Estate Planning Roll Call: Crucial Legal Tools
As with any roll call, it is important to make sure that everyone is present and accounted for. Similarly, when assessing an estate plan, several tools, or documents, should be in attendance to create a complete and comprehensive plan. Most of your clients have likely heard the term estate planning, but they may not be familiar with which legal tools typically comprise a complete estate plan. You can teach them about the legal tools they should include in their plan and what protections and benefits each tool can provide.
Will or Trust
As with many other structures, a well-rounded estate plan must be built on a solid foundation. To establish a foundation for an estate plan, the use of either a will or a trust is necessary. Wills and trusts are legal tools designed to direct and control the distribution of assets that a client owns. While a will can only provide direction at death, a trust has the added benefit of providing direction in the event of a client's incapacity during their lifetime, as well as upon their death. Consequently, there are multiple considerations that go into whether using a will or trust as a foundational tool makes the most sense for a client.
Will
A will often requires that the client's assets go through the probate process upon their death, although certain assets can be transferred outside of probate if a beneficiary designation has been used or the asset was jointly owned with right of survivorship. In a will, clients elect an individual to be in control of carrying out their wishes and state who gets the client's assets at their death. This person is commonly known as the executor, executrix, or personal representative, and they must be formally appointed by a probate court. It should be noted that some states have restrictions on who can serve in the role of executor, executrix, or personal representative. It is very important that clients meet with an experienced estate planning attorney to understand who to elect to serve in this role, as choosing the wrong individual can result in unnecessary delays.
Trust
Alternatively, the use of a trust as a foundational estate planning tool can allow your clients to avoid the probate process and keep their affairs private. However, a trust can only avoid probate if it is properly and fully funded with the bank accounts and property that a client owns prior to death or transferred to their trust at their death. Additionally, trusts have the added benefit of protecting clients and their assets if they become incapacitated.
Your clients may be surprised to find out that even when utilizing a trust as a foundational tool, they will still need a will. The type of will used in conjunction with a trust differs from a standalone will. Instead, a pour-over will is used, which essentially "pours" into the trust any assets that were not titled in the trust at the time of the client's death. While a pour-over will ensures that assets not funded into the client's trust during their lifetime are funded at their death, it also provides other essential benefits. A will allows a client to nominate a guardian for minor children and pets and provide direction for their funeral arrangements (in some states).
A testamentary trust is another tool that may be appropriate for clients in certain circumstances. The terms of the trust are stated in a will during the client's lifetime and the trust is created upon the client's death. Like with a revocable living trust, clients can customize the provisions that control the distribution of assets through the trusts. However, this type of trust is created during the probate process.
There are a variety of considerations that can go into whether a will or trust is the right foundational tool for each client, which is why clients need to work with an experienced estate planning attorney to help ensure they have the right foundational tools for their unique situation.
Financial Power of Attorney
Most of your clients have likely heard the term power of attorney before. However, they may not realize that each power of attorney and the level and type of authority granted within it varies based on its contents. A financial power of attorney can often be customized to accomplish specific goals, but may have some limitations depending on state law. It is helpful to first understand the roles within a financial power of attorney. The person who creates it is known as the principal, and the person who receives the authority through it is the agent. An agent's role is to act as a fiduciary and on behalf of the principal for a variety of purposes.
Under a limited power of attorney, the agent is limited to performing very specific duties, such as executing a deed for a real estate transaction or transferring a vehicle. On the contrary, a general power of attorney allows the agent to step into the principal's shoes and manage almost all aspects of their finances and property ownership to the extent of what is allowable under state law.
A financial power of attorney can take effect immediately (or as soon as the agent has officially accepted the role) or it can be springing. A springing power of attorney requires that a certain event occur before the agent can exercise their power. This is usually upon the declaration that the principal can no longer act for themselves. It is important to note that not all states allow for a springing power of attorney.
Lastly, there is a durable power of attorney. A durable power of attorney lasts through the principal's incapacity, making it crucial for incapacity planning.
Medical Power of Attorney
Our health and the way we manage it is largely dependent on our own beliefs and preferences. If we were unable to make our own medical choices, we would want to make sure that the person making our medical decisions was someone that we trusted would follow our wishes. It is important that clients understand that through their estate plan they can decide who will manage their care and make medical decisions in the event they are unable to do so. To have this control, their estate plan should include a medical power of attorney. A medical power of attorney is known by several names depending on what state you are in, such as a healthcare power of attorney or a designation of health care surrogate. Your client will designate an agent and several successor agents in their medical power of attorney to act on their behalf. Some states allow clients to choose to delay the effect of the authority granted until incapacity.
Advance Directive
A comprehensive estate plan will also include an advance healthcare directive, also commonly known as a living will. This legal tool serves the important purpose of allowing your clients to memorialize what forms of end-of-life care they would like. Within a living will, they can record their wishes as it relates to being placed on life support if they are in a persistent vegetative state or diagnosed with a terminal illness with no probable chance of recovery. This tool is commonly confused with a do not resuscitate order, which is not part of an estate plan and is instead typically filled out at the hospital and applies specifically to resuscitation.
HIPAA
Health Insurance and Accountability Act of 1996 (HIPAA) authorizations allow an individual to designate who the hospital or medical facilities can provide medical records and information to. These authorization forms became necessary following the enactment of the federal Health Insurance and Accountability Act of 1996, which provides guidelines to the healthcare industry for the protection of patient information. This is an important legal tool to have if there are multiple individuals who are not nominated under the client's medical power of attorney, but the client wants them to have access to their medical information in the event of illness or injury. While the individuals will not have decision-making authority, they will be able to stay informed about the client's medical condition.
Appointment of Guardian
Planning for children is a high priority for parents. There are some states that have a separate legal document for guardianship of minor children. While a lot of states allow a client to include this information in their will, it is important for your client to meet with an estate planning attorney who can create a standalone legal tool if it is appropriate within your client's state of residence.
Temporary Guardianship or Delegation of Parental Authority
There are circumstances in which clients may not be able to be with their children, commonly due to extended travel. This can be an appropriate circumstance for your client to nominate a temporary legal guardian to make decisions on behalf of the minor child. There are state-specific guidelines for the length of these temporary guardianships in addition to other limitations as to how and what decisions can be delegated to another individual.
Roll call complete! Now that you have learned about the legal tools that should be present in a client's estate plan, you can further educate your clients and offer to connect them with an estate planning attorney to ensure that they have all of the essentials in attendance.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
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