I read a very interesting article last week regarding the necessity of doing some end-of-life planning amid the current pandemic. The article centered around a 75-year-old Washington woman who contracted COVID-19 and as a result, passed away. The article discussed her advanced health care directives and end-of-life planning. Planning that allowed family members to implement her choices and decisions regarding her care.
In my line of work, I see, hear, and handle these types of situations daily. However, client concerns seem much different and more urgent in light of the COVID-19 outbreak. Many organizations have started to put together a variety of COVID-19 toolkits, so people can be as prepared as possible in all aspects of life. I want to offer a legal toolkit for everyone that provides essential information regarding Wills, Trusts, Power of Attorney, and Health Care Directives.
At heart, I am a big classic rock junkie. John Lennon once said that there are two basic motivating forces – fear and love. Those words could not be truer during this uncertain time. In a typical day in my practice, I work with a lot of great people who are coming to an estate planning attorney for various reasons. Maybe they are getting older or welcoming a baby into the world. Maybe they have a child with a drug, alcohol, or gambling addiction and need to reevaluate the terms of their Will or Trust. Maybe charitable gifting upon their death is important. Perhaps, they simply want to make things easier for their loved ones when they are gone, or maybe they are meeting with me because a financial advisor, friend, or family member told them to do so. Whatever the reason, I have found that clients’ reasons for end-of-life planning are always rooted in love. They want to discuss and create a plan to accomplish their specific situation and help their loved ones or beneficiaries.
Enter COVID-19. This pandemic has seemed to change how people are thinking and planning for their futures. We are facing an unprecedented national health crisis. Every media outlet is inundating us with updated death tolls and future projections. Every social media post is about social distancing and the lack of toilet paper at the local stores. Schools, churches, businesses, and families are all restructuring the way they interact. People are out of work or working from home and having difficult conversations that they otherwise may not be. Fear is starting to motivate people to plan for the worst.
Whether the motivation for proper legal planning comes from fear or love, proper planning can’t be done without the proper information – and unfortunately, the internet creates more questions than answers on this topic. Contrary to common belief, almost everyone needs an estate plan. Whether we’re in the middle of a global pandemic, whether you’re old or young, single or married, have kids or don’t, have significant or more modest assets – you need an estate plan. An estate plan typically consists of at least three documents: A Will or Trust, a Health Care Directive, and a Power of Attorney.
Throughout the next several weeks, I’ll be writing and sharing a four-part series discussing these typical estate planning documents. In this first article, I will dig into what is meant by the term “estate plan” and will address the most common estate plan document: A Will. The second article will address one of the most misunderstood estate planning tools out there: A Trust. The third and fourth articles in the series will discuss Health Care Directives and Powers of Attorneys, respectively, and how these documents differ from Wills and Trusts, but make up a comprehensive “estate plan.”
Believe it or not, everyone in the state of Minnesota already has an estate plan, despite whether they proactively created a Will or Trust. Without a Will or Trust, assets pass under the Minnesota laws of intestacy, which are the laws that govern who gets your property if you haven’t otherwise designated it via a Will or Trust. I like to call this the “state plan” instead of an “estate plan.” A lot of content on the internet scares people into thinking that if you don’t have a Will, the government gets your money – but that is simply not true. The “state plan” generally distributes your assets to your closest living relatives; however, it can make the process more complex or cumbersome. And, in some instances, it may be completely contrary to what a person would want.
Wills and Trusts allow you to set forth your wishes and distribute your assets in accordance with those wishes. There are other documents and plans that impact your Will or Trust. Those can include beneficiary accounts/policies, Transfer on Death Deeds, or other non-probate transfers of assets. The important part is making sure your estate plan coordinates all those pieces and documents together into one cohesive plan. By creating a Will or Trust and directing assets, you control the ultimate distribution of your assets and simplify the process for your beneficiaries. Wills generally fall into three distinct categories: Basic Wills, Wills with trust provisions, and Wills with tax provisions.
Basic Wills
This type of Will is often called an “I love you” Will, as everything is left outright to a spouse and then to the children who survive. These are appropriate for people whose assets are below the threshold for state and federal estate taxes and where the beneficiaries are responsible adults or charitable organizations. Basic Wills are also particularly important for unmarried people, as the state intestacy laws do not provide any inheritance for “significant others” of unmarried people.
Wills with Trust provisions
While almost everyone needs a Will or Trust, it is extremely important that those with minor children, children with special needs, or children who are financially unreliable have a Will with trust provisions.
In the case of minor children, provisions can be included in the Will to create a Trust for the minor children, ensuring there is a mechanism in place to allow for an inheritance to the minor child (as minors are unable to receive an inheritance). Trust provisions allow you to include specific information about the amount and at what age your children should receive funds. For example, a common Trust provision might leave one-third (1/3) of your estate assets to your child or children at age 25, one-half (1/2) of the remaining assets at age 30 and the remainder of the assets at age 35. Along with choosing distribution amounts and ages, you can also choose a Trustee to manage the funds for your children until they receive their ultimate distribution.
Another important reason to create a Will if minor children are involved is to name a guardian(s) to care for the children until they reach age 18. The Will may also include specific directions to the guardian(s) about the care of the child. Without language in a Will expressing your intent for a person or persons to care for minor children, a court would appoint the guardian(s) based upon a relative or other interested person petitioning for appointment. The court-appointed guardian(s) may not be the guardian(s) you would have selected for your children.
Finally, it may be necessary to do additional planning if you have a beneficiary who would be at a disadvantage if they received an inheritance, such as a beneficiary with special needs who is receiving state benefits. Often, special planning is needed for these unique situations, so the beneficiary does not lose any current benefits.
Wills with tax provisions
If a person’s assets or couple’s assets exceed either the state or federal estate tax threshold, it may be necessary to include provisions in a Will to eliminate or minimize estate taxes. The Federal estate tax rates can be up to 40%, while Minnesota estate tax rates are approximately 12-16%. This means if you have significant assets, without proper planning, you could pay almost 50% in taxes upon your death. There are a variety of planning techniques available to deal with estate taxes.
Whether you have a small or large estate, kids or no kids, or are motivated by love or fear, a Will or Trust is something everyone should have in place. These documents are your last chance to be sure that the fruits of your labor pass to exactly whom you want to have them. Creating these documents might be one of the most important things you do. My next post will discuss the alternative to a Will – a Revocable Trust.
If you have any questions or you would like to schedule a telephone or video conference to discuss your estate planning needs, please don’t hesitate to contact me.
Paul Funke
651-332-8710