Estate Planning

What is an estate plan and why do you need one?

An estate plan is a group of documents that help to transfer your assets upon death and provide you protection during your lifetime in the event you become incapacitated. A brief summary of a few of these documents is included here.

Living Trust

One of the main documents in an estate plan is a living trust. A living trust is similar to a will in that it provides for the disposition of your assets upon your death. There are four main reasons a living trust is important and usually preferable to a will:

  • Avoid Conservatorships
  • A living trust is not probated and, if properly funded, allows your estate to be administered without the supervision of the courts, thereby usually saving time and money

  • When properly drafted, a living trust can help reduce estate taxes; and

  • A living trust allows you to decide how and when the beneficiaries you designate receive their portion of your estate

Pour-Over Will

Along with a living trust, an estate plan usually includes a pour-over will that provides for any assets that were inadvertently left out of the trust to “pour-over” into it. If the total value of the assets not included in the trust is less than $100,000 then the pour-over will does not have to be probated to transfer the assets into the trust. If the total value exceeds $100,000, however, the will must be probated. This amount will increase to $150,000 beginning January 1, 2012.

Healthcare Decisions

Through the use of an Advanced Health Care Directive, your estate plan also allows you to appoint someone to make healthcare decisions for you, if you are unable to make them, and expresses your wishes regarding life support, various medical treatments, and other end of life decisions.

In connection with the Advanced Health Care Directive, a HIPAA waiver, which is usually included in your trust, allows your designated agent to obtain medical information for the purpose of consenting to your proper and appropriate medical treatment, and to discuss your confidential medical information freely with your medical provider.

Power of Attorney for financial Matters

An estate plan also usually includes a durable power of attorney for financial matters which allows your appointed agent to make financial decisions on your behalf if you ever become incapacitated.

Review of Documents and Periodic Updates

Even if you have already created an estate plan, you should periodically review your documents to make sure that you are still happy with the named successor trustees, agents for healthcare, guardians for minor children (if applicable), and beneficiaries.

Additionally, if you have not updated your estate plan recently, changes in the law may greatly affect its effectiveness. For example, if your estate plan does not include a HIPAA waiver,
then it needs to be amended. Without a HIPAA waiver, changes in the law surrounding medical privacy can make it impossible for your agent for healthcare to obtain the information he or she needs to make an informed decision on your behalf.

Other recent changes to the law include the following: an increase in the estate tax exemption amount to $5 million for the years 2011-2012; the introduction of portability of a deceased spouse’s unused estate tax exemption to the surviving spouse; and a return to the step-up in basis rules which allow property inherited from a decedent to receive an income tax “step-up in basis” equal to the fair market value of the property on the date of death.

If you have not recently amended your estate plan documents, you should have an attorney review them.