Estate Planning For All Ages

TV and movies don’t show the truth.  Hollywood makes us think that you sign your Will (or a trust) only when you’re old and facing death. The truth is, it’s almost never like that, and in fact, there are really important reasons to think about and execute (or update) your estate planning at all stages of your life. Below we will discuss many various stages or situations of life that may deserve different levels of attention to your estate planning.

What happens if someone dies without an estate plan in place?


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Single Young Adult

If you’re a young bird fleeing the nest towards college or an early career, your parents should be reminded that once their child becomes an adult, the rights parents have to discuss their child’s medical choices or handle financial affairs cease at 18. For a young adult, they may not have much of an estate, but it’s important to have the basic documents in place, such as a simple will granting their estate to their parents or siblings.

Probably the biggest priority is for parents to have access to validly executed Health Care Proxy and Financial Power of Attorney documents for a young adult child.  These are important in the event of illness or incapacity so that the parent can handle the affairs of the adult offspring. Few young people are going to be thinking that these estate planning documents are an important priority worthy of their limited budget – therefore this may be a parent-sponsored phase where the parent offers to pay for or make arrangements for the young adult to sign these important planning documents.

Newlyweds

Alright, so this “stage” can happen at almost any age: shortly after college, mid-career, or maybe it’s your second soul-mate in retirement.  Whether it’s your first marriage or your last, a new spouse is a really important time to update, or begin, your estate planning. First and somewhat simply, you will need to think about the extent that you want your spouse involved in your health care decisions. In New York, absent a properly signed health care proxy, there are laws giving certain people the right to make your health care decisions in a specific order of priority, a spouse being second in line after a legal guardian, if any. You may wish to name your spouse as your agent under a Financial Power of Attorney to make sure he or she has the ability to pay bills, deal with service providers such as utilities, cell service, car leases, etc., in the event of an unexpected accident or illness resulting in incapacity. Both a Health Care Proxy and a Power of Attorney are important documents in the event of incapacity or illness.

During the bliss of a new relationship, it may be uncomfortable to contemplate the effects of one spouse passing away prematurely, but it’s prudent to be thorough about the preparations necessary to be sure that a surviving spouse has the resources and access to the couple’s collective assets, even though those assets may not yet be commingled as joint assets.

How romantic a gesture to provide for the support of a new spouse with a Will or revocable trust! And of course, many couples put in place a prenuptial agreement before marriage (or even a postnuptial agreement during a marriage) to set the financial terms of their marriage and contemplate what happens in the event of death or divorce.

New Relationship But Not Married

For those that are deciding to commit to another person, but maybe are not taking the step to become legally married, many of the same “newlywed” points apply.  But many attorneys will argue that it becomes even more important for a couple in this category to execute the estate planning documents discussed so far, since a non-married partner is not granted many of the state-law and federal benefits of a married spouse.  Examples of this include HIPAA access, marital/homestead shares of an estate under state law, and presumed rights of survivorship for real estate and other assets.  A non-married partner will not be recognized for providing input on healthcare decisions unless a Healthcare Proxy is in place.  Additional concerns relate to financial issues, such as bank accounts, retirement accounts, utility services – a non-married partner may need to discuss or access these but wouldn’t be able to without a durable power of attorney.  Furthermore, a non-married partner will not have certain inheritance rights that a married person would have. A will or trust will help ensure that upon one partner’s death, the other receives intended assets as an inheritance, without family or government intervening to change the outcome.

New Parents

The emotions and excitement of being a new parent are hard to express without taking up the rest of this article.  Bringing a new bundle home from the hospital can also bring swift realization to a parent that they are responsible for a new human being. Not only responsible for feeding, changing and bathing, but 18 years of legal responsibility and a lifetime of worry and emotional support will be required by the new child.  Preparing financially for the child’s school years, college, and full-on adulthood can be a huge intimidation.  This new overwhelming responsibility often motivates parents to re-address their estate planning to make sure that the child is included in the estate plan in the event that both parents pass away.

This is a great time to re-address old planning.  There are several areas of an existing Will and/or Trust that will require new decisions.

