by Matthew Rappaport, J.D., LL.M
Clients of an advanced age have quite a bit on their plate these days, but one major point of emphasis for those clients that often goes overlooked is estate and elder law planning. The unintended consequences of overlooking these planning opportunities may bring about unforeseen expenses and create unnecessary family discord. The worst part about all of this is that these nasty side effects will occur after a client passes away, so he or she will not even be around to correct the resulting problems.
What are the worst consequences of failure to plan one’s estate? For one, the taxes can get incredibly expensive. One of the worst ways a tax liability can affect one’s estate is that it may force the liquidation or sale of a family home, family business, or investment account to pay taxes. Alternatively, heirs may be forced to use the proceeds of a life insurance payout, which would have normally provided family income or a college education, to satisfy a tax liability or other debts instead.
Two other major expenses associated with unplanned estates are administration and litigation. When a plan is not left behind to guide one’s family when dividing estate assets, the family can become frustrated, confused, and resentful of each other. One of the most unfortunate sights I have seen in my practice is two siblings who refuse to speak to one another because of an argument arising from the division of a parent’s estate.
With all of that said, how should these issues be addressed proactively? As an estate and gift planning attorney, my practice revolves around taking the crucial steps to avoid unnecessary taxes, preserve family harmony, and accomplish my clients’ other planning goals. Oftentimes, clients have already taken some of the integral steps toward a complete estate plan, but those steps were taken piecemeal or taken ten or more years prior to our first meeting. While these initial steps are a good start, they are not sufficient to allow clients of an advanced age to enjoy the many benefits of a complete estate plan.
After an initial set of conversations with the client and the client’s family, an estate plan is put into action by drafting the required legal documents. At the core, these will always include the following:
- · Last Will & Testament: This document signals how your estate will be administered and how your property will be divided among your heirs. At minimum, each Last Will & Testament will always name an Executor, who will ultimately be responsible for handling the affairs of your estate, and one or more beneficiaries, who will inherit the property within your estate. In addition, it may contain funeral and burial instructions, designations of legal guardians for children, provisions of trusts that take effect upon your death, and other such directives.
- · Durable Power of Attorney and Health Care Power of Attorney: These documents prepare for your incapacity. If an event occurs that leaves you unable to handle your own affairs for a certain period of time, including financial obligations and choices about health care, these documents designate one or more agents to step in and handle those issues for you. Without these documents, family members may argue about who has the authority to make important decisions and what specific choices should be made. This may put valuable assets at risk and thrust the family into acrimonious and costly court proceedings to resolve the resulting problems.
- · Living Will: In the event that you become completely incapacitated without any hope of making a full recovery, the Living Will is a document that contains specific instructions as to whether or not you should be given certain life-extending medical treatments.
In addition the documents mentioned above, a common additional measure is the drafting of one or more irrevocable trusts. These trusts serve a wide variety of purposes, but two of them are particularly important to note. First, they are excellent tools for tax avoidance because they allow clients to transfer assets out of their estate. Second, they can provide specific instructions for what is to be done with the assets used to fund the trusts, which allows clients to ensure that their assets are used exactly as intended, even after they pass away.
As important as these matters are for clients with adult children, they are even more crucial for clients with minor or infant children. Because these children cannot provide for themselves, the presence or absence of key estate planning documents can make an enormous difference for a child’s future in the unlikely event of sudden incapacitation or death of one or both parents. Moreover, these documents can prevent the misfortune associated with such a tragedy from multiplying because they pre-empt emotionally and financially costly court battles over health care decisions, guardianship of young children, and disposition of assets. By completing and regularly reviewing an estate plan, clients can avoid unexpected pitfalls and secure many benefits for themselves and their families. Take a moment to think about your own estate plan, and perhaps the estate plans of your children as well. Ask yourself whether it may be time for you to address these matters with a legal and/or financial professional.
Matthew Rappaport is an attorney in the Estate & Business Planning department at L’Abbate, Balkan, Colavita & Contini, L.L.P. in Garden City. He attended Georgetown University Law Center, where he received his J.D. and LL.M. in Taxation. Contact Mr. Rappaport at (516) 294-844 or email@example.com.