It can be challenging to talk to your aging parents about estate planning. First, your mom and dad may feel it is inappropriate for their adult children to meddle in their financial planning or estate planning. They may also think that you are acting selfishly or with questionable intent. Of course, your parents’ finances are private. Still, there are very important estate planning issues that you should discuss with them concerning incapacity planning that will benefit and protect their healthcare wishes and finances.
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How To Start the Estate Planning Conversation
If your parents have yet to discuss incapacity planning with you, it is a good idea to initiate this conversation with them. One of the best ways to do this is to educate yourself on this issue for your own estate planning and invite your parents to join you in the discussion. When you first discuss incapacity planning, the rest of the estate planning conversation should flow naturally, including discussions of a will or trust and ways to avoid probate.
Preparing for Incapacity
The first concern is to prepare for incapacity or incompetence. Any one of us can become incapacitated through illness, age, or a serious accident. While we do not like to think of these situations, they do occur, and it is best for you and your loved ones if you have documents in place to appoint a trusted person with decision-making authority to accommodate these situations. The two primary documents to consider are a financial power of attorney and a health care directive (which includes a health care power of attorney and living will).
Financial Power of Attorney
A financial power of attorney authorizes your attorney-in-fact to manage financial affairs and make financial decisions for you. You can direct the scope of authority granted under a power of attorney from authority to conduct a single action (limited power of attorney) to broad and sweeping powers as allowed under the law. The POA document can include the authority to:
- Pay bills and expenses
- Engage in real estate transactions
- Pay taxes
- Manage your finances
- Manage investments and retirement accounts
- Manage bank accounts and insurance transactions, such as long-term care insurance
- Work with your financial institution or brokerage
- Operate your business
- Make gifts to third parties
- Seek elder law or other legal advice on your behalf
- Hire a financial planner or financial advisor to assist with wealth management
You also direct when a power of attorney takes effect. For instance, you may desire that it does not take effect until you become incapacitated or incompetent (a springing power of attorney). Or you may want a power of attorney to take effect immediately and continue even if you become incompetent or incapacitated (a durable power of attorney). And you may want a power of attorney for a specific time or transaction, such as a real estate closing, or to manage the sale of a business (a limited or special power of attorney).
You maintain the authority to revoke a power of attorney at any time, provided that you are competent at the time of revocation. All power of attorney authority ceases upon your death.
Regardless of the authority provided to an attorney-in-fact, they must always act in your best interest, keep accurate records, and avoid conflicts of interest.
As indicated above, all authority under a power of attorney terminates upon your death. The estate is then administered and distributed according to the terms of the will if there is one.
Health Care Directives
A power of attorney for medical care, health care power of attorney, living will and health care directive all concern memorializing your health care wishes if you become incapable of making your own. You appoint an agent or attorney-in-fact to direct your health care and carry out your directives if you are unable to do so. Sometimes these consist of two legal documents, the medical care power of attorney and health care directive or advanced directive. Sometimes the two are merged into a single health care directive that contains a power of attorney within the same document. They all operate to allow you to direct your health care and choose a health care agent while still competent to do so.
A medical directive that spells out your wishes concerning the type and extent of medical care desired in the event of incapacity or incompetence and end-of-life care. For instance, you can direct your desire to utilize artificial life-saving measures and direct the extent of treatment you want to be administered if you have an incurable disease. Again, this is sometimes a separate document or merged with an overall health care directive or medical power of attorney.
A medical power of attorney, or healthcare POA, grants the power to the agent or attorney-in-fact to make medical and health care decisions for you per your medical directive. The agent’s authority can include selecting a nursing home, long-term care planning, or home care.
Overall, these directives and powers spell out your wishes for treatment and give authority to your attorney-in-fact to enforce these wishes if you cannot do so.
Preparing for Death
Now that you understand the importance of incapacity planning for you and your parents, you can segway into a discussion about a last will and testament. Again, including yourself in the discussion makes it more collaborative and palatable for your parents.
What Is a Will?
Simply put, a will is a legally binding document containing your instructions on how you want your estate distributed upon death. The person making the will is the testator or will-maker. The executor or personal representative is the person nominated to administer the will. A beneficiary is a person who receives a gift in a will. An heir is someone who stands to inherit from a deceased person’s estate but might not be a beneficiary in the will. The specific formalities of preparing and signing a will vary by state law.
Generally, property left in a will must go through probate. Probate is a court process where the court appoints the executor, directs debt payments, directs an accounting, and eventually directs the executor to distribute the property to the beneficiaries. It is a costly and lengthy process that most people prefer to avoid. Regardless, it is worth repeating that everyone should have a will, at least as a backup to any other estate planning device you have.
What Does a Will Contain?
Generally, a simple will first identifies the testator by full name, the testator’s county and state of residence, and a statement revoking any prior wills. The will then directs the executor to pay costs of estate administration, legitimate bills, such as credit cards and medical bills, and any taxes of the estate or testator.
The will also has provisions to:
· Nominate an executor and any successor executor
· Nominate a guardian for any minor children or dependents
· Describe any specific items and gifts to certain people or charities
· Name beneficiaries
· Direct the specific distribution of personal property and mementos
· Direct the management of social media accounts and other digital asset management
What Property Does Not Transfer by Will?
Some property passes outside of the provisions of the will. Examples of property that does not transfer by will include:
· Property in a living trust
· Property in joint tenancy
· Pay-on-death bank account
· Investment account with a beneficiary designation
· Retirement account with a beneficiary designation
· Real property transferable to a beneficiary by a transfer-on-death deed
· Vehicle transferable to a beneficiary by a transfer-on-death designation
· Life insurance policy with a beneficiary designation
Note that there are situations where these beneficiary designations do not work, so the property must pass through the terms of a will by a probate court. Suppose a beneficiary of a bank account, retirement account, investment account, life insurance policy, real property, or vehicle transfer device does not survive the account holder, and there is no other beneficiary. In that case, the probate court will distribute that asset by terms of the will.
The message here is that if you do not have multiple beneficiaries or a successor beneficiary on any asset, it could be subject to probate.
What if There Is No Will?
In each of the above situations, if there is no will in place and the deceased dies without a will (intestate), the probate court must apply the intestacy statutes and distribute the assets accordingly. Unfortunately, how the probate court distributes the property might not be what the decedent desired.
Again, the message here is clear, regardless of what other methods or devices are in place for estate planning, a will is a necessary tool to use as a primary device to transfer assets upon death, or as a backup device if something fails.
How To Create Your Will
There is no time like the present to get your estate planning done and include your parents in this process. Helping your parents’ estate planning will help you and your other family members have peace of mind when they become incapacitated or pass away. Our state-specific estate planning documents guide you through the process of creating a last will and testament, financial power of attorney, and health care directive.