Choosing your health care power of attorney can be a difficult and emotional task. It’s crucial that you have a health care power of attorney because when you need medical attention, the doctors are required to get your permission before beginning any treatment. This could be impossible if you are incapacitated.
Here are some considerations to think about and open the lines of communication with your family about this very important decision.
1. Who do you trust with your life?
2. Who can be easily reached when needed?
3. Who will follow your wishes?
4. What would your family say about this person? Will they agree or will this decision have potential conflicts?
5. Do you want to appoint multiple people or just one person to act on your behalf? If you plan to appoint multiple people to act jointly, make sure that they are in agreement to avoid any conflict. You might want to appoint 3 for a majority vote or to require a unanimous decision.
6. Make the hard decisions yourself. Family members may be more willing to act as your health care agent if you can ease their decision-making burden by already indicating your end-of-life decisions in a living will.
One of the toughest decisions that I find people have is choosing who to be a guardian for their children. And because they can’t decide who to be the guardian for their kids, they put off naming someone or even put off doing their whole estate plan.
A guardian is the person or people (if you name a couple) responsible for your kids’ physical, emotional and spiritual well-being. If you name a couple and one of the spouses pass away, ask yourself whether the surviving guardian spouse can care for your child alone or would you want to go to your next choice for a guardian.
When nominating a guardian for your child, consider:
If this is still difficult for you, keep in mind that the other alternative is a Judge making the decision for you and who doesn't know you and your circumstances.
Choosing a Trustee
One of the most important and often difficult decisions you will make in estate planning is choosing a trustee to manage your affairs and provide for your loved ones when you become disabled or after your passing. Typically, if you have a revocable living trust, you may be your own trustee. And if you are married, you and your spouse may be co-trustees of your revocable living trust.
But when you and your spouse pass away, the question as to who will be the successor trustee can be daunting. People usually would choose an adult child, relative or a close friend. But would they be up to the task? The ones closest to us may not always be the best qualified to be your trustee.
When choosing a trustee, here are some factors to think about.
Locality: It would be ideal if your trustee lives nearby to perform his or her trustee duties efficiently, especially if real property is involved. For example, if the trustee has to sell your house, it would be better if your trustee was in the area to meet with the local real estate agent, appraiser, home inspector, etc.
Work Ethic: Being the trustee of someone’s estate can be overwhelming with the numerous tasks. Is your trustee responsible to manage your bank accounts, pay bills, maintain insurance, etc.? The person should also be honest, fair, detail-oriented, organized, dependable and a good communicator.
Ability to Use Good Judgment: Your trustee does not have to be a professional or have an MBA degree, but he or she should be business savvy and be able to use good judgment and common sense when managing the affairs of your estate. Also, this person should not be afraid to ask for help and should be sensitive to your desires and the needs of the beneficiaries.
Number of Co-Trustees: Choosing more than one trustee may be a good idea so they can help each other and not have one person bear the burden of handling the affairs alone. But you would have to consider whether the co-trustees would get along. Oftentimes, people would designate their children as co-trustees and have them serve equally. However, if you choose to go this route, consider if the children can get along and be able to make decisions without any conflict.
Availability: Is the person too busy to handle your estate or are there other aspects of his or her life that would distract him or her from managing your affairs?
Professional Corporate Trustee: Of course, you can always choose a professional who may charge more than a relative or close friend. Corporate trustees would be banks or financial service firms. If you can’t name someone qualified to serve or you foresee potential family conflict, you can avoid these problems by hiring a professional to handle the affairs.
Many people may assume that once they have an estate plan in place, they feel that there is nothing left to do and put it aside, locked in their safe deposit box. But what was a proper plan then may no longer be appropriate.
A plan should be revisited every 3-5 years, or more frequently if there are changes in the law or your life circumstances. Doing nothing could have significant consequences.
Here are some factors to consider:
Changes in the Law: The law is always evolving. Changes in the law could significantly impact your estate plan.
Change in your marital status: If you have a birth, marriage, divorce or death in the family, you may want to review your estate plan and see if you need to make changes and minimize any risk of conflict. If you have been divorced, then you should update your estate plan to make sure that your former spouse is removed as beneficiary and fiduciary.
Change in financial status: If you received an inheritance or won the lottery, you should review your estate plan to see if your estate will be taxable. Receiving different assets could require a different approach to your estate plan to minimize taxes.
