The New Year’s Resolution That Helps You And Your Family
Estate Planning: The New Year’s Resolution That Helps You And Your Family
Happy New Year! Do you have a New Year’s resolution? If not – may I suggest one? I’ll even help you keep it – let me help you create an estate plan.
If you are like most Americans, you know that estate planning is something you should do. You are also like most Americans if you haven’t gotten around to it yet (68% of Americans do not have an estate plan).
There are certain life events that may cause you to think about doing an estate plan or updating an old estate plan. Some of the most common are: (1) having a baby; (2) getting married; (3) getting a divorce; (4) retiring; (5) being diagnosed with a life-threatening illness; or (6) having a death in your family.
When most people think about estate planning, they think about a Will. They want to ensure that the right people inherit their possessions when they die – and these people aren’t wrong. Putting strategies in place to protect and pass on your wealth and other assets is a fundamental part of the planning equation. However, providing for the proper distribution of your assets upon your death is just one part of the process – and it may not be the most critical part.
Planning that’s focused solely on who gets what when you die is ignoring the fact that death isn’t the only thing you must prepare for. You must also consider that at some point before your eventual death, you could be incapacitated by accident or illness. Unlike death, which is by definition a final outcome, incapacity comes with an uncertain outcome and timeframe.
Incapacity can be a temporary event from which you eventually recover, or it can be a costly event that drags out over many years, leaving you and your family in an agonizing limbo. This uncertainty is what makes incapacity planning so incredibly important.
In fact, incapacity can be a far greater burden for your loved ones than your death. This is true not only in terms of its potentially ruinous financial costs, but also for the emotional trauma, contentious court battles, and internal conflict your family may endure if you fail to address it in your plan. The goal of effective estate planning is to keep your family out of court and out of conflict no matter what happens to you. So if you only plan for your death, you’re leaving your family—and yourself—extremely vulnerable to potentially tragic consequences.
Where to start
Planning for incapacity requires a different mindset and different tools than planning for death. If you’re incapacitated by illness or injury, you’ll still be alive when these planning strategies take effect. What’s more, the legal authority you grant others to manage your incapacity is only viable while you remain alive and unable to make decisions about your own welfare. If you regain the cognitive ability to make your own decisions, the legal power you granted others is revoked.
To this end, the first thing you should ask yourself is, “If I’m ever incapacitated and unable to care for myself, who would I want to make decisions on my behalf?” Specifically, you’ll be selecting the person, or persons, you want to make your healthcare, financial, and legal decisions until you either recover or pass away.
You must name someone
The most important thing to remember is that you must choose someone. If you don’t legally name someone to make these decisions during your incapacity, the court will choose someone for you. This is where things can get extremely difficult for your loved ones.
In the absence of proper estate planning, the court will appoint a guardian to make these decisions on your behalf. This person could be a family member you’d never want managing your affairs or a professional guardian who does not know you and charges significant fees. Either way, the choice is out of your hands.
Furthermore, like most court proceedings, the process of naming a guardian is often time consuming, costly, and emotionally draining for your family. If you’re lying unconscious in a hospital bed, the last thing you’d want is to waste time or impose additional hardship on your loved ones. This is assuming your family members agree about what’s in your best interest.
For example, if your family members disagree about the course of your medical treatment, this could lead to ugly court battles between your loved ones. Such conflicts can tear your family apart and drain your estate’s finances. In the end, the individual the court eventually appoints may choose treatment options you would not want.
This potential turmoil and expense can be easily avoided through proper estate planning. An effective plan would give the individuals you’ve chosen immediate authority to make your medical, financial, and legal decisions, without the need for court intervention. What’s more, the plan can provide clear guidance about your wishes, so there’s no mistake or conflict about how these vital decisions should be made.
What won’t work
Determining which planning tools you need depends entirely on your personal circumstances. I can help you with this. However, I can tell you one planning tool that’s totally worthless when it comes to your incapacity: a Will.
A Will is a very important part of your estate plan, but it only goes into effect upon your death, so having a Will does nothing to keep your family out of court and out of conflict in the event of your incapacity.
The proper tools for the job
The planning strategies we ultimately put in place for you will be based on your particular circumstances. It’s likely that your incapacity plan will include some, or all, of the following:
Healthcare power of attorney: This appoints an individual of your choice the legal authority to make decisions about your medical treatment in the event of your incapacity.
Living will: An advanced directive that provides specific guidance about how your medical decisions should be made during your incapacity.
Durable financial power of attorney: This grants an individual of your choice the legal authority to make decisions related to the management of your finances, real estate, and business interests.
Don’t let a bad situation become much worse
You may be powerless to prevent your potential incapacity, but proper estate planning can at least give you control over how your life and assets will be managed if it does occur. Moreover, such planning can prevent your family from enduring needless trauma, conflict, and expense during this already trying time.
If you don’t already have a plan in place, please give me a call. I can counsel you on the best plan for you and your circumstances and help you select the individuals best suited to make such critical decisions on your behalf. If you already have planning strategies in place, I’m happy to review your plan to make sure it’s been properly set up, maintained, and updated. Give me a call (724-552-2712) to get started.