As the New Year begins, many people resolve to do some things they know they should do, but have put off. They may vow to lose weight, get organized, save more, stay fit, or quit smoking. If you have made any resolutions for 2015, I wish you success.
This year, I suggest you also make a resolution to protect yourself and your family by creating (or updating) your estate plan. Recognize that your estate plan is not just about your death. It also includes vital planning for your continued life.
With average future life expectancy at age 65 now nearing 20 years (and already over 20 for women - see the chart below) you need to put a legal plan together for what may be your extended life span. Your estate plan should be as much or more about life planning for you as it is about who will get what, if anything, remains when you die.
We need to plan to be old, with the recognition that our aging is likely to include some level of disability. (A majority of people who are over age 85 have some form of disability). At age 65 the chances we will need some care support during our remaining lives is 70%. 40% of us will need support for over 2 years, and 20% will need care assistance for 5 years or more.
We need to create a strategy to protect ourselves and our families from the potentially immense burdens that may accompany our aging and disability. This is a vital aspect of estate planning in the year 2015.
Part of your strategy should include having the proper legal documents in place before they are needed. But having the documents themselves is not enough. You should make certain that your planning documents include the provisions that will be required to protect your family and achieve your goals. And that all bases are covered in a comprehensive and coordinated manner.
But standing alone, your power of attorney, Will, trust and other documents may not be worth much to you and your family unless they have been specifically designed to implement a good estate planning strategy. If it is going to meet your future needs your strategy should be based on your unique personal and family situation. One size does not fit all.
It's complicated. To put a good strategic plan together you are going to need the help of experts in long term care and estate planning and elder law.
Key Estate Planning Documents
Here are some of the documents that may be essential components of your planning strategy.
Financial Power of Attorney - This critical document allows a trusted agent of your choosing to step in to pay your bills and manage your financial affairs in the event you can no longer do so. You need to make sure you choose the right person. Don't neglect to name a backup.
A financial power of attorney is a very sophisticated and complicated document. This is not something to take lightly or buy online. You need to make certain that your agent has the powers required to protect you and your family and that those powers are consistent with your personal situation and goals.
Seek expert guidance to create a document that has the provisions you need. Pennsylvania law governing powers of attorney changed on January 1, 2015, so this is a particularly good time to create or review and update your power of attorney document.
Health Care Directives – These documents allow you to give directions regarding the kinds of care you want to receive in the event you become incapacitated. And you can designate the persons you want to be making health and personal care decisions for you. The key planning document in this regard is the Health Care Power of Attorney.
Will – this is a document that says who gets what when you die. It also names someone to be in charge of finalizing your affairs. But, many people don’t realize that they have created other documents that can trump the provisions of their Will. These include trusts, beneficiary designations, and joint ownership, all of which are discussed below.
Trust – this is a document that can be used to provide for management of some of the investments and other things that you own. Typically it will specify who gets those things after your death.
Trusts can be very useful planning tools. They can include provisions that can protect your heirs from losing their inheritance to creditors or a divorce. Special forms of trust can allow you to set aside a home or savings to be protected in the event you encounter serious health and long term care costs later in your life. And trusts can maintain the eligibility of your disabled heir for public benefits like SSI and Medicaid while still providing for their future expenses and needs.
A trust can be created by you in your Will (a “testamentary trust”) or as a separate document during your lifetime (a “living trust”). If you have a “living trust” you want to be certain that you have funded it properly. An unfunded trust can be valueless. And be sure to find out whether your trust will protect you in the event that you or your spouse needs expensive nursing home or other long term care.
Beneficiary and POD/TOD Designations – Who are the beneficiaries on your retirement plan, life insurance, and annuity accounts? People often set up a beneficiary designation when they first create an account and then forget about it. This can be a serious mistake. Your beneficiary designations should be reviewed from time to time and updated to take account of changes in your financial and family circumstances.
A beneficiary designation normally trumps the provisions of your Will or trust, so it is important that all of these documents are coordinated to meet your goals. Likewise with accounts you have designated as “payable on death” (POD) or “transfer on death” (TOD). These kinds of designations should only be used with great care since they can completely throw off your desired estate plan. You may need to update them as things change in your life and the lives of your family members.
Joint Ownership – Do you own any property together with someone else? If so, do you understand the implications of your joint ownership? In the event of your death, who will receive your interest in the property? What happens to the property if one of the owners runs into problems with creditors or needs expensive health care or long term care? There are many types of joint ownership, so the answers will vary. You need to discuss these issues with your planning lawyer.
Quality Advice: As Important as Your Documents
The above documents are important components of your estate plan. But a good estate plan requires more than having the right documents. You also need to put a well thought out strategy in place.
Here are two issues that might be important for you to consider as you put together your strategic plan.
Planning for long term care. As noted above 70% of us will someday need assistance on a daily basis. The emotional, physical and financial costs of this support can devastate our family. Since most of us will need this “long term care” assistance, it is critical that we plan for it in advance.
People often don't appreciate the complexity of planning for long term care. It is imperative that you get the highest quality advice in putting together your plan. Be sure to talk with a lawyer who is a recognized expert in elder law and estate planning. If you live in Pennsylvania, you can call my law firm, Marshall, Parker and Weber and set up a free initial meeting.
Maximizing your Social Security. If you have not yet claimed your Social Security benefits, you have an opportunity to optimize your benefits. Most people claim their Social Security as soon as they can. More often than not this is a mistake that can damage their long term financial security. If you are married, your claiming decisions are more complicated and even more important. Making good decisions about when to claim can mean an extra $100,000 or more for many married couples.
The bottom line is that the likelihood that your goals will be achieved both during your life and after your death depends largely on how good your plan is, and whether you keep it up to date. The quality of the advice you get in putting together your plan and creating and updating your documents is critical to protecting you and your family. Don’t be penny wise and dollar foolish when your security and your family’s future are at stake.
New Years Resolution Statistics, (Source: University of Scranton. Journal of Clinical Psychology).
Life Expectancy at Birth and at Age 65 (2013)