By Allen Giese, CLU®, ChFC®, ChSNC®
Nobody likes to think about planning for when we’re gone or unable to care for ourselves anymore, but it is something you really need to do. There are all these different documents you’re supposed to have, like wills and trusts and durable powers of attorney. What are they? What do they do? And what should you have?
It’s called “estate planning,” and we do it for the people we leave behind. To let them know what it is we want done, where we want things to go, and who we want to pass on our things to. It involves a few different kinds of documents to make a complete plan, and today, we’ll dive into what documents we’ve seen at Northstar Financial Planners that our clients most often need. I should also point out that I’m not an attorney and not giving you specific legal advice in this column—just information that we believe is good. You should definitely consult with a qualified attorney in this area about your specific situation.
It All Starts with a Will
Your last will and testament outlines how you want your assets distributed after your death. It also includes naming an executor—or in Florida, we refer to this person as a “personal representative”—who carries it all out. Having your will, along with the other documents we’ll talk about, is really about control—you having control over what you want to have happen. With a will, you can distribute your assets any way you wish and set up guardians for any minor children. Your will can reflect your burial or cremation instructions, and it allows your family the comfort of knowing they are taken care of after you’re gone.
Do you HAVE to have a will? Absolutely not. But without it, you lose control of how your assets are distributed and who will receive them. You’re leaving it to the state and the intestate laws to determine who will inherit your property using family lineage and percentage formulas. You lose the choice in deciding whether to include or exclude relatives and how much beneficiaries will receive from your estate. And if there are minor children involved? Without a will, you’re leaving their guardianship up to the state. They literally could end up in a foster home without you having a will stating what your preference is.
Revocable Trust
Having a revocable living trust takes that idea about you having control over your will up a big step. When you establish your revocable trust and transfer assets into it, you set up a separate entity. It’s attached to you while you’re alive, but the trust lives on after you die. You don’t lose any control over the assets in the trust while alive, but after you’re gone, the trust will govern those assets according to whatever your wishes were.
Maybe there’s somebody you want as one of the beneficiaries of your estate who’s really not good with money, so handing them a pile of cash all at once wouldn’t be a great idea. A trust can solve that problem by defining what the beneficiary can use the money for and precisely when they can have it, or even just a small slice of it at a time. Or perhaps there’s a beneficiary who has special needs and is on SSI or Medicaid, and receiving an inheritance (even a small one) would exclude them from any future benefits. Again, a trust can solve that.
Another advantage a revocable trust gives you is that the assets inside the trust avoid probate. Probate is the process of validating and administrating a will. When the executor of your will files the document in probate court, the court will review the will and look to establish its authenticity and validity. It’s a process, takes time, can get expensive, and can be challenged by someone out there because it’s a public record. Not only does a revocable trust avoid probate on those assets inside of it, but it also keeps your business away from the eyes of others—it’s private.
Supplemental Documents
Remember how it’s all about you having control? Just having a will and a revocable trust isn’t enough. Supplemental documents complete the picture because they control what happens while you are still alive. And the most common supplemental documents we see are a durable power of attorney, a designation of health care surrogate, a HIPAA release authorization, and a living will.
A durable power of attorney is a form that allows someone you appoint to manage your financial affairs, either immediately or sometime in the future, should you become mentally or physically incapable of doing it yourself. It helps you plan for medical emergencies or maybe declining mental functioning. Having a durable power of attorney really helps eliminate confusion when a family member needs to step in to handle the finances.
Somewhat similar to a durable power of attorney is a designation of health care surrogate, in that this document allows a person you designate to make medical decisions on your behalf. Got someone in the family or a friend who’s good with doctors and health issues? You might want to consider naming them to be your health care surrogate. But talk to them first!
With a HIPAA release, you name one or more people to have access to all of your medical information. As one website states, the Health Insurance Portability and Accountability Act way back in 1996 required “health care providers to be very careful how they release health care information. All health care providers are required to make reasonable efforts to limit the release of protected health information to the minimum number of people necessary to accomplish the intended purpose of the particular disclosure or request for disclosure.”¹ Having this form could be quite valuable if a family member is in the hospital and you want to know what’s going on.
And finally, you use a living will to express whether you want your life to be artificially prolonged or prefer to be allowed to die naturally. Without this document, you must be kept alive artificially, no matter what your wishes are or how much it dips into your family finances.
Getting it Done
After more than 24 years of helping clients achieve their most important goals here at Northstar, the one thing we’ve learned without a shadow of a doubt is that when it comes to estate planning, the number one obstacle is procrastination—just getting it done. We’ve learned that it’s essential to work with an experienced estate planning attorney to ensure that these documents are drafted properly and reflect your wishes accurately. Additionally, periodically reviewing and updating your estate plan to account for any changes in your circumstances or the law is equally important.
We’re here to help. We have relationships with quite a few outstanding estate planning attorneys we can refer you to, depending on what your needs are and how complex your situation might be. I hope you found this information helpful. If you want to talk more, feel free to give us a call. We’d love to hear from you.
¹Wild Felice & Partners, “Supplemental Documents,” https://wfplaw.com/supplemental-documents/.