Painful estate planning questions you must answer to avoid disastrous estate planning mistakes

Many of my estate planning clients have put off their estate planning for months, and even years sometimes. Part of this is because death or disability is something we don’t want to think about, and part of it is because some of the questions are difficult to answer.  What my clients do not always understand is that (1) it’s my job to help them to make the decisions, and (2) if they don’t decide, then someone else – a stranger – will decide for them. Here are some questions you need to consider when thinking about estate planning:

1. The guardian for your children. This is probably the most important decision you will make.  In case the unthinkable happens – you and your spouse are out together on date night and get into an accident and are both hospitalized or worse. What do you think will happen to your children, who are at home with the 19-year old neighbor babysitting? The police will likely take your children into protective custody – foster care – until a proper guardian is named.  If you have a formally-named guardian in your estate planning documents (and not some hastily-written page), then you can avoid this awful experience for your children.
2. Who will get your stuff. If you don’t decide who gets your stuff, the state will. And perhaps more importantly than the couch and the jewelry is the estate itself.  Do you have minor children? Do you want them to inherit hundreds of thousands of dollars when they reach 18? Do you perhaps want to hold back some of the estate to pay for college, or at least to let them mature a little before coming into (and losing) a great deal of money right at 18? The only want to do this is through trusts.
3. What do you want the doctors to do if you are in an irreversible coma? If you don’t decide how you want the doctors to treat you and what extraordinary measures will be taken to save your life, then the doctors will endeavor to keep you alive as long as they can.  Do you want to survive by machine alone? If not, then you need to tell someone!  Tell your parents and your children, and create a power of attorney that legally records your wishes.  If you don’t do this, you could cause your family to scramble to determine what YOU would have wanted.
4. Who will help you to manage your assets and estate if you can’t? Most of us are more likely to experience a slow decline than go out with a bang.  Because of the advances in medical and health care, we are living longer and with better-quality lives. But as we slow down, there is a chance that we will start to lose our ability to pay our bills and manage our finances.  To avoid the painful, time-consuming and expensive process of conservatorship, each of us needs to designate someone to make decisions on our behalf if we become unable to.  This is relevant to individuals of all ages, as surviving traumatic brain injuries is getting more and more common.
5. Where are your documents? Part of creating your estate plan in making sure everything is in one place: your will, trust(s), powers of attorney, bank/investment/life insurance/retirement statements, pre-need funeral planning documents, and passwords/keys/online account information.  There is nothing worse than making your grieving family rummage through your stuff to find what they need.

Estate planning is the last thing that you can do for your family to make your passing easier. Isn’t your family worth it?

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Why a power of attorney is not enough: Do you have this critical document in your estate plan?

If you created your estate plan more than a couple years ago, you may be missing a crucial piece to the puzzle.  In the past, a power of attorney for health care decisions, which in California includes your advance directive (or living will), was sufficient to name another person (your “agent”) to make health care decisions on your behalf.  But the enactment of HIPAA (Health Insurance Portability and Accountability Act), which was designed to limit the access to your medical records – and was focused on insurance companies – actually resulted in limiting the access to your medical records for everyone, including your agent on your health care power of attorney.

Worse, if you don’t have a health care power of attorney, you may think that your “next of kin” – your spouse, your children, or your parents – will have access to your medical information and to be able to make decisions on your behalf.  Unfortunately, with HIPAA and the stricter privacy regulations on doctors and hospitals, this is not often the case.  While you may be looked to for decision-making, if you want to see the medical records or tests results themselves, for example to get a second opinion, you won’t be able to, not even with a power of attorney.

What’s necessary now is called a “HIPAA Authorization,” which I have been using for a couple years now.  It allows the individuals you designate to have access to your medical records and can save your loved ones from hassle and hardship should you be incapacitated.  I use a separate form document, though my older health care powers of attorney included the HIPAA authorization in the body of the power of attorney.

