Bar Associations and pollsters frequently conduct surveys about estate planning in the United States. While the results tend to vary considerably, one thing is perfectly clear – nearly 70% of Americans do not have a complete estate plan. The reasons given by the survey respondents also vary, but the most common excuses are a belief that they do not have enough assets to bother planning, or that they simply have not given the matter any thought, usually because they feel they are “too young” to worry about it.
The fact of the matter is that everyone, from the multi-millionaire to the guy with $5 in his pocket has an estate. Someone needs to be appointed to manage your affairs in the event of incapacity, and your heirs need clear instructions as to how to distribute your assets upon your death. Estate planning is not just for the elderly or the infirm; younger adults frequently need to address plans for the care of their minor children, and the preservation of assets for their future needs.
A comprehensive estate plan has at least three major components:
Last Will & Testament: Most people are familiar with the concept of a Will. A Will is a legal document that outlines who is to inherit your assets at your death, who is in charge of the distribution (your Executor), and when and how your heirs are to receive those assets. For people with minor children, the Will can also help guide the courts in appointing a guardian to care for them, both personally and financially, until they reach adulthood. In the absence of a Will, Virginia has a default statute that guides distribution of your estate, but the default rules are often much more difficult to manage, and can leave your family and heirs with considerably more work to do to settle your estate. The default rules often direct distribution to people you may not have intended to receive assets, or can cause inconvenient asset splits. This is often seen in the case of people who have remarried – Virginia law directs that if you are remarried and have children from a prior relationship, your children receive ⅔ of your estate, and your spouse receives ⅓, inviting conflict between the parties. In addition, direct gifts to minor children are paid into court, giving your heirs no control over investments, and allowing for a full distribution to the child when they turn 18.
A Will cannot accomplish everything, which is where the vast majority of people without comprehensive estate plans fail. A Will has absolutely no legal effect during your lifetime, and your Executor has no authority to take control of any of your assets if you are still living, but incapacitated. Lifetime planning requires two additional documents:
Durable Power of Attorney: Appoints an agent to handle your financial and legal affairs, even if you are incapable of managing them yourself. Your agent will have the power to sign nearly any document that you would be required to sign to pay bills, transfer property, invest, or rearrange and protect assets. Without a Power of Attorney, friends or family members may have to go through a complicated and time-consuming court proceeding to appoint a Conservator of your estate.
Advance Medical Directive: Appoints an agent to communicate with doctors, and direct all facets of your healthcare, consistent with your wishes, when you cannot make informed medical decisions. The Medical Directive also includes a Living Will that outlines your desires regarding end-of-life care, such as whether or not to use life support systems when terminally ill or in a persistent vegetative state (brain dead), and a universal medical privacy release to ensure that doctors will be willing to share your medical records with your designated agents. Without a Medical Directive, friends or family members may have to go through court proceedings to appoint a Guardian of your person, and in extreme cases (many may remember the Terry Schiavo case several years back), bitter arguments may be caused by differing opinions as to how to handle situations of profound cognitive impairment.
These three documents form the basic foundation of a proper estate plan, and each is necessary to cover the various potential issues that could occur during one’s lifetime, and after death. Talk to us today to make sure that you are covered for any eventuality. These simple documents can save you and your family hundreds, if not thousands of dollars in court costs when a crisis occurs.