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Attorney's Estate Plans: One Big Hurdle, 5 Key Documents

If there’s one thing every attorney knows, it’s how important legal documents can be. One missing signature or misplaced word can throw an otherwise solid plan into a tailspin. So, why do we come across so many attorneys whose own estate plans are inadequate, incorrect, unfunded or even missing in action entirely?

It’s human nature to procrastinate, and attorneys are no exception to this rule. You embark on your legal career when you’re younger and your list of worldly goods fits on a single page. Then along come dependents and inheritances; personal and professional possessions and partnerships; people, property and priorities you’d like to protect. Fast forward a few decades and, just like any other incredibly busy professional, you end up with estate planning documents that are inadequate, incorrect, or even missing in action entirely.

Since it’s almost time for your annual New Year resolutions anyway, let’s add estate planning as a critical to-do to your must-do list.

STEP ONE: ASK FOR HELP (FROM AN OBJECTIVE OUTSIDER)

One of the stumbling blocks we see happen all the time with attorneys is a reluctance to seek outside counsel to assist. It may be tempting to tap someone within your firm to help you craft or freshen up your own plans. Unfortunately, progress can be hampered by delicate privacy issues. Or it may simply be awkward for each of you to hold one another accountable for the task at hand.

So, if you leave today’s post with one key takeaway, it is this: Fire your partner down the hall who has promised to draw up your estate-planning documents, but still hasn’t found one of those “round-to-its.” Hire an objective estate planning attorney outside your firm who will actually do the work, put things in place, and hold you accountable if you procrastinate too terribly long. Then, set up a schedule with them to revisit your key estate planning documents annually, to ensure they remain relevant to your and your family’s evolving needs.

STEP TWO: REVISIT YOUR KEY DOCUMENTS

Could you use a handy review of what those key estate planning documents entail? Hint: Even if you don’t, your spouse might find the overview useful as you craft your estate plans together. Taking it one document at a time, here are the five big ones:

1. Durable power of attorney

2. Advance medical directives

3. Will

4. Letter of instruction

5. Living trust

Let’s cover each of these in turn.

DURABLE POWER OF ATTORNEY

A durable power of attorney (DPOA) helps protect your property if you become physically or mentally unable to handle financial matters. If no one is ready to look after your financial affairs when you can’t, your property may be wasted, abused, or lost.

A DPOA lets you authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, watch over your investments, and file taxes.

There are two types of DPOAs:

  1. An immediate DPOA, which (as the name implies) is effective immediately – for example, for if you face a serious operation or illness.
  2. A springing DPOA, which is not effective unless you have become incapacitated. Not all states permit springing DPOAs, so check with yours before proceeding with one.

ADVANCE MEDICAL DIRECTIVES

Advance medical directives kick in if you are alive, but you cannot express your wishes yourself. They let others know what medical treatment you would want, or allow someone to make medical decisions for you.

If you don’t have an advance medical directive, medical care providers must prolong your life using artificial means, if necessary. With today’s technology, physicians can sustain you physically for quite a while – potentially longer than you would prefer.

There are three types of advance medical directives:

  1. A living will allows you to approve or decline certain types of medical care, even if you will die as a result of that choice. In most states, living wills take effect only under certain circumstances, such as terminal injury or illness. Generally, one can be used only to decline medical treatment that “serves only to postpone the moment of death.” Even in states that do not allow living wills, you may still want to have one to serve as evidence of your wishes.
  2. A durable power of attorney for health care (known as a health-care proxy in some states) allows you to appoint a representative to make medical decisions for you. You decide how much power your representative will or won’t have.
  3. A Do Not Resuscitate (DNR) order is a doctor’s order that tells medical personnel not to perform CPR if you go into cardiac arrest. There are two types of DNRs. One is effective only while you are hospitalized. The other is used while you are outside the hospital.

Advance medical directives are defined and regulated by state law, which can vary widely. Thus, you may find that one, two, or all three types are necessary to carry out all your wishes for medical treatment. Make sure your wishes are consistent across all of them.

