Do you have a child in college? Did you realize that if he or she winds up in the hospital that you do not automatically have the right to direct the medical attention your child receives, or even to speak with the physicians? This comes as a shock to most parents. Everyone over 18 should have a Health Care Proxy and HIPPA release form. These documents tell the doctors who can see medical records, who can speak with physicians, and who can make medical decisions if the patients is unable to do that himself. Just because you pay the bills, just because you’re his mom, just because it’s the “right” thing does not mean the hospital needs to respect this. Get the documents in place; it is easy to do and if there is ever an emergency, you will be glad you did. The college might have forms you can use, and your estate planning attorney can certainly help you.
Trusts come in different shapes and sizes, and some will work for you and some will not. A good estate planning attorney, or perhaps your banker or financial planner, will need to know quite a bit about your individual situation before being able to recommend a trust.
Trusts can be invaluable for asset management purposes. Suppose for example, that your 25 year old son is not good with money right now. An inheritance held in trust and managed by a family friend or a professional trustee can help him manage his funds so that he has a nest egg for his first home or a bit tucked away to help him through a layoff later in life. Or perhaps you are concerned that an adult child’s marriage is rocky, and want to see that your money goes to your children and grandchildren, not to the soon-to-be-former spouse. A correctly drafted trust can help with that.
It also is a good tool for incapacity planning. If you create a trust and put assets into it, your trustee can see that the assets are managed if you ever become incapacitated.
Assets held in trust also avoid probate. Because a trust is an entity, not an individual, when the person who funded the trust dies, the trust can continue to operate according to its terms. This can provide privacy (probate filings are public), and continuing access to trust assets by the beneficiaries or the remaining spouse.
Irrevocable trusts (ones that can’t be changed or revoked) can be used for estate tax planning, to hold life insurance policies, for Medicaid planning, or for other types of asset protection.
When you think about doing a trust, think about your goals, who would be a good trustee, and find someone who is knowledgeable about tax law and estate planning to help you with the process. Think about what assets should go into the trust, and how the beneficiaries are likely benefit (or not) by having assets held in trust. Not every situation is right for trust planning; sometimes the simple approach is the best one. Estate planning, whether trust based or will based, should be carefully tailored to reflect your situation, because each family, each inheritance, and each set of goals are a little bit different.
Statistically, women outlive men. That means that the estate plan, or lack of estate plan, will often be played out by us. If there is no will, no power of attorney, no trust protecting our assets, women are often left holding the bag, with no good results. Often women do not manage the money side of things, and when pushed into that role by the illness or death of a spouse, all the grief and dislocation can be magnified by a sense of panic – needing to deal immediately with complex legal and financial concepts which can have long term consequences – sometimes impacting the rest of our lives.
Educate yourself, find an estate planning lawyer that you trust, and who can explain your options. Find a financial planner, again, someone you trust, who will take the time to explain things until they really make sense. Know who you want to call when you need them; don’t be in the position of having to find an advisor when you are desperate. Put a plan in place. This can be easier than you think, and while there will be some costs involved, consider what could happen without any planning. An old plan (you know the one you did when the kids were little) may not work now that you are 62 and thinking about retirement.
Start planning now, before there is a crisis, and save yourself money, stress and time.
I know that neither of these topics is particularly cheery, but in some cases they do go hand in hand. If your marriage is going downhill, and you anticipate a divorce, or are in the process of getting divorced, it makes sense to take two immediate steps:
Name someone other than your spouse as your healthcare proxy; and
Revoke any durable power of attorney that allows your spouse to sign papers on your behalf, and designate a new power of attorney to act for you if you are incapacitated.
These two steps should be taken right away. As long as you are still legally married, these documents generally continue to be in effect, and as you probably know, a divorce can take a long time to finalize.
Comprehensive estate planning is important, but it is unrealistic to think that most couples can deal with it while going through a separation or divorce. Estate planning can wait a bit, but these other steps cannot wait. My office is happy to assist you with this, and credit the amount towards an estate plan, or if you are working with a family law attorney, he or she should be able to assist you with a new health care proxy and power of attorney.
Usually when you visit an estate planning attorney, there is a LONG form to fill out describing family, last wishes, assets and liabilities, and who should be your executor, trustee, or guardian of minor children. There are often conversations about health care choices, nursing homes, and how the primary residence should be owned.
When was the last time your attorney asked you to write down your Facebook username? Probably never. In our rapidly changing relationship with technology, what we own and how we own it is also changing. I heard on the radio this morning that 60% of bills are paid on-line now (this is why the U.S. Post Office needs to shrink).
Think about how that will affect the person who probates your estate…We used to hope that there would be an organized file with bills and account numbers, we’d count on the mail coming with statements and other account numbers. How do we find the electronic accounts that “Aunt Edna” kept on her office computer? How will we find the beautiful photo albums that mom kept in her Flickr account? What about the software that has three years left on its license – who owns that, and what is it worth? How on earth do you cancel the monthly Xbox Live account? (Anyone who can provide this information to currently living mothers will also score some major points!)