I’ve talked already about the importance of everyone having a power of attorney once they turn 18, but what is also critically important is that you have all the correct documents in your estate plan as well, and a complete estate plan includes a HIPAA authorization.

Powers of attorney: What they do and do you need one?

As a part of my comprehensive estate plans, I provide my clients with Powers of Attorney.  In California, there are two kinds of powers of attorney: one for assets and one for health care.  Powers of attorney come into play while you are still alive, but you are incapacitated and/or unable to make decisions on your own behalf.  This can be due to accident, illness, or cognitive impairment such as dementia or Alzheimer’s.  Your power of attorney for assets allows the person of your choice (generally your spouse first, then a close friend or family member if your spouse is unable) to manage your finances.  This means that, while you are incapacitated, your mortgage and electric bills can still be paid.  The power of attorney for medical care allows the person of your choice to make medical decisions on your behalf.  It includes the medical advance directive, which tells the doctors how to treat you if you are in a persistent vegetative state.  If you do not sign a power of attorney and you become incapacitated, then your family must go to court for a lengthy and expensive process to obtain conservatorship over you.  Executing powers of attorney is thus a critical aspect of your estate plan that protects you, your family, and your assets as you move through the stages in your life.  Here is a video on this topic:

Proper Estate Planning is more than your living trust

The centerpiece of any good estate plan is your living trust.  This is the document that allows your estate to pass without going through probate, paying 8-10% of your gross estate in fees and expenses, and forcing your family through 2-3 (or 5-6) years of court appearances, lawyers and judges making decisions about your property.  Proper estate planning can also help you to minimize or eliminate estate tax.  Having no estate plan or having just a will won’t do this.

But proper estate planning includes other critical documents as well, and should not be overlooked in your planning.

1. Pour-Over will.  You still need a will, even if you have a living trust, because anything that is not in your trust will need to go into probate.  There are a couple important things to know about your pour-over will.  First, it includes your nomination of guardian, so this in itself is a reason why it’s so important.  Second, while you will be funding your trust with all of your property (and thus will not likely need a will), things can happen where you are not able to put your property in your trust, such as when you are the subject of a wrongful death suit or if you don’t have possession yet of the property before you pass away.  Third and finally, the will is called a “pour-over” because pours over anything probated into your living trust.
2. Powers of attorney.  You need powers of attorney, one for your property/assets and one for health care. Powers of attorney go into effect when you are still alive but you are incapacitated due to illness or accident.  These determine who will be making medical and care decisions on your behalf (and paying your bills) when you are unable.  These are key because, if you wait until you are already incapacitated to get one, then your family must go through the court process of getting a conservatorship, which is lengthy and expensive.
3. Assignment/Distribution of Personal Property.  These documents first put all of your personal property (your furniture, cars, pets and other personal belongings) into your trust, and then list how they will be distributed upon your death.  These are important because often the biggest arguments after you are gone are about the smallest things, like the jewelry and china.  Don’t leave your family fighting because you didn’t leave instruction.
4. Certificate of Trust.  This is the four-page summary of your trust that you will use to transfer your property into your trust.  Instead of having to take the whole binder, or even the whole 30-page trust document into the bank – and share the detail of the contents – you use the four-page summary that maintains your privacy and makes it much easier to copy and share with your account holders.

In addition to these documents, I consider it part of my job to help you ensure that ALL of your affairs are in order.  This includes your pre-need funeral arrangements, ensuring you have enough life insurance, that you have long-term care insurance, and are doing what you need to do now to have the retirement that you want.  These additional services are not provided by me and I don’t get anything for referring someone to you.  But I have spent lots of time getting to know the best professionals in each of their respective businesses, because I want to refer you to only the best to be able to take care of all of your needs.

If your estate planning professional is not providing all of these services – and more (follow up, ongoing communications, updates on law, etc.) – then perhaps you should reconsider who you are talking to, or at least ask some questions.  Your family is worth it.