Each of us, to varying degrees, is affected by this national tragedy. We face similar issues in environmental tragedies such as hurricanes and in personal tragedies such as serious illnesses. In each instance, we prepare the best we can. We plan for ourselves, so that we can reduce anxiety if a crisis arises. We plan for our aging parents who nurtured and guided us. We plan for our spouse or life partner who has helped us to grow in ways we could not have imagined when we first met. We plan for our children or grandchildren who let us see the world anew through their adoring eyes. We plan for our friends who know our faults and love us unconditionally. Once we prepare, we focus our energies where they belong: on spending precious time with family and friends.
One way we can prepare for personal tragedy is to plan what should happen in the event crisis strikes. Basic estate planning relieves stress at the time of crisis both for us and for those whom we love. The basic estate plan includes four documents: General Durable Power of Attorney, Health Care Durable Power of Attorney, Will, and Revocable Trust.
Through a General Durable Power of Attorney, you designate an “Agent” who will make financial decisions for you when you are unable to do so. This Agent may be your spouse, a parent, or a trusted friend. Without this document, nobody is authorized to act for you if you are missing or incapacitated. Without it, if you needed to refinance your house to pay for bills, it could only be done by someone going to court and having you declared incompetent. This is an arduous process that is emotionally draining for all involved.
A Health Care Durable Power of Attorney designates an “Agent” to make health care decisions for you if you are unable to make them yourself. With this document in place, you can rest assured that the person you trust will have legal authority to make your medical decisions. You also may wish to prepare a Living Will which expresses what you would want done if you are in a persistent vegetative state or terminal condition.
A Will has several functions. First, and most importantly, under the laws of most states it is the only way you can designate whom you wish to serve as guardian for your minor children. Without a Will the court will decide who will be guardian, regardless of your wishes. Unfortunately, no matter how caring the judge may be, he or she does not know and love your children as you do. Second, the Will distributes any assets that are held in your name. Without a Will, the assets are distributed according to a list set by state law for “intestate succession.” Unfortunately, this set list does not take your specific circumstances into account and assets often do not go to the desired person or in the desired manner. The assets can “pour-over” into a Revocable Living Trust, to be distributed by its terms. Third, it names someone as your Personal Representative to carry out the instructions set forth in your Will.
At your death, even with a Will, any assets owned by you must go through “probate” in order to be distributed to those designated by you. Probate is the process of transferring title from the person who died to the person who has the right to receive the property. This process can be expensive, time consuming, and emotionally draining for those left behind. A Revocable Living Trust is set up now, during your lifetime, and holds legal title to your assets. As a result, the assets do not go through probate at death because the trust owns them and the trust did not die. Even though legal title is in the Trust, you still can use the assets as you wish. If you become incapacitated, the person you have chosen as your successor “Trustee” will manage the assets for you, much like the Agent under your General Durable Power of Attorney. The Trust can be very flexible and can be used to direct how and when the assets will be used. For example, the Trust can be used to ensure that your children do not squander money but, rather, keep the money for a higher education.
Finally, it is important to know how other assets are handled. Periodically review the beneficiary designations on your 401k, IRA, or other qualified plan assets. Often, circumstances change and beneficiary designations do not change with the times. This becomes increasingly important as qualified plan assets comprise a larger and larger portion of the typical person’s assets. Beneficiary designations for life insurance also should be reviewed periodically.
Unfortunately, we cannot eliminate the possibility of tragedy in our lives. However, we can plan ahead so that, if tragedy occurs in our lives, we will not have unnecessary stresses and burdens as obstacles in our path. Of course, these are just the basics. There are many considerations which come into play when attempting to achieve your goals: beneficiaries with special needs, creditor protection, income taxes, divorce protection, estate taxes, etc. A qualified estate planning attorney, one that specializes in that practice area, can help you structure your plan to achieve the best result.
Mr. Ronald “Chip” Morrison, Jr. is a Board-Certified Specialist in Estate Planning and Administration by Louisiana Board of Legal Specialization and a member of the American Academy of Estate Planning Attorneys. He has been engaged in Louisiana trusts and estate law for the last 16 years. Our firm serves clients throughout southern Louisiana. For more information or to attend an upcoming seminar, please call our office at (504) 831-2348 or contact us through our website.