You may think of estate planning as only death planning. However, estate planning also includes lifetime planning in the event of your mental incapacity. If you are like most people I have encountered, you would rather have your loved ones making decisions for you when you cannot, instead of the court. There are estate planning documents to provide for your care in the event you became mentally incapacitated and also assure that your property is taken care of if you are unable to care for it, all the while staying out of court.
A more comprehensive definition of estate planning is: I want to control my property while I’m alive and well, plan for me and my loved ones if I become mentally disabled, and when I’m gone, I want to give what I have to whom I want when I want and the way I want, and if I can, I want to save taxes, fees and costs.
If you do not know what estate planning documents are used and what they are for, you are not alone. I am regularly asked about these documents such as: What are these estate planning documents? What do they do? When do they become effective? Do they expire? Today we will address these and other questions.
The most common estate planning documents used and the ones we will discuss today are financial and healthcare powers of attorney, wills and trusts.
A durable financial power of attorney is a document by which you appoint an agent, sometimes called an attorney-in fact, to make decisions over your property if you are not capable of making them on your own. What makes it “durable” is that it stays effective even after your mental disability.
Your agent can receive your income, pay your bills and maintain your property. A durable financial power of attorney may give your agent full, broad, general powers to act on your behalf or limited powers such as to sell a parcel of real estate or transfer property to a trust.
Your durable financial power of attorney is only effective during your lifetime and expires with you. You can have your agent be able to act immediately upon the signing of your durable financial power or attorney or only be able to act upon your mental disability. You decide how that mental disability is determined. I and a number of my clients use a disability panel of loved ones to determine mental disability. When my disability panel determines I am no longer capable of managing my property and financial affairs, my agent can then step in to make decisions for me.
If you are mentally disabled and have no durable financial power of attorney, a conservator may have to be appointed by the probate court to make financial decisions on your behalf and to take control of your property.
A durable power of attorney for health care, also called a designation of patient advocate, is a document by which you appoint a health care agent, also called a patient advocate, to make medical and mental healthcare decisions for you if you are not capable of making them on your own.
I generally recommend that your durable power of attorney for health care contain five basic provisions: 1) An appointment of a patient advocate; 2) Living will provisions, also called advanced medical directives, to document your wishes for your medical treatment regarding end-of-life care and the withholding or withdrawing life sustaining treatment; 3) Health Insurance Portability and Accountability Act (HIPAA) Provisions allowing your patient advocate access to your medical records and to sign releases of those records to others; 4) Mental healthcare treatment provisions to allow care for matters such as Alzheimer’s or dementia; and 5) If it is your desire, anatomical gift/organ donation provisions to allow your patient advocate to facilitate such a gift.
As is your financial power of attorney, your durable power of attorney for healthcare is only effective during your lifetime and expires with you. Your patient advocate can only act on your behalf if two medical professionals or a medical professional and a mental health professional determine that you are not capable of making those decisions.
If you are mentally disabled and have no durable power of attorney for health care, a guardian may have to be appointed by the probate court to make medical and mental healthcare decisions for you.
A will is a document in which you appoint a personal representative (formerly executor), to follow your instructions to distribute your property after your death. Where as financial and healthcare powers of attorney are lifetime instruments, a will is a death instrument.
Your will is generally only applicable to property owned solely by you at the time of your death. Your will does not usually apply to joint property, property held in trust or property with a transfer on death, payable on death or other beneficiary designation.
What many people do not realize is that a will must be probated through the probate court. After your death, your loved ones cannot just take your will to the bank to withdraw funds out of your bank accounts. They must have proper court authorizations.
A revocable living trust is a document with instructions to manage and distribute your property both during your lifetime and after your death. It is kind of like a financial power of attorney and will rolled into one document, and then some. It is revocable in that you can revoke, amend or change it during your lifetime, so long as you are not mentally disabled.
Many people set up trusts for probate avoidance and minimizing estate taxes. You may also want to include specific provisions for your beneficiaries in your trust, such as catastrophic illness directions, creditor protection, remarriage protection, divorce protection, values promotion, personal instructions and others. Your trust can set up special funds for your pets, the family cottage, the education of loved ones, special needs beneficiaries and many others. None of these provisions can effectively be accomplished with a will or financial power of attorney.
A trust is generally not supervised by the probate court unless a party requests the supervision. You can be the trustee of your trust during your lifetime. To make your trust work, your assets should be titled, or funded, in the name of your trust before your death or your assets will have to go through probate.
If you are over the age of 18, at a minimum you should have financial and healthcare powers of attorney and a will. You may also benefit from having a revocable living trust.
By Matthew M. Wallace, CPA, JD
Published edited June 5, 2011 in The Times Herald newspaper, Port Huron, Michigan as: Never too early or too young to plan
Mapping out wishes calls for 4 basic documents