  • Nomination of Guardian for Your Child or Children:  in the event that both parents are deceased and the child is still a minor, the parents’ Wills should designate another adult to legally serve as guardian for the orphaned child.  There are two kinds of guardians: guardians of the person and guardian of the property. The first is someone who becomes a substitute parent for the child with respect to caring for and raising the child, the second is someone who manages the child’s money and assets. These two kinds may or may not be the same person, depending on who you choose. You will need to consider the attributes and skills of the people you consider to determine who would be best suited for these roles. Will the child’s guardian(s) be a close family member, such as a grandparent, aunt, uncle?  Or is there a preference to look outside the family to close family friends?  Failing to name a guardian for a child leaves this decision ultimately to the courts.  If the child’s parents are not married and/or not living together, it’s important to coordinate and agree on the proposed guardianship nominations.
  • Creating a Trust for a Child: In the event that both parents pass away before the child has reached the age of majority (or before the parents would entrust a child to financial independence), establishing a trust to hold and distribute inheritance to the child is a good idea.  Without a trust limiting the distributions, or a will stating otherwise, a child becomes legally eligible for their entire inheritance at age 18.  Depending on the child and depending on the amount of money at stake in the inheritance; imagine the results of an unleashed inheritance to an 18-year old.  Typically trusts hold and manage the inheritance funds under the control of a Trustee and provide precise instructions for distributions at certain ages and sometimes at certain benchmarks, such as graduation from college, a first marriage, and birth of a child.  Another popular way to handle the distribution of a trust for minor children is to grant the Trustee full discretion to distribute trust funds to the child as the Trustee deems necessary.  This allows a Trustee to evaluate a beneficiary’s need, balanced with the amount of money available and future expected needs.
  • Choosing a Trustee: Parents should invest the proper time to decide on a Trustee to manage the trust for their minor child.  Will this be a family member with intimate knowledge of the family and their tendencies?  Will the parents decide on an independent party or professional Trustee?  There are advantages and pitfalls to both options and deserve a thorough discussion with legal counsel to decide.
  • Standalone Trust (or Living Trust) vs. Trust Created under a Will (Testamentary Trust): Most attorneys will agree and advise that a Living Trust is preferable to a Testamentary Trust created under a will for many reasons.  Considerations of a living trust vs. a testamentary trust include that while a living trust may be more costly to initially set up, it can be administered independent of any court processes and oversight making it less costly and more flexible later on. The extra cost of a living trust for a young couple where death or serious incapacity is statistically unlikely may not make sense for a budget-conscious couple in their beginning-salary years.  Many of the same considerations mentioned throughout this piece about a trust can be adequately included in a will that creates a trust at death. Further, some individuals may actually prefer ongoing court oversight depending on who they designate as a Trustee.

It’s worth noting that a will or trust often defines the parent’s children by name, but also includes later-born children.  This means that the parent may not have to update their planning every time a new child is added to the family.

Parents of Teenagers

It may feel like it’s only been a few years since the plan was updated or first established, but it’s worth taking another look as the child hits mid-teen years.  They’ll be driving soon, dating, and beginning to frame their decisions toward college.  This is a great time to revisit the guardian decision for a minor child.  Is the nominated guardian still a proper choice to manage a teenager?  Has the guardian moved, or how’s their age and ability?  Is there an adult sibling that could serve as guardian instead?  Contemplate a backup guardian in the event the first nominated party cannot serve. Has your child been diagnosed with any special needs that should be addressed in your estate plan?

Parents of Young Adults

So, it may have been only a few years since the last review and revision, but there are new concerns to be addressed as a child becomes an adult.  As children move out of the house and look towards college and careers, they are also potentially seeking a spouse or partner to share their life.  This can be a good time to reevaluate the terms of the parent’s trust and will.  Legal guardian nominations are no longer needed, but perhaps the terms of the trust for the young adult need some adjustments for this phase of their life?

One concern many parents have, is how to protect a child’s inheritance from a spouse or partner.  Some trust planning can help minimize or eliminate this concern.  It is well-settled law in most jurisdictions that inheritance is the sole and separate property of the person who receives it.  However, when an inheritance passes outright to a beneficiary, he or she has the freedom to commingle those funds with a spouse or partner, and this can tarnish the identity of those assets as separate property.  Trust planning can instead insist that the parent’s trust remain in place to manage and hold those inherited assets as separate property of the beneficiary.

Some family education and discussion about inheritance can be very helpful.  Sitting the child(ren) down to discuss the parents’ legacy and specifically their expectations of preserving inheritance as separate property is invaluable family time.  It can be especially important for the child to know about these expectations, including their parents’ expectations regarding prenuptial agreements relating to any use of gift or inheritance before they fall in love with that special person – that way it’s not sprung on the child as a surprise and the result of the new relationship. It helps neutralize the emotions of this idea.  For the child to know about this requirement before falling in love prevents the child feeling that the parent is disapproving of the child’s selected partner.

Parents may also want to revisit their Healthcare Proxy and Durable Power of Attorney documents.  Perhaps the young adult child can serve in some capacity if the parent feels that the child can handle that responsibility.

Golden Age (Grandparent or Retirement Age)

This stage of life is very broad and brings a lot of different things to revisit and potentially revise and certainly new things to consider, such as long term care and asset protection planning.

During this stage of life, you probably have a more certain understanding of your net worth and the budget you’ve set for yourself to reach the end of your life.  The one big factor that can impact your goals to finish this mortal journey with dollars in the bank is severe health issues and long-term capacity.  Long-term care insurance can offset much of this uncertainty, but this type of insurance is becoming more and more cost prohibitive for the average senior.  There are planning opportunities that can help preserve and protect your assets for the possibility that you may need long-term care.

During this chapter of life, your assets are likely less fluid, but at the same time, you are probably more confident in the trustworthiness of your inner circle of family and friends, so setting up an irrevocable trust, (which usually requires a third party to get some control in your estate plan) to minimize taxes or preserve assets for Medicaid planning may be beneficial and timely for you in this stage.  Because much of this planning requires several years to pass between the action of setting up the trust and the need for long term care, you can’t just wait until you know it’s an issue.  You have to plan ahead and engage in the planning as a precaution.

