What is an Estate Plan?

Confronting the inevitable can be daunting.  Thinking about death – and even making plans around it – can be unnerving.  Even as a lawyer with the ability to easily prepare my own estate planning documents, I still put it off.  But an estate plan is not just thinking about death.  It’s about being prepared and knowing the right people and plans are in place when needed both during and after your life.  When you put an estate plan in place, you’re protecting yourself, your family, and your assets during your lifetime and you’re making sure the ones you love most are set up for success after you are gone.  As a father of two young boys, I sleep easier at night knowing that my wife and I have a comprehensive and coordinated estate plan in place to protect our children if something happens for us.  For me, that comfort and security is what estate planning is really about. 

Of course, there is much more to estate planning than feelings of comfort and security. But just what is an estate plan? I believe that many people primarily think of it as having a Last Will and Testament (Will).  An estate plan, however, is much more than just a Will.  Indeed, there are many additional considerations and other key documents that go into a complete estate plan.  And a complete estate plan should be the goal. It not only ensures that your wishes are truly met, but it also can make difficult times easier for your loved ones and help to preserve your wealth.

To be sure, a Will is often the centerpiece of a complete estate plan.  When you pass away, your Will controls who gets your assets when you pass away, how they receive those assets, who is responsible for managing those assets, and, for those with young children, who will have custody of your children if something happens to both parents.  Having a Will only, however, will certainly leave gaps that can create very difficult issues for you and your family. 

First and foremost, your Will is not the only way assets pass to your heirs when you die.  Assets can also pass by the operation of law.  Primarily, this applies to jointly held assets like a joint bank account or real property that is owned as “joint tenants.”  For these assets, when one joint owner dies, the surviving owners automatically inherit the other’s share.  Another way assets pass to your heirs is by contract.  For retirement accounts and life insurance policies, for example, the account owner can name the individuals that should receive any funds in the account/policy when he or she dies.  This is typically referred to as adding beneficiary designations to the account or policy.  When beneficiary designations are put in place, the bank or insurance company will pay the funds in the account directly to those named beneficiaries when you pass away, regardless of what your Will says (absent exceptional circumstances).

Only assets that do not pass by operation of law or by contract are controlled by your Will. For that reason, a key part of your estate plan is ensuring that the titling of your assets and your beneficiary designations are coordinated with that Will.  Failure to do so can defeat your intent.  For example, if someone updates their Will to leave their assets equally to their three children but their accounts and insurance policies only have one child named as a beneficiary, the intent of the Will is defeated.  That one child will inherit all of the accounts and life insurance proceeds despite the parent’s wishes otherwise.

Second, a complete estate plan also prepares for events of disability.  Your Will only covers what happens to your stuff and only comes into play when you die.  But what about if something happens and you need help managing your financial affairs and/or medical decisions due to physical or cognitive limitations?  Starting with the legal/financial side, once you turn 18 only you have authority to manage your assets and make legal decisions.  Your parents do not have that power and neither does your spouse.  If you lose the ability to manage your financial affairs, assets can be wasted, bills can go unpaid, and insurances can lapse. This can have disastrous financial results.  The same is substantially true of healthcare decisions – no one other than you has authority to make those decisions on your behalf.  If you are no longer competent to make your own healthcare decisions, you will need someone to do so on your behalf to ensure you receive good care that is consistent with your known values and desires.

For these reasons, a complete estate plan also involves preparation of a Durable Power of Attorney (POA) and an Advance Healthcare Directive (HCD).  Your POA appoints an agent who can handle financial and legal fairs on your behalf, while your HCD appoints a healthcare representative who can make healthcare decisions for you – both being used at times when you cannot handle those matters on your own.  By execution of these documents, you protect yourself (and your loved ones) during your lifetime and likely avoid a court being involved in your financial and healthcare decisions.

Third and finally (for this blog, at least), a complete estate plan must take into account other financial and practical matters including taxes, long-term care costs, and planning for heirs with special needs.   For some, this means implementing strategies to avoid unnecessary estate, inheritance, capital gains, and even income taxes.  For retirees, this can mean using asset protection strategies to avoid exposing assets to the costs of long-term care, including nursing homes.  And finally, for special needs families, this means making sure special needs individuals have continued financial and custodial support.

When you work with an estate planning attorney, it is important that he or she review every aspect of your personal situation to be sure the right plan is put in place.  When you are done with their process, you shouldn’t just have a Will.  Instead, you should walk away with a complete estate plan: this includes updating beneficiary designations, retitling accounts and assets as necessary, and putting in place the necessary documents to protect against events of disability.  Finally, the planning is not complete unless appropriate steps are taken to mitigate taxes, protect against long-term care costs, and consider any other special circumstances.  In the end, my goal is to make sure my clients leave with peace of mind, knowing the right plan is in place.

I offer complimentary consultations and can help clients in New Jersey and New York.  If you want to schedule some time to talk about your estate plan, please call 973.879.6117 or click the “Schedule a Consultation” link at www.broedlinlaw.com.