WILL

A will is often said to be the cornerstone of any estate plan. Its main purpose is to disburse property to heirs after your death. If you don’t leave a will, disbursements will be made according to state law, which might not be what you would want.

There are two other equally important aspects of a will:

  1. You can name the person (executor) who will manage and settle your estate. If you do not name someone, the court will appoint an administrator, who might not be someone you would choose.
  2. You can name a legal guardian for minor children or dependents with special needs. If you don’t appoint a guardian, the state will appoint one for you. Read  Who Will Raise Your Kids if You Cannot to get started on this decision.

Since your will is a legal document, courts are often very reluctant to overturn any provisions within it. Therefore, it’s crucial that it be as clear and unambiguous as possible, and properly executed under state law. It’s also important to keep your will current.

LETTER OF INSTRUCTION

Estate planning is essentialA letter of instruction (also called a testamentary letter, or side letter) is an informal, nonlegal document that generally accompanies your will, to express your personal thoughts and directions regarding what is in the will, or about other things, such as your burial wishes or where to find other documents.

A letter of instruction can be among the most helpful documents you leave for your family members and your executor. Unlike your will, it remains private. Therefore, it is an opportunity to say the things you would rather not make public.

However, a letter of instruction is not a substitute for a will. Any directions you include in the letter are only suggestions; they are not binding. The people to whom you address the letter may follow or disregard any instructions.

LIVING TRUST

A living trust (also known as a revocable or inter vivos trust) is a separate legal entity you create to own property, such as your home or investments. The trust is called a living trust because it’s meant to function while you’re alive. You control the property in the trust and, whenever you wish, you can change its terms, transfer property in or out, or end the trust altogether.

Not everyone needs a living trust, but it can be used to accomplish various purposes. The primary function is typically to avoid probate. This is possible because property in a living trust is not included in the probate estate. Here are several reasons having a living trust and avoiding probate may be to your advantage:

  • Costs and Complexities: Depending on your situation and your state’s laws, the probate process can be simple, easy and inexpensive … or it can be slow, complex and costly. This especially may be the case, for instance, if you own property in more than one state or in a foreign country, or have heirs who live overseas.
  • Time: Further, probate takes time, and your property generally won’t be distributed until the process is completed. A small family allowance is sometimes paid, but it may be insufficient to provide for a family’s ongoing needs. Transferring property through a living trust provides for a quicker, almost immediate transfer of property to those who need it.
  • Effective Management: Probate can also interfere with the management of property like a closely held business (or legal practice) or stock portfolio. Although your executor is responsible for managing the property until probate is completed, he or she may not have the expertise or authority to make significant management decisions, and the property may lose value. Transferring the property with a living trust can result in a smoother transition and better management along the way.
  • Privacy: Finally, avoiding probate may be desirable if you’re concerned about privacy. Probated documents (such as your will and inventory) become a matter of public record. Generally, a trust document does not.

For more information, you and yours may wish to refer to our related post, “Revocable Living Trusts: Your ‘Who Gets What’ Guide.” Plus, here a few additional pointers:

  • Although a living trust transfers property like a will, you should also still have a will. There are some things only a will can accomplish, such as naming an executor or a guardian for minor children.
  • Also living trusts do not generally minimize estate taxes or protect property from future creditors or ex-spouses.
  • There are other ways to avoid the probate process besides creating a living trust, such as titling property jointly.

STEP THREE: LET’S DO IT

Again, even if you or one of your firm’s partners are old hands at helping others establish their estate plans, chances are you still may have left your own unattended – or at least unreviewed. Let us know if you could use a referral to a reputable estate planning attorney who will help you knock this critical task off your to-do list, while remaining sensitive to any privacy concerns you may have. It would be our pleasure to pair one good attorney alliance with another! 

GET STARTED TODAY WITH A PHONE CONVERSATION WITH A COGENT ADVISOR