Changes in the Beneficiaries or Fiduciaries: You may want to update your estate plan if you want to add or take someone out as a beneficiary. Additionally, if you had minor children when you had set up your estate plan, you may consider whether they are ready to serve as your fiduciaries (successor trustees, health care agent, power of attorney, etc.). Has your fiduciary moved or is he or she still qualified to serve as your fiduciary? Will the changes affect your goals and your estate plan?
Moving to a new state: Different states have different legal requirements. It’s best to have a new set of documents that would meet your new state’s legal requirements. It may sound tedious after spending much effort and money on the previous estate plan, but you have done most of the work already and preparing new documents may be very simple.
Make sure to review your estate plan every three to five years even if there are no life changes. There may be little or no changes that need to be made, but when there are, ignoring these changes could be costly.
In 2013, Congress and President Obama passed the American Taxpayer Relief Act making the laws governing federal estate taxes, gift taxes, and generation-skipping transfer taxes permanent for 2013 and beyond (adjusting for inflation for the years after 2011).
The IRS recently released the inflation adjustments for 2014, increasing several federal gift tax annual exclusion amounts and the lifetime gift, estate and generation skipping tax exemption totals. For 2014, the lifetime exclusion from federal gift or estate taxes increases from $5,250,000 to $5,340,000 per person. This means that if a person passes away in 2014 and their estate is equal to or less than $5,340,000, their estate does not have to pay federal estate taxes (considering he or she did not make any gifts during his or her lifetime). But use of any portion of this exclusion amount during one's life reduces the total availability for giving at death. Each state may still impose their own estate tax. California, however, is one of the states that does not impose an estate tax.
The chart below reflects how the federal estate tax has increased since 2010.
Year Amount Excluded Maximum Tax Rate
2010 Repealed N/A
2011 $5,000,000 35%
2012 $5,120,000 35%
2013 $5,250,000 40%
2014 $5,340,000 40%
Additionally, the annual gift tax exclusion will remain the same at $14,000 per donor per donee. This means that each year, a person can gift to another person the maximum amount of $14,000 without any gift tax liability. A married couple can gift up to double that amount. Some exempt gifts include medical expenses, payment of tuition, charitable donations and gifts between spouses.
Oftentimes, people put off creating an estate plan because they believe it doesn’t apply to them. Here are a few common estate planning myths that may have you reconsider:
Estate Planning is for the “older” folks. I’m too young to think about this.
No one is too young to consider estate planning. Anyone owning a home should consider an estate plan to avoid the expenses and delay of probate. Also, if you have children, a will, at a minimum, is necessary to select your guardians for your children. Otherwise, the court will decide and he or she may not be your choice. Incapacity or death can come unexpectedly and you will want to ensure that your property and your loved ones are protected. Estate planning is for anyone who becomes incapacitated or passes away. In other words, estate planning is for everyone.
Estate Planning is for the rich.
No matter how large or how small your estate, estate planning is crucial for everyone. The magic number in California is $150,000. If you leave assets worth $150,000 or more and you do not have the proper estate plan, your estate may be subject to probate, which is costly, time-consuming and public. In addition, estate planning is much more than dealing with money. If you become seriously ill, how will your finances be taken care of? Or will your health care decisions be carried out the way you like? Will your children be taken care of by the right guardian? With the proper estate plan, you can provide detailed instructions on how to distribute your assets and who will receive your estate in what manner and when. And you can also be specific on how to provide for your own care and your loved ones in the event of your mental disability.
I have a Will so I’m all set.
Having just a Will may be a good start, but may not be enough. Wills do not offer any planning for you or your loved ones in the event of your mental incapacity; it only provides instructions on your death. The other downside of having just a Will is that if your estate is subject to probate, it will be fully public and anyone can inspect and know about your affairs.
If I have a Will, my estate won’t go through the probate process.
Having property that transfers by a will guarantees the probate process. The probate court will oversee the distribution of a person’s estate as outlined in the decedent’s will.
I’ve already created an estate plan so I don’t need to do anything else.
Many people believe that once their estate plan is complete, they can check it off their checklist and don’t have to think about it anymore. But what they wanted to accomplish then may no longer be appropriate. For example, there may be changes in their personal, family or financial situation. Or there could be changes in the tax laws that would affect the estate plan. The cost of failing to review and update may have far more significant consequences than the cost of keeping the plan current.
About the Author
Christine Chung, Esq.