In these uncertain times, people frequently contemplate their affairs and whether they are in order. Although many people attach the concept of “estate planning” to a set of strategies reserved for those with great wealth or who are retired, the simple fact is that most of us have an estate. Your estate consists of everything you own – your residence, bank accounts, personal possessions, car, investments –and, as the adage goes, “you can’t take it with you.” Yet, it is a statistical fact that most Americans do not have any type of estate planning documents in place.
Thoughtful estate planning can be most meaningful to families with modest estates, since they can least afford to lose assets to situations that often arise in the absence of planning. Further, it is reasonable to assume that most people would prefer to make their own decisions as to who receives their property and when they will receive it. It is the rare parent, for example, who would be comfortable with the notion of her teenage child receiving significant funds from a life insurance policy, or other sources, without any structure or guidance in the manner and timing with which those funds should be used. A preferable result would involve the parent establishing the rules for such distribution and making sure that the least amount of those funds would be squandered. It is also reasonable to assume that most people would prefer to avoid a state official from determining who will take over their financial affairs and medical decisions in the event of disability or diminished capacity; rather, the preference would involve the private appointment of the preferred person to take on those responsibilities in that situation. The transformation of these preferences into reality is at the heart of estate planning. Although the need for estate planning should always be at the forefront of our minds, this new era of COVID-19 has sparked many people to pursue the proper composition of an effective estate plan.
Basic Objectives of an Estate Plan
Although everyone has his or her specific desires and objectives to consider, most estate plans are designed to achieve the following non-exclusive general objectives for you in the event of disability or death:
The Foundation of an Estate Plan
As with any construction project, the foundation is essential to its ultimate success. The parable of the Wise and Foolish Builders can be useful in designing an estate plan in that the goal should be to develop and implement a plan that will endure the rains and winds that will surely follow.
Many believe that a simple last will and testament suffices for an estate plan; however, additional considerations are required to attain the meaningful objectives set forth above. It is helpful for you to first understand the distinction between your “probate property” and your “non-probate property.” Most people own both types and have never been informed of their differences. To understand the differences, it is helpful to know that the term “probate” refers to the legal procedure used to validate a person’s will and the process of settling a decedent’s estate, which Louisiana law refers to as “succession.”
Non-probate property includes assets that are distributed at your death to individuals or organizations designated in contractual provisions outside of a last will and testament (e.g., beneficiary designations, living trust provisions, etc.). For example, life insurance policies contain provisions that designate the intended recipient of the proceeds upon the death of the insured. Those proceeds are paid directly to the designated beneficiary and are not subject to any instructions in a last will and testament. The same is true for qualified retirement accounts and annuities – they are non-probate assets that do not transfer to your intended recipients by virtue of a testament, but through a beneficiary designation. An inappropriate beneficiary designation may often lead to disastrous tax consequences or the squandering of significant funds.
Probate or succession property essentially consists of all property other than the non-probate property. It typically includes the personal residence, other real estate, bank and money market accounts, mutual funds, individual securities, loans receivable, business ownership interests, furniture, motor vehicles, and other personal property. A decedent’s probate property is transferred in accordance with the terms and conditions of the last will and testament, if such testament exists; otherwise, the default legislative rules determine the recipients of a decedent’s property. Thus, it is said that everyone has an estate plan – either their own or the one that the state legislature has developed for them.
The cornerstones of a solid estate plan are generally comprised of the following legal documents:
Last Will and Testament/Trust. Regardless of whether you adopt a last will and testament, a trust, or a combination of them, these documents are the primary vehicles that govern the disposition of your property. The use of a trust as part of the estate plan provides a trustee who is charged with managing and preserving the property for the benefit of the trust beneficiaries until such time that they reach a suitable age or station of life prior to property distribution. The laws concerning the proper creation of a testament or trust make it essential to seek the assistance of a qualified professional who is well-versed in the estate planning area. Nearly all “do-it-yourself” will/trust products, software or internet sites contain a disclaimer as to their product’s applicability and success in Louisiana because of its unique system of laws. Due care must be taken to avoid establishing a will or trust that may be invalid and consequently subject to challenge. A legal action initiated to challenge the validity of an estate plan usually leads to extreme emotional bitterness and expense for the family members.
Durable Powers of Attorney. A “power of attorney” (also known as a contract of mandate or procurement) is a legal document in which you nominate and authorize another person or institution to take certain actions on your behalf. These specific actions are set forth within the document. You are the “principal” who signs the power of attorney, and the person given the authority to act on your behalf is usually referred to as the “agent.” The term “durable” refers to the fact that this authority continues beyond any point in time that you become mentally incapacitated A signed power of attorney that appoints an appropriate agent often avoids the need for an expensive court proceeding to appoint a curator for you should you lose your mental capacity. A general power of attorney gives the agent broad authority to perform almost any action for the principal, and typically focuses on the authority to deal with property and financial matters.
In addition to a general power of attorney, it is wise to execute a limited durable power of attorney for health care matters. Patient privacy rights are as strong as ever, so you should consider appointing an agent who will have access to your medical records and be able to make any and all medical decisions on your behalf if you cannot do so. This power of attorney often includes the agent’s authority to make decisions relating to life-sustaining treatment, which are typically based on information provided regarding end-of-life wishes.
Living Will/Advance Directive. A “living will” and other advance directives are written legal instructions regarding your preferences for medical care if you are unable to make decisions for yourself. Advance directives guide choices for family members and health care providers when irreversible terminal medical conditions introduce the possibility of invasive procedures to be used to artificially prolong the natural process of dying. Your directive may state that certain procedures should not be withdrawn (e.g., some people insist on the access to nutrition and hydration), and it may promote the use of medication or medical procedures to minimize pain. Many are unaware of their ability to expand upon the statutory form typically provided for living will declarations to include any language that sets forth personal faith and beliefs regarding the sanctity of life and pro-life philosophy. Finally, the need for advance directives is not reserved for older adults, since unexpected end-of-life situations may arise at any age.
For those who fulfill the responsibility of adopting an estate plan that promotes the healthy stewardship of their property, there is often an accompanying feeling of relief and peace of mind. It is thought that this sense of satisfaction is grounded in the knowledge that loved ones who remain behind will be spared the chaos and uncertainties otherwise characteristic of situations where planning does not exist or is deemed unwarranted.
Please contact Mark Fry or Phelps’ Trusts and Estate Planning team if you have any questions or need advice and guidance. For more information related to COVID-19, please also see Phelps’ COVID-19: Client Resource Portal.