(Part one of three installments)
Do you have a written plan for what happens to your assets when you die? Does your family know your wishes in case you need care or become infirm? You may have a will, but have you given serious thought to the many other important aspects of estate planning, such as the ease of the probate process, maintaining the privacy of your estate, tax planning, and designating who can act on your behalf for healthcare or financial matters if you are not able to act for yourself? These may not be easy conversations, but they are important ones.
Estate planning is a term often not well understood: many people assume they aren’t wealthy enough, they aren’t old enough, or they don’t have enough assets to make estate planning worthwhile. But, in fact, estate planning is a useful and vital tool that people of any age, income and wealth bracket should use to make sure their wishes are carried out upon a change in circumstances during their lifetime and upon their death.
Estate planning encompasses several legal areas, including wills, trusts, tax issues, and healthcare decisions. It affects financial and personal matters and has a direct impact on the people you love. Estate planning encourages you to make carefully considered choices – and review them periodically – and to designate someone else to be your executor and to act on your behalf in case you become unable to do so yourself.
Here follows a description of the documents that should be part of every estate plan.
A will establishes who will handle your estate upon your death and outlines how you would like your assets distributed. For families with minor children, wills serve the critical role of providing clear instructions for the children’s guardianship in the event of a tragedy. Not only does a will ensure that one’s wishes are being carried out, it avoids the lengthy and costly process of probate. If you die without a will (known as being intestate), the probate court will appoint an executor (who may or may not be the person you would designate), and divide your assets according to the Connecticut intestate laws, regardless of your wishes. The court will also appoint someone to take care of your minor children (again, who may or may not be the person you would choose). A normal probate process, already lengthy at six to twelve months, can increase significantly in cases where no will is available.
Wills can be relatively simple documents, but be cautious when using “do it yourself” services like Legal Zoom and others. While perfectly legal, such services may carry incomplete instructions. It’s important to make sure the document you are working with is appropriate to your state, is updated to reflect recent statutes, and contains detailed instructions on how to execute the document properly – including witness and notary requirements. Wills that are not properly executed may be invalidated by the probate court and the decedent will be considered to have died intestate.
A will comes into play after your death, but for many people, of equal or more importance is being protected personally and financially when health issues threaten your ability to make decisions while you are still living. For that, a power of attorney and a healthcare proxy are vital estate planning documents.
Power of Attorney and Healthcare Proxy
A power of attorney allows you to appoint someone to act on your behalf for financial matters while you are still living. This can give a loved one the critical ability to pay your bills if you are in the hospital or manage your financial affairs. There are two types of powers of attorney: a springing power of attorney, that springs into action upon a given event or situation, and a durable power of attorney, which is in place immediately and lasts until you specifically rescind it. Either allows someone to act in your stead in case of an unforeseen event.
In addition to preparing a power of attorney for financial matters, it is very important to appoint a healthcare representative to make medical decisions on your behalf in the event you are not able to make them for yourself. Setting up a living will and a healthcare proxy document gives a loved one and the medical community a clear indication of your wishes.
For both financial and healthcare matters, it is important to name a successor representative as well as a primary one. Family members may die in a common accident or a surviving spouse can prove unable to handle the role. It is also important to update these documents regularly—every 3-5 years is recommended. Hospitals and financial institutions often insist on recent documents and may refuse to honor documents they consider too old. As memory loss affects more older adults, having the proper documents in place at an earlier age may spare the family from dealing with a difficult situation later.
It is not a time-consuming or expensive process to prepare a power of attorney or healthcare representative document. But without those, in the event of a need, a relative or loved one must ask the probate court to initiate a procedure to be appointed a Conservator of the Estate or Conservator of the Person. This can be time consuming and expensive —and can be completely avoided if the proper documents are in place.
Beyond planning for your wishes after death or when ill, estate planning can also help you manage your assets during your life. We’ll discuss some valuable tools in part two of this article.