“My situation is very simple,” estate planning attorneys often hear, “I don’t need a complicated plan.” Although most people realize that they need an estate plan to make sure that their finances are handled during periods of disability and that their wishes are carried out after death, there is a common propensity to want to oversimplify the process. This is especially true if there are not obvious complicating factors such as multiple marriages, blended families, creditor problems, irresponsible beneficiaries, or special needs children. If one’s situation is so simple, what is wrong with a “nice-and-easy-does-it” plan?
I often counsel clients that their situation might be “simple,” but the law is complex. Even the “easiest” circumstances can spiral out of control without proper and comprehensive planning. Every estate – whether it’s modest, grand, or something in between – involves an array of potential intricate issues that must be addressed.
During periods of disability, making sure the person of your choice has the legal authority to manage your finances is an obvious concern. You can accomplish this by signing both a revocable living trust and a general durable power of attorney. However, a common problem is that the powers enumerated in such documents are often too vague. Issues such as the need to make gifts or initiate a spend-down plan in order to efficiently plan for long term care, to obtain insurance and name beneficiaries of such policies, and to deal with mortgages might arise after you have become disabled. If the trust and power of attorney do not have robust and detailed powers, the documents might be worthless. At the time of signing, the “simplicity” of a twelve-page trust and a two-page power of attorney might seem appealing, but when the documents need to be put into action, the value of a more detailed plan becomes clear.
Also during periods of disability, you want to make sure that a person of your choice has the power to make medical decisions on your behalf in accordance with your wishes. Some “standard” Advance Health Care Directives actually have clauses that state the authority granted to the agent will expire after a period of years, meaning that by the time you need to put your Advance Health Care Directive in action, it might be unnecessarily invalid. Older health care documents that predate the passage of medical privacy laws do not address your agent’s ability to access your medical information. Making sure your health care documents are detailed, comprehensive, and up-to-date is important.
With regard to transferring assets at death, regardless of their value, there are traps for the unwary. An estate plan must effectively navigate taxation (including income tax, capital gains tax, estate tax, and property tax), avoid probate, permit the trustee to hire experts such as attorneys, financial advisors, and tax preparers, deal with creditors, give the trustee flexibility in dividing the estate, allow the trustee to efficiently pay bills, and address unexpected issues such as pre-deceased or recently disabled beneficiaries. Other unexpected issues can arise such as disagreements among the beneficiaries over whether or not to liquidate an asset and how to direct investments. Furthermore, due to the nature of different assets, these issues often cannot be addressed just by one document by might need to include an estate plan that encompasses many components.
While your situation might be “simple,” do not underestimate the need to have a robust, comprehensive, and detailed estate plan. After all, estate planning involves all the assets that you worked so hard during your lifetime to obtain and everyone whom you love: everything that is important to you. Cutting corners in this arena is a perilous proposition.