Welcome to 2022! Most of us will leave 2021 without hesitation – many had high hopes that 2021 would bring the end of COVID-19 and a return to normalcy and yet we face another variant as we usher in 2022. While things may not have gone the way we hoped in 2021, we can start 2022 prepared for anything by getting our estate plans in order.
The tumultuous events that plagued 2021 demonstrate the importance of a complete estate plan. Millions became seriously ill from the coronavirus. All too many of them died and even those who lived may be suffering long-term consequences. When they became ill, those who had their estate plan in order could focus on more important things, such as spending precious time with loved ones.
While we hope 2022 will be much better than 2021, it’s important to begin the year by creating an estate plan if you do not yet have one or reviewing the plan that you already have in place to ensure it accomplishes your goals. This will provide you and your loved ones with peace of mind for anything that 2022 brings.
Simply put, an estate plan serves as a set of instructions regarding how you want your affairs handled if something happens to you. The plan sends a message to your loved ones that you care and do not want to burden them with unclear or unstated plans. A basic estate plan consists of documents that provide instructions for what happens both during your life and at death. Those documents consist of a Property Power of Attorney, a Healthcare Power of Attorney, a HIPAA Authorization, a Will, and typically a Living Trust, also known as a Revocable Trust (a “Trust”).
First, the Property Power of Attorney allows you to appoint someone as your “Agent” to act on your behalf with respect to your financial affairs. If that Agent is unwilling or unable to act, you can appoint one or more successor Agents. Through the Property Power of Attorney, you give someone else (the Agent) powers you inherently already have yourself. The Property Power could be drafted to vest immediately meaning that the Agent would have the power to make decisions regarding your financial assets right away and without regard to your ability to make those decisions for yourself. In most states, you also have the option to make the Property Power of Attorney “springing” meaning that the Agent’s powers would “spring” into action only upon your incapacity. You may hear the term “durable” in conjunction with the Property Power of Attorney. This means that the Property Power of Attorney continues to be effective notwithstanding your incapacity. A Property Power of Attorney that is not durable does not allow your Agent to act during your incapacity.
A Healthcare Power of Attorney allows you to appoint an agent to make medical decisions for you if you are unable to do so for yourself. If you can make these decisions, then your agent cannot veto any medical decision you make. A HIPAA Authorization allows you to appoint an agent to access or receive protected health information.
It’s important to keep your Property and Health Care Powers of Attorney updated. Reviewing them often ensures that you always have trusted and capable individuals in those important roles and that you do not leave your loved ones wondering what to do upon your incapacity. The agents you select under your Powers of Attorney play a vital role in your incapacity plan and may have broad power during your life. Make sure you keep the right people in these roles.
A Will determines the distribution of your assets upon your death and allows you to select an individual or company to make the disbursements. If you do not have a Will, then your state’s intestacy laws will govern asset allocation at your death. Often, the state’s division would not match your own. In addition, state intestacy laws may appoint a stranger to handle these important decisions. Finally, the Will also allows you to nominate guardians to care for any minor children.
Regardless of whether you have a Will or your state’s intestacy laws determine property division at your death, the individual in charge will need to petition the court for permission to transact the business of your estate through a probate proceeding. Depending upon the laws of your state, probate can be a lengthy, costly, and public process. If you want to avoid probate and maintain your privacy, a Trust provides you the opportunity to do that. With a Trust, you transfer the assets to the Trust during your lifetime and manage them as the Trustee. You avoid probate altogether by using a Trust because the Trust contains provisions regarding what happens upon your death and vests a successor Trustee with power to make distributions from the Trust. The Trust also protects against incapacity by giving a successor Trustee the power to make distributions from the Trust for your benefit should you become incapacitated. Due to cases of fraud, institutions more readily recognize a successor Trustee acting on your behalf than an agent under your power of attorney.
Hopefully, 2022 will be better than 2021, and 2020 for that matter! Even a basic estate plan provides peace of mind regarding what’s in store for 2022. Resolve now to get your estate planning done this year, sooner rather than later.