The coronavirus health emergency is a reminder that life is unpredictable, and it makes sense to be prepared. It may sound self-serving, but the threats to life and finances posed by the pandemic offer ample reason to reevaluate your estate plan — or create one if you haven’t already.
Experts recommend that you will need to revisit your plan after certain key life events, including changes in health, finances, or family status. Unfortunately, this global health crisis can affect all of those aspects of your life. You should make sure you have these essential documents in place to protect yourself and your family:
- Medical Directives. A medical directive may encompass a number of different documents, including a health care proxy, a durable power of attorney for health care, a living will, and medical instructions. The exact document or documents will depend on your state’s laws and the choices you make. Both a health care proxy and a durable power of attorney for health care designate someone you choose to make health care decisions for you if you are unable to do so yourself. A living will instructs your health care provider to withdraw life support if you are terminally ill or in a vegetative state. A broader medical directive may include the terms of a living will, but will also provide instructions if you are in a less serious state of health, but are still unable to direct your health care yourself.
- Power of Attorney. A power of attorney allows a person you appoint — your “attorney-in-fact” — to act in your place for financial purposes when and if you ever become incapacitated. In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that she could implement immediately under a simple durable power of attorney.
- Will. A will is a legally-binding statement directing who will receive your property at your death. If you do not have a will, the state will determine how your property is distributed. A will also appoints a legal representative (called an executor or a personal representative) to carry out your wishes. A will is especially important if you have minor children because it allows you to name a guardian for the children. However, a will covers only probate property. Many types of property or forms of ownership pass outside of probate. Jointly-owned property, property in trust, life insurance proceeds and property with a named beneficiary, such as IRAs or 401(k) plans, all pass outside of probate and aren’t covered under a will.
- Trust. A “trust” is an arrangement in which someone (a “settlor”, also called a “grantor”) transfers money or other assets to another (a “trustee”) who manages the assets and spends the money under written conditions for the benefit of a specified person or persons (a “beneficiary”). There are all kinds of trusts that exist for a variety of purposes. Not all trusts are the same. Some are ‘revocable”; others are “irrevocable”; some become active immediately when created (inter vivos, that is “living trusts”); others are included as part of one’s Will and do not come into existence until after death (“testamentary trusts”); some are created to protect against the risk of mismanagement; or improvident spending; or against various kinds of taxes; many are designed to provide a combination of different benefits and protections.
- Beneficiary Designations. Not all of one’s property passes, at death, in accordance with one’s Will or Trust. For example, IRA or other qualified retirement plan assets, annuities and life insurance, all pass directly to the beneficiaries named in those instruments. If these beneficiaries are different from those named in your Will or Trust, or are in line to receive a different proportionate amount of inheritance than as specified in your Will or Trust, then these designations may need to be adjusted. So, for example, when using a Trust, it is usually preferable to name the Trust and not individuals as beneficiary of your IRA, life insurance and annuities to ensure that your estate is distributed in accordance with your estate plan. Also note that designating “transferable on death” beneficiaries for securities is almost always a BAD idea for the very same reason.
Contact Vasiliadis Pappas Associates to make sure your estate plan is complete.