Here are several other decisions that should be considered at this stage of life, relative to your estate planning:

Grandchildren.  Grandparents may want to make their grandchildren feel special and important and include their grandchildren in a Will or trust by name.  Maybe there’s a division of the estate specifically for the grandchildren.  This “grandchildren’s trust” might be intended to help with education expenses, or other opportunities like helping to pay for sports, music and other hobbies. Particularly, grandparents should keep in mind to plan properly for a grandchild with special needs to ensure that any inheritance left for a grandchild will not adversely impact any government benefits the grandchild receives. (This concern would be the same for any child or other beneficiary with special needs.)

Revisiting inheritance plans for adult children.  Are age limits or benchmarks set up for the beneficiaries when they were younger still appropriate for the beneficiaries in their current status?  Should benchmarks be extended?  Should age limits be removed?  Is the protection of the beneficiary’s inheritance as sole and separate property still a concern or priority?  Can some prerequisites be removed or altered to better align with the parent’s intended wishes?

Designations.  There are a lot of positions within the estate plan that should be evaluated at this time.

  • For a revocable trust, or a testamentary trust, is the choice of Trustee still the right choice? Can the adult children now serve as Trustee? If there are multiple children, can they work together through this process?  What are the odds that the process will cause a rift among the children? Should a non-family member serve as Trustee?  Should a bank or trust company be selected for this role?
  • Similar questions for a Will. Is the executor still the right choice?
  • Health Care Proxy: Are the first and alternate designations still the intended and best choice for these important decisions. Should adult children be included in these decisions if they have not already been nominated?
  • Durable/Financial Power of Attorney: As age progresses, the statistical chances of an incapacity event increases.  It is very important to have this power of attorney and healthcare proxy in place and with the right nominated agent and alternate agents named.

Planning for Spouse/Partner:  This stage of life brings some focus and reality to the possibility that one spouse or partner may predecease the other.  Reviewing and revising the estate planning before such an event can help ensure that the surviving individual is well-provided for.  There may also be some outdated tax considerations to be addressed in the estate planning as well.  A Will or Trust may create different sub-trusts or allocate different ratios of the estate for tax efficiency purposes.  Are these formulas and ratios still accurate?  Can the document be simplified to create advantage for the surviving spouse?  Are there additional tax planning opportunities that were not considered during the last review and revision?

Advanced Estate Planning:  For individuals or couples that find themselves with a potentially taxable estate, this stage of life is typically where some advanced estate planning can be implemented to help minimize the tax effect.

There are a lot of different techniques available to begin reducing the amount of the estate that is subject to state or federal estate tax.  This may involve making taxable gifts, utilizing different types of irrevocable trusts and business entities to implement a coordinated plan and structure which can bring some tax efficiencies to an estate plan.  This kind of planning is best done with some clarity around the total value of the estate, and some understanding of life expectancy of the individual doing the planning.  It can become too late to engage in some of this planning, such as making large gifts just prior to death.  But exploring the planning opportunities while your health is good and while the value of your assets is definable, can result in some savings for your beneficiaries.

Deathbed

The beginning of this article complained about the stereotypes from the movies and TV that estate planning is done right before you die.  Hopefully, if you’ve read this from start to finish, you realize that estate planning is a life-long process rather than a one-time event.  And although you shouldn’t wait until you know you’re going to die, there is a possibility that some action right before death could be beneficial.

Deathbed planning, also sometimes termed pre-mortem planning, could be a very difficult time for you and your family.  You may be facing a serious medical diagnosis, or you may just feel that your time is almost up.  Depending on the planning that has been done before, there may be an opportunity to save some money and make it easier for your beneficiaries.  You and your family should review ownership of all your assets.  If you’ve created a revocable trust, you’ll want to confirm ownership of most of your assets in the name of the trust: real property, bank accounts, investment accounts, business entities, etc.  For assets not part of a trust, you’ll want to confirm beneficiary designations (life insurance, qualified retirement plans, etc.).  A final review of your estate plan and the various nominations of people as part of that plan would also be prudent.   Make sure that you don’t have any people left out and that every role of responsibility has a person or entity able and willing to serve.  Ensure that your estate plan can be easily found in your home, or that the persons with responsibility know how to contact your attorney or law firm.  Fix up any identified ownership problems and planning “holes” by working with your family and estate planning attorney to remedy the identified issues.

For those that may have done some advanced estate planning, there may be additional opportunities to do some final estate planning to minimize estate taxes or address other probate or administration concerns. Working with your estate planning attorney and tax counsel can help identify any opportunities like this to help save taxes for your beneficiaries.

Attorneys Ready to Help

In conclusion, you now understand the many stages of estate planning and how the plan, once set up, requires ongoing attention. Working with an attorney or law firm that actively engages with you during these various stages can be invaluable.  If you already have an estate plan, dust that thing off and take a look at it.  Does your stage in life require some changes to your plan?  If you don’t have a plan already, make it a priority in the coming months to begin the process with a firm that is prepared to serve you at any stage of your planning journey.  Call our office today to schedule a consultation to discuss your stage of estate planning.