The beginning of the year is a time for reflection. We think about events of the past year and look forward to what the new year holds for our lives and the lives of our friends and family. Some will get married, others divorced. Some will welcome a new child or grandchild, while others will celebrate graduations! Some of us will have a major medical incident or a death in the family and will be forced to face some big questions. Each of these events, along with the simple passage of time, is a reason for you, your friend, or your family member to review or create your estate plan. If you've been putting this off, let me give you three more reasons why you and your family members want to complete this task and scratch "appointment with elder law/estate planning attorney" off your to-do list.
Reason 1: Beneficiary Designations and Changes in Marital Status
A major issue in estate planning is managing beneficiary designations and changing them to keep up with people's lives as they divorce, marry, and have children.
Take this case from Georgia as an example: In 2009, Thomas H. Smoot II died with an estate valued in excess of $7.7 million. His ex-wife, whom he'd divorced in 2006, was still named as the designated beneficiary on his life insurance and retirement accounts worth $5.4 million. Oops. What followed were six years of lawsuits between his son and his ex-wife. First, there was the battle over whether his ex-wife could inherit. The law states that a spouse who later divorces is treated as predeceased in a will; however, this has no effect on life insurance or retirement benefits; so, his ex-wife properly inherits those assets. It gets even scarier.
The second battle was over who pays the estate taxes. His will provides that if an estate tax is due, each person receiving an inheritance has to pay his or her share of the tax. However, because his ex-wife was deemed to have predeceased when they divorced, the court ruled that she didn't have to pay her share of the taxes under the will. An estate tax statute required his ex-wife to pay her share of the taxes caused by the life insurance, but there was no such law for the retirement benefits. In short, his ex-wife received over $5 million from a $7 million estate, and the son was stuck with about $353,000 in estate taxes for assets he didn't inherit.
All of this happened because Mr. Smoot II didn't review his estate plan and change his beneficiary designations after his divorce.
Reason 2: Family Changes Altering Your Needs, Possibly Creating Opportunities
As family members grow, your perceptions about what they need and what you should give them change. Before children, if you thought about estate planning, you were probably thinking only of your siblings, helping your parents, or a favorite charity. With young children, the focus may be entirely on getting them through college. Afterward, you may wonder if they would spend or save an inheritance. Lastly, you start the whole process again with grandchildren.
At each of these stages, your elder law and estate planning needs change. With grandchildren or young children, you may want to save for college. With young adults, perhaps a trust is in order to curb their spending until maturity sinks in. But, maybe they can handle an outright gift!
If you have a 20-year-old will, do you have the same ideas about what your children need as you did when Bill Clinton was being sworn in for his second term? With regular reviews of your elder/estate plan, you can respond to the changes in your life and keep your planning in sync with your wishes.
Reason 3: An Ounce of Planning Is Worth (More Than) a Pound of Cure
By some accounts, less than 50 percent of Americans have up-to-date elder/estate plans. The reasons for it vary, but whatever the excuse, the consequences for failing to create or update a plan are real. Which scenario would you prefer?
"When my husband's great aunt Rose died, it was a disaster. We thought she had early onset dementia, but we had no idea it was so bad when she got pneumonia and went to the hospital. Because she had no health care representative, there was confusion about whether she would want life support. Without a power of attorney, bills weren't being paid. Someone had to go to court to get a conservator appointed. Then, during this fiasco, she died! We had to make funeral arrangements, but nobody had a clue what she wanted. Did she want to be buried or cremated? How are we paying for this? Were the ashes to be buried with her parents, or did she want us to spread her ashes at the place she loved? Then came the fight in court over her stuff!"
Or, Door #2:
"Alright, Mrs. Smith. I see here that you've been named power of attorney and health care agent in your father's documents. You need to take these to the hospital so they know to talk to you. He's outlined his wishes on CPR and life support here, so please familiarize yourself in case it comes up.
Hello again, Mrs. Smith. I'm sorry for your loss. You don't need to worry about funeral arrangements. Your father spells out here that he wants to be cremated and the ashes interred next to your mother. He set everything up with ABC Funeral Home, so you just need to get in touch with them. When you have a moment, we also need to discuss the gifts your father made in his will."
Our elder law team frequently works with children of clients and friends of clients who are helping manage our clients' affairs after illness or injury unfortunately occurs. If a person fails to create an elder/estate plan or keep it up-to-date, his or her inaction forces us into "Door #1" and its greater expenses. Many people who have endured "Door #1" for a family member will do whatever they can to make sure their family goes through "Door #2" following their own death. Which door would you prefer your children take for you?
A little preventative planning is all it takes to create better options in these situations. By planning ahead, you reduce or eliminate the stress of decision-making for your family members. Those who have been through "Door #1" know how valuable that peace of mind and relief of stress can be from taking "Door #2."