Why Do Estate Planning?

By Harry S. Margolis

There are two answers to this question. The first has to do with taking care of yourself and your family during life. The second has to do with what legacy you wish to leave upon your death.

But before we get started, let’s get rid of one major misconception—that estate planning is only for rich people. The rest of us don’t have “estates,” so we don’t need to plan. While we don’t have mansions with pools and stables, almost everyone owns something, whether a house, a bank account or a retirement account. We need to plan on how these will be distributed after we’re gone and decide who will be in charge. But just as important—we need to plan for who will step in for us if we become incapacitated and for our family after we pass away.

Planning for Your Future

By signing a durable power of attorney, you can ensure that you keep control of your assets while you are healthy, while at the same time appointing someone to step-in and assist you quickly without unnecessary costs in the event you are unable to manage your own affairs. It can prevent unseemly and costly disputes over who should have the authority to represent you. It can maintain your privacy and reduce costs by eliminating the need for a court-appointed conservator and additional legal fees. By having someone in place, you may also be able to prevent high health and long-term care costs by taking the necessary steps to qualify for MassHealth coverage.

Similarly, by naming an agent through a health care proxy, you can choose who makes medical decisions for you when and if you are unable to do so yourself. Again, this can avoid the cost and delay of going to court for guardianship as well as preventing disagreements between family members about your care or where you will live.

What legacy will you leave?

While both the durable power of attorney and health care proxy permit you to choose who will step in for you in the event of your incapacity, through your will you can choose your personal representative (also called an executor or executrix) to manage your estate when you’re gone. By making this choice, you can prevent costly disputes among family members.

Your will also permits you to choose who will receive your assets, whether personal belongings such as furniture, artwork and silverware, or savings, investments and real estate. The more specific you can be, the less likely your legacy will include misunderstandings and hurt feelings among family members.

Unfortunately, over many years of practice, we have seen many families torn asunder by poorly planned estates. (Of course, the cracks were already present.) But whether and how you plan your estate can mean that your children will or will not be on speaking terms after you're gone.

And don't forget charities. While it may be difficult to make large gifts during life since you need to take care of yourself and your family first, it may be easier to do so at death. In planning your estate, consider what charities or interests matter most to you and whether you would like to make any of them a special gift from your estate.

Don't Forget Non-Probate Property

Interestingly, while the law provides for many formalities in the creation of a will, wills govern less and less property every year. Many investment accounts, including retirement accounts such as IRAs and 401(k) plans, permit you to designate the beneficiary who will receive them after your death. Your beneficiary designation is final, no matter what your will may say. This is also true of life insurance. Property in trust similarly passes to the beneficiaries named in the trust document. And jointly-owned property, whether a bank account or real estate, passes to the surviving joint owner or owners when one owner dies.

All too often, we see a lack of coordination between clients’ wills and their other property. For instance, a client’s will may say her estate is to be divided equally among her three children, but she may have a joint account with one daughter, have named the two others as the beneficiaries on her IRA, and guaranteed the mortgage on a grandchild’s house. In these circumstances, it can be very difficult to know what she had in mind and the interpretation or recollection of the three children may be very different. It’s best to look at all assets comprehensively, and to review the plan periodically in case circumstances change – such as the assistance to the grandchild in our example, which will now be a liability of the estate.

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