Let’s get started on our digital asset planning. I’ve got another long form that I’m happy to e-mail to anyone who requests one. Please put “digital asset planning” in the subject line and send a request to firstname.lastname@example.org.
There’s a great book called “Who Gets Grandma’s Yellow Pie Plate” which is put out by the University of Minnesota Extension Service. It’s a kind of how to guide for dividing personal property when someone passes away. Often it is things with sentimental value that tear families apart after a death. Did your family have a special tradition, your mother a favorite Christmas tree ornament, your father a pipe or carving that brings back fond memories? How items like this are divided upon a person’s death can cement a family in fond memories, or re-ignite old scars and power struggles.
There are different ways to approach dividing personal property – ask the people who are important to you what things they value. You might be surprised by what they say. You can give things away while you’re alive, or make a list of items and recipients. Often such a list is mentioned in a will; it should be signed and dated. After a person has died, the family may gather to divide things up; do this with a plan and some thought. Who should be there, where should the conversations take place, when should this happen?
And of course, don’t forget to have this conversation about your pets. We joke in my family that the turtle will be going to the nursing home with me because it’s likely to live longer than I do…I hope it’s only a joke!
Proper execution of a legal instrument requires that the person signing have sufficient mental "capacity" to understand the implications of the document. While most people speak of legal "capacity" or "competence" as a rigid black line–either the person has it or doesn’t–in fact it can be quite variable depending on the person’s abilities and the function for which capacity is required.
One side of the capacity equation involves the client’s abilities, which may change from day to day (or even during the day), depending on the course of the illness, fatigue and the effects of medication. On the other side, greater understanding is required for some legal activities than for others. For instance, you need to have a higher and clearer amount of “capacity” to enter a contract than to write a will.
Capacity to make a will was summed up by the Massachusetts Supreme Judicial Court:
Testamentary capacity requires ability on the part of the testator to understand and carry in mind, in a general way, the nature and situation of his property and his relations to those persons who would naturally have some claim to his remembrance. It requires freedom from delusion which is the effect of disease or weakness and which might influence the disposition of his property. And it requires ability at the time of execution of the alleged will to understand the nature of the act of making a will.
This is a relatively "low threshold," meaning that signing a will does not require a great deal of capacity. The fact that the next day the testator does not remember the will signing and is not sufficiently "with it" to execute a will then does not invalidate the will if he understood it when he signed it.
The standards for entering into a contract are different because the individual must know not only the nature of her property and the person with whom she is dealing, but also the broader context of the market in which she is agreeing to buy or sell services or property. This is a more long range kind of understanding, and requires a more complex ability.
While the standards may seem clear, applying them to particular clients may be difficult. The fact that a client does not know the year or the name of the President may mean she does not have capacity to enter into a contract, but not necessarily that she can’t execute a will or durable power of attorney. The determination mixes medical, psychological and legal judgments. It must be made by the attorney (or a judge, in the case of guardianship and conservatorship determinations) based on information gleaned by the attorney in interactions with the client, from other sources such as family members and social workers, and, if necessary, from medical personnel. Doctors and psychiatrists cannot themselves make a determination as to whether an individual has capacity to undertake a legal commitment. But they can provide a professional evaluation of the person that will help an attorney make this decision.
Because you need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed, it can be risky to prepare and execute legal documents on your own without representation by an attorney.
Everyone has a different reason for beginning, updating, or implementing an estate plan. Usually one very specific reason. For some, it’s the birth of a child and the need to secure their future. For another it might be a divorce and the need to separate in life and in death. For a third, it’s the death or illness of a loved one that makes a client realize that planning can make a death either easier, or much harder for their family members.
For others it’s a chance encounter or event. I have some friends who were first time homebuyers, excited about a great home, and in a hurry to move in with their young family. Sadly, the elderly owner of the home passed away two weeks before the closing. This could have completely derailed this family’s plans, but the home was held in a trust. The home did not need to go through probate since it was legally owned by the trustees. Because of this, the closing could continue, and the heirs and the family were able to finish the transaction quickly and efficiently. You can be sure that the young family was much more enthusiastic about good estate planning once they had seen it in action.
Probate is the process by which a deceased person’s property, known as the "estate," is passed to his or her heirs and legatees (people named in the will). The entire process, supervised by the probate court, usually takes about a year. However, substantial distributions from the estate can be made in the interim.
The emotional trauma brought on by the death of a close family member often is accompanied by bewilderment about the financial and legal steps the survivors must take. The spouse who passed away may have handled all of the couple’s finances. Or perhaps a child must begin taking care of probating an estate about which he or she knows little. And this task may come on top of commitments to family and work that can’t be set aside. Finally, the estate itself may be in disarray or scattered among many accounts, which is not unusual with a generation that saw banks collapse during the Depression.
