Happy New Year 2014 to our clients and other friends! The start of the New Year is the perfect time to review your estate planning for the benefit of your family, if you should die or become incapacitated. Obviously, this is a subject we would prefer to ignore, and the topic reminds us of our own mortality. However, if you do not have a Will, or if your Will is out of date, you are doing a real disservice to your loved ones. By taking a few hours to plan now, you will save your loved ones endless hours of aggravation and heartache, not to mention substantial expense, by proper planning.
If you do not have a Will, you are considered to have died “intestate”, and the laws of the Commonwealth of Pennsylvania will determine who will receive your estate. For example, if you are married and have no children, you may be surprised to learn that upon your death your spouse may have to share your individually owned assets with your parents. (This does not apply to jointly owned assets in which your spouse has a survivorship interest). If you are married and have children, and do not have a Will, your spouse and children will share in your estate. However, under the law children cannot own property, and if you do not have a Will your estate will face the expense of having to petition the Court to appoint a guardian of the estate of your children. This will result in significant time and expense to your estate, and will unnecessarily restrict the ability of your children’s surviving parent or guardians to use your assets for the benefit of your children. Dying intestate also presents other problems, such as possible disputes as to who will administer your estate.
Most people whom I encounter agree that a Will is a good idea, but generally avoid having one prepared for one reason or another. In reality, there is no good reason for not having a Will when you consider the many ways your family may be disadvantaged without one if you die. The following questions represents a partial list of issues that you should consider before you meet with your attorney to discuss your Will:
1. What assets do I have? Are these assets jointly owned with another person? If so,will the survivor acquire the asset in its entirety or can I pass on my interest in the asset to my heirs?
2. Do I own life insurance policies, retirement accounts or other assets in which I have made beneficiary designations?
3. If I have children, what trust provisions should I include in my Will to protect my children, including the following:
a. Is there a trusted family member or friend whom I can appoint as the trustee to administer the trust? Is there another individual who can act as the back-up if my first choice cannot act as trustee?
b. Do I want to establish one trust for the benefit of all of my children or separate trusts for each child?
c. At what age do I want the trust or trusts to end? For example, if I have separate trusts for each of my children, do I want the trust to end when my child graduates from college or at a later age, such as 25? Do I want to give my child the right to receive the trust principal in different stages, such as at the ages of 25, 30 and 35? If I have established one trust for all of my children, when will the trust end, such as the graduation from college of the youngest child?
d. Under what circumstances can my trustee withdraw funds from the trust to benefit my children, such as for their ongoing support and college education?
e. Will the guardian of my children be entitled to compensation from my trust for their services?
4. If I have minor children, whom should I select as the guardian of their day-to-day activities (guardian of the person) as well as their finances (guardian of the estate)? Do I want to have the same person act as both trustee and as guardian of the person of my children? Is there another person who can act as the back-up or alternate guardian for my children in case my first choice cannot serve?
5. Who is best equipped to carry out the instructions in my Will and fulfill the requirements of the law, that is, who should be my executor? Is there another qualified person who can serve as my backup executor?
6. If my first beneficiary choices do not survive me, whom should I name as alternate or successor beneficiaries? (For example, if you have named your spouse as your primary beneficiary, and your children as first alternates, you should also name successor alternate beneficiaries in the event of a common disaster involving your entire immediate family.
7. If I have a disabled adult child, should I consider a special needs trust.
8. Do I wish to establish a Trust in my Will for an adult beneficiary who, while not disabled, exercises poor financial judgment?
9. Do I wish to benefit an elderly member of my family or elder friend, for whom trust provisions may also be appropriate?
10. Are there any charitable organizations whom I would like to benefit under my Will?
11. How can my digital assets be protected?
The above items are not intended to be an exhaustive or complete list of issues that you should consider in preparing a Will. When you meet with your attorney, he or she will ask you a number of questions designed to determine your unique needs. By asking detailed questions, your attorney will be able to provide recommendations that are appropriate for your particular needs.
I am often asked by clients what information they should bring to our initial interview. I always find it helpful if the client brings an outline of financial assets, including individually and jointly owned property, the value of each asset, the name and face value of each life insurance policy, and the beneficiaries, retirement account information, including the value of each account, and beneficiaries, and brokerage accounts, if any.
It is very common for individuals to have Individual Retirements Accounts, 401k accounts, 403b accounts and similar retirement accounts in which beneficiary designations have been made. Similarly, life insurance policies have beneficiary designations. It is very important to be aware that upon your death the proceeds of your life insurance policies and retirement accounts will pass to the individuals named in your beneficiary designations. I have found that often individuals established retirement accounts many years ago and named a parent, sister or other family member as their beneficiary, and never changed their beneficiaries after they married or had children On other occasions, individuals who have divorced have never removed their former spouse as the beneficiary of their retirement accounts. You should expect that your attorney will carefully review the beneficiary designations of these accounts and policies to be sure they are up to date and consistent with your wishes. If you have children or other minors whom you would like to name as beneficiaries of your life insurance policies or retirement accounts, in whole or in part, it is very important that the trustee of your Last Will and Testament be named as the beneficiary rather than the minor child. Your attorney will be able to provide you with specific trustee language for your life insurance policies, retirement accounts and any other accounts you may have in which you have made beneficiary designations.
Often, individuals designate a family member as the beneficiary of a life insurance policy or retirement account with the “understanding” that the family member will use the proceeds for the benefit of the children or other family members. This is a bad idea for several reasons. First, if you leave the money to a family member with no specified restrictions, your family member has the legal right to use the money as he or she sees fit. Even if your family member intends to use the money in accordance with your wishes, what happens if the family member dies, become financial insolvent, undergoes a divorce, or undergoes other financial difficulties? There are also gift tax issues that may arise if your named beneficiary uses the life insurance proceeds or retirement accounts for the benefit of others. These difficulties can be avoided by naming a trustee for the benefit of your child or other intended beneficiary.
When you meet with your attorney to discuss your Will, you should also discuss whether you should have a Power of Attorney, a commonly used but often misunderstood legal document. The benefit of a Power of Attorney is to designate someone whom you trust as your agent to handle your financial, legal and other matters for you if you are unable to act. Typically, Powers of Attorney are used by older individuals who find it difficult to write checks, transact banking business and other routine matters due to the infirmities of older age. However, a Power of Attorney is an extremely useful document for all adults. For example, if you become severely disabled due to an accident or serious medical condition, your agent can act for you under a Durable Power of Attorney. In this situation, a Will cannot help because a Will becomes effective only upon death. A properly drawn Power of Attorney will benefit you and your family if you should become incapacitated.
Similarly, when you meet with your attorney you can expect that he or she will discuss a Durable Healthcare Power of Attorney with you. Basically, a Durable Healthcare Power of Attorney will permit you to designate a healthcare agent to act for you and to make medical decisions if you are unable to do so yourself, based upon the directions you’ve provided in your healthcare power of attorney.
Generally, I recommend that you designate both a primary general agent and primary healthcare agent and alternates in the event your primary agent cannot serve. It is also acceptable to name co-agents, although you should be sure that your co-agents are able to communicate with each other and that they will be able to cooperate with each other.
Please call us at Fries Law Office for assistance in your estate planning matters. With over thirty five years of experience, we will help you in preparing estate planning documents that will meet your needs and the needs of your loved ones at a reasonable fee. Do yourself and your family a huge favor by making it your number one New Year’s resolution to obtain new Wills, or updated Wills, early in the New Year. Once again, Happy New Year from all of us at Fries Law Office.