What’s the right time to plan your estate? Perhaps you’ve recently married. Or you just bought your first home. Maybe you’re a new parent. Or your children are older, and you’re thinking about paying for their college education. Or maybe you just want the peace of mind that comes with putting your legal affairs in order.
You could wait to make an estate plan until you’re dealing with a medical crisis, or worse, if you’re willing to risk upending your life and your family’s future. You could choose to leave the distribution of your estate to the intestacy statutes. Or you could do what so many of us do: procrastinate.
Instead of all that, please consider these four basic estate planning tools:
Will: When you marry, have children, or have significant assets
Your will is the foundation of every estate plan. It determines how all your probate property—all property titled in your individual name, without a beneficiary designation—will be distributed after your death. Bear in mind, however, that your will does not cover your non-probate assets, such as jointly owned real estate, retirement or insurance plans for which a beneficiary is designated, bank accounts with transfer-on-death designations, and property that you have transferred to a trust during your lifetime.
If you die without a will, you are said to have died “intestate.” In that case, your property will be distributed pursuant to the terms of the Massachusetts intestacy statute. It’s a bit complicated, but here are a few of its features:
- If you are unmarried, your assets will go to your parents, if they are alive, or otherwise to your siblings or their descendants.
- If you are married and have living parents, then the situation becomes more complicated: Your surviving spouse and parents each will receive a share of your property, in proportions determined by the statute. That’s not good if you want your spouse to have everything. Nor is it good if you have a partner to whom you want to leave anything. In those cases, you should consider calling an estate planning lawyer.
Making a will requires you to consider how to distribute all your assets. If you do not have a long-term partner, do not own real estate in your name alone, do not have financial accounts that lack beneficiary designations, then you may not need a will, at present. Otherwise, now is a good time to start the process.
Revocable Trust: Ask your attorney when you have a will drawn
Forget “trust fund baby” stereotypes. A trust agreement serves as a robust part of estates of all sizes. Your attorney may recommend that you create a revocable trust for a variety of reasons: to win favorable estate tax treatment, to hold money for the benefit of minors or disabled beneficiaries, or simply to avoid the time and expense of probate. In some cases, your estate planning attorney may recommend an irrevocable trust for asset protection (including MassHealth planning), for holding life insurance, or for more sophisticated gifting, including charitable bequests.
But if a trust can accomplish almost everything that a will can accomplish, with the added benefit of avoiding probate, why do you need a will? Here’s the catch: If you don’t have a will, then you would need to transfer all your property into the trust during your lifetime. Any property that you failed to transfer to the trust would be distributed pursuant to the intestacy statute and would have to be probated. Your carefully planned, all-encompassing trust would be thwarted. That’s why most estate planners encourage you to draft a will and a trust that work in tandem.
Health Care Proxy and Durable Power of Attorney: ASAP
The Health Care Proxy and the Durable Power of Attorney are the two most overlooked and misunderstood aspects of an estate plan. These documents, unlike wills and trusts, are effective only during your lifetime. They will terminate upon your death. Nonetheless they form an essential part your plan, because they protect you and your assets if you become incapacitated.
Your Health Care Proxy allows you to appoint a person who can make health care decisions if your doctor determines you to be unable to make them for yourself. In Massachusetts, absent a valid Health Care Proxy, none of your family members has a legal right to make healthcare decisions on your behalf. The law in our state makes no provisions for “next of kin” to control your health care. Instead, pursuant to Massachusetts General Laws C. 201D s. 16, health care providers are allowed, but not required, to rely on the decisions of your family members. In practice, if you were incapacitated, you doctor might rely on your family members, if they are all in agreement. If you have no family, or if your family members disagree over what should be done, those interested in protecting you may need to institute guardianship proceedings, which can be time-consuming and expensive.
You will need a guardianship if you don’t have a Durable Power of Attorney (DPOA). In the DPOA, you nominate a trusted person to act in your place with respect to non-medical matters if you become incapacitated or are otherwise unable to make decisions for yourself. Your agent will be allowed to access your financial accounts, to engage in essential transactions, to pay your bills, and generally to protect and preserve your economic assets and interests. As with the Health Care Proxy, a Durable Power of Attorney ensures that only a person of your choosing will have the power to pay your bills and to make financial decisions on your behalf. Without a DPOA, family disagreements can cause controversies that require court intervention.
Making an estate plan may not seem urgent when you’re in your twenties and thirties. And at any age, it’s no fun to think about dying and having your loved ones sort through your goods and affairs. No matter your stage of life, however, I encourage you to think early and carefully about how you want your assets to be distributed. A well-crafted plan will prevent unpleasant surprises, family feuds, added costs, and administrative difficulties.
Further, you should reevaluate your plan often and ponder whether you are still satisfied with it. If you determine that you do not need a will now, then at the very least you should have a Health Care Proxy and a Durable Power of Attorney. My colleagues and I at Mountain Dearborn are willing to help you whenever you wish.
Image: Mareks Steins