into your shoes” and make medical decisions for you in the event that you cannot. For example, you are in a car wreck. You are taken to the hospital and you are unconscious. The person you have designated as your “attorney-in-fact” steps into your shoes and can make medical decisions for you. Ask an estate planning attorney to explain to you why you should have a medical power of attorney.
Financial Power of Attorney
The same thing holds true for a financial power of attorney, your “attorney-in-fact” steps into your shoes to make financial decisions for you. However, a good estate planning attorney will recommend that before you sign a financial power of attorney designating a person to make financial decisions for you–that you trust the person implicitly and that you seriously consider what powers you are giving the person. A financial power of attorney can go into effect immediately or later when you become incapacitated and you can limit the powers you are giving your attorney in fact. For example, you may not want to give your attorney in fact the right to sell your property or to grant oil and gas leases on your land but you may want them to write checks on your bank account. Ask an estate planning attorney whether a financial power of attorney is right for you.
Declaration of Guardian
A declaration of guardian allows you to designate a person to act as the “guardian of your estate” or the “guardian of your person,” or both. The guardian of your estate handles your financial matters in case you become incapacitated and the guardian of your person takes care of your physical person, makes medical decisions for you and handles certain other matters in the event you become incapacitated. A person is incapacitated if they cannot take care of their financial affairs or care for themselves.
A declaration of guardian is different from the documents above because it tells a court before you become incapacitated who it is that you want to handle your finances and personal affairs. A court has no discretion to disregard your wishes if you become incapacitated unless the person or persons you have chosen are unsuitable or disqualified by law. For example, you have not executed a declaration of guardian. You have three children. You become incapacitated. Two of your three children want to be your guardian. If you have chosen one of them ahead of time but not the other, you will likely save court time, costs and attorney’s fees because the court is usually required to follow your prior choice.
If you have minor children, you should also consider designating a guardian or guardians for them in the event something happens to you, your spouse, or both of you. You should discuss how a declaration of guardian might be a good choice for you with your estate planning attorney.
Agent to Control Disposition of Remains
An agent to control disposition of remains allows you to designate the person you choose to make decisionsabout what happens to your body after you die. A medical examiner, funeral home, or hospital is required to follow the instructions of the person you designate. You can also specify what specifically you want to happen to your body. Maybe you want to be cremated or donated to science.
For example, your father dies and you are one out of seven children. You know your father wanted to be buried next to your mother but four of your siblings want to cremate your Dad and three of you don’t. Who decides? This document prevents the siblings from fighting with each other during a very difficult time when quick decisions must be made. It tells the funeral home who gets to make the final decision.
The foregoing is not an exhaustive list by any means of what you can and should discuss with your estate planning attorney while you are healthy enough to do so. Please contact our firm to discuss your estate planning needs. It is truly one of the greatest gifts you can give your loved ones.