Is Your Estate Plan Up-To-Date? Now is the Time to Make Sure It Is

by: Begley Law Group

by Thomas D. Begley, Jr., Esquire, CELA

Unfortunately, the nation’s attention is focused on COVID-19.  This is something we have never experienced before. This is a good time to be sure that your Estate Planning documents are current.  Everyone over the age of 18 should have certain basic documents.  Depending on one’s situation and goals, it is possible to benefit from numerous estate planning tools.

♦ Wills. A will is a document that spells out how an individual wants his or her estate to be distributed at death. Distributions can be made outright or through a trust.  A will also appoints an executor, whose function is to probate the will, gather all assets, pay all bills, file all necessary tax returns, prepare an accounting, and make distributions in accordance with the terms of the will.

  • Guardians. If you have minor or disabled children, the will should also appoint a guardian.  That individual will often live with the children and look after them during minority or disability.
  • Trustees. When appropriate, the will should also name a trustee.  The trustee’s job is to invest the trust assets and make distributions in accordance with the terms established in the trust. 

♦ Living Wills/Health Care Representatives. A living will, sometimes called a health care power of attorney, has two components.  The first part of a living will addresses the need to appoint someone to make medical decisions on an individual’s behalf when he or she is unable to do so due to incapacitation.  These medical decisions do not include end-of-life decision making.  The second component of a living will addresses end-of-life decision making.  This applies only in situations when the individual is unconscious and/or otherwise unable to make medical decisions, and there is no hope of recovery or of regaining a meaningful quality of life.  If there is hope of recovery or of regaining a meaningful quality of life, the living will does not apply.

There are four options with respect to the second component of a living will/health care power of attorney, but only the first three are advisable:

  1. Terminate life.
  2. Continue aggressive treatment.
  3. Authorize a loved one to make decisions without guidance, if and when the time comes.
  4. Leave the decision up to the courts. Failure to choose one of the first three options places an individual in the position of having the matter go to court, where a judge will make a decision as to whether or not life should be continued.

Begley Law Group will send a copy of your Living Will to your primary care physician.

♦ Financial Power of Attorney. Sometimes called a general durable power of attorney, a financial power of attorney gives the agent the right to make financial decisions on behalf of an individual.  Standard provisions should include: 

  • A reference to the New Jersey Banking Power of Attorney Act.
  • A listing of any real estate by street address or tax block and lot.
  • Specific language agreed to by the National Association of Securities Dealers and the American Bar Association, authorizing the agent to deal with securities.
  • Power to make gifts, including any conditions or restrictions on such gifts.

♦ Living Trusts.

  • Revocable Living Trusts. A living trust is a document designed to avoid probate.  It can be used to save estate and inheritance taxes, but it is not required for that purpose.  The same tax savings can be achieved through a properly drafted will.  It is almost always appropriate to use a living trust if you own real estate outside your state of residence, in order to avoid ancillary probate.  The advantage is that the trust can easily be amended or changed at any time.  The disadvantage is that assets in a revocable living trust are included in your estate.
  • Irrevocable Living Trusts. An irrevocable trust is one that cannot be changed.  Such a trust can be designed so that the assets it holds are not included in a person’s estate for estate tax purposes.  Typically, irrevocable trusts own life insurance policies when the insured does not want the proceeds included in his or her taxable estate. 

♦ Special Needs Trusts. A Special Needs Trust can be established for a disabled beneficiary.  The trust is designed so that the disabled person will not lose his or her public benefits, such as SSI, Medicaid, or low-income housing, upon the receipt of an inheritance.

How should you title assets and make beneficiary designations? 

Many assets pass outside the will.  When developing an estate plan, it is important to ensure that such assets are properly titled and that beneficiary designations are accurate and up to date.  Many banks and financial advisors encourage customers to attach payable on death (POD) or transfer on death (TOD) designations to their accounts.  This is generally not a good idea in New Jersey or Pennsylvania.  The reason is that on death the assets in the account pass by the beneficiary designation on the account and do not pass under the Will.  Frequently there are inconsistencies that result in problems.  It is best in New Jersey and Pennsylvania to avoid POD or TOD beneficiary designations and, if you have them, to eliminate them.

Among the assets that pass outside the will are jointly owned property, which automatically goes to the survivor, and property in trust, which goes to the beneficiary(ies) in accordance with the terms of the trust.  Life insurance, retirement plan assets, and annuities are also paid directly to the named beneficiaries.  Married couples who wish to achieve tax savings should avoid joint ownership of assets and retitle assets as necessary.  Typically, the assets are divided about equally between husband and wife, with consideration given as to which asset gets transferred to whom.  If you have life insurance policies, IRAs, and other retirement accounts and/or annuities, you must consider beneficiary designations based on your estate planning goals.  For each asset, it is necessary to name both primary and contingent beneficiaries.  Begley Law Group will assist you in changing the beneficiaries of your life insurance policies, retirement plans and annuities.

What about Long-Term Care planning?

Many people carefully plan for the transfer of their estate, taking steps to minimize taxes, only to see their assets eroded by long term care expenses.  The cost of long term care, whether home care, assisted living, or nursing home care, can easily exceed $150,000 a year.  Since approximately 70% of all individuals over age 65 require some form of long term care, it is important to consider this potential risk when developing estate and financial plans.  A good long term care insurance policy will pay for virtually all forms of long term care, including adult day care, home care, assisted living, and nursing home care.  The best time to purchase long term care insurance is before age 60, when premiums are far more affordable.  Studies show that 25% of applicants aged 65 are rejected because they are deemed uninsurable.

Long term care policies can be customized to control costs.  You should consider factors including: 

  • The type of care covered;
  • The amount of daily benefits;
  • Elimination periods;
  • The length of coverage;
  • Premiums;
  • Inflation riders; and
  • The financial strength of the insurance company.