Here we set out the steps the surviving family members should take. These responsibilities ultimately fall on whoever was appointed executor or personal representative in the deceased family member’s will. Matters can be a bit more complicated in the absence of a will, because it may not be clear who has the responsibility of carrying out these steps.
First, secure the tangible property. This means anything you can touch, such as silverware, dishes, furniture, or artwork. You will need to determine accurate values of each piece of property, which may require appraisals, and then distribute the property as the deceased directed. If property is passed around to family members before you have the opportunity to take an inventory, this will become a difficult, if not impossible, task. Of course, this does not apply to gifts the deceased may have made during life, which will not be part of his or her estate.
Second, take your time. You do not need to take any other steps immediately. While bills do need to be paid, they can wait a month or two without adverse repercussions. It’s more important that you and your family have time to grieve. Financial matters can wait. (One exception: Social Security should be notified within a month of death. If checks are issued following death, you could be in for a battle. For more on Social Security’s death procedures, click on http://www.ssa.gov/pubs/deathbenefits.htm)
When you’re ready, but not a day sooner, meet with an attorney to review the steps necessary to administer the deceased’s estate. Bring as much information as possible about finances, taxes and debts. Don’t worry about putting the papers in order first; the lawyer will have experience in organizing and understanding confusing financial statements.
Below are some of the steps in probate:
1. Filing the will and petition at the probate court in order to be appointed executor or personal representative. In the absence of a will, heirs must petition the court to be appointed "administrator" of the estate.
2. Marshaling, or collecting, the assets. This means that you have to find out everything the deceased owned. You need to file a list, known as an "inventory," with the probate court. It’s generally best to consolidate all the estate funds to the extent possible. Bills and bequests should be paid from a single checking account, either one you establish or one set up by your attorney, so that you can keep track of all expenditures.
3. Paying bills and taxes. If an estate tax return is needed—generally if the estate exceeds $1 million in value—it must be filed within nine months of the date of death. If you miss this deadline and the estate is taxable, severe penalties and interest may apply. If you do not have all the information available in time, you can file for an extension and pay your best estimate of the tax due.
4. Filing tax returns. You must also file a final income tax return for the decedent and, if the estate holds any assets and earns interest or dividends, an income tax return for the estate. If the estate does earn income during the administration process, it will have to obtain its own tax identification number in order to keep track of such earnings.
5. Distributing property to the heirs and legatees. Generally, executors do not pay out all of the estate assets until the period runs out for creditors to make claims, which is a year after the date of death. But once the executor understands the estate and the likely claims, he or she can distribute most of the assets, retaining a reserve for unanticipated claims and the costs of closing out the estate.
6. Filing a final account. The executor must file an account with the probate court listing any income to the estate since the date of death and all expenses and estate distributions. Once the court approves this final account, the executor can distribute whatever is left in the closing reserve, and finish his or her work.
Some of these steps can be eliminated by avoiding probate through joint ownership or trusts. But whoever is left in charge still has to pay all debts, file tax returns, and distribute the property to the rightful heirs. You can make it easier for your heirs by keeping good records of your assets and liabilities. This will shorten the process and reduce the legal bill.
What exactly is a will, and what does it do?
A will is a document that disposes of a person’s property after death. In addition, it names fiduciaries, including an executor, maybe a trustee, and a guardian of your minor children. A will can spell out specific gifts (I give my engagement ring to my granddaughter Alice); charitable bequests (I leave $500 to the First Parish Church of XYZ); and dispose of whatever is left in the way that you direct.
A will comes into effect at the death of the testator (person making the will). Prior to death, the testator can change or amend their will at any time, presuming that they remain mentally competent. A will must be executed EXACTLY according to state law, there is very little wiggle room to accommodate mistakes in execution.
In Massachusetts, once you pass away, your original will must be located and presented to the probate court of the county you live in within 30 days. This is important for two reasons. The first being that someone needs to know where you keep your original documents. A safety deposit box is not a good place for an original will, unless someone else has access to it. (This means they’re “on” the safety deposit box, a notation in a power of attorney will not work once you have passed away). The second important point is that time is, as they say, “of the essence”. While probate can seem like a long process, getting started should happen pretty quickly. Once your will is filed, it becomes a public document. Under no circumstances should you put private financial information into this document! I say this because there are “do it yourself” kits that insert social security numbers into the will, which is obviously an unwise thing to do.
So here is your “to do” list:
— Think about guardians for my children
— Who would I want to be the executor of my estate?
— What charities or special bequests do I want named in my will?
— Have a will drafted by an attorney I trust
— EXECUTE MY DOCUMENTS
— Put them somewhere safe, and tell someone where they are
I will write about the other documents in a basic estate plan in later posts.