Why Estate Planning Is Important

When a person dies without leaving a will, it is called intestacy. When one dies intestate, their estate enters probate, a legal process in which one’s property is identified, inventoried, and distributed to heirs. Probate is a “one-size-fits-all” system that does not account for one’s intentions for their property after death.

Probate takes an extremely long time. Heirs do not usually have the 12-18 months that the average probate takes to wait for the means to make mortgage payments or run the deceased person’s business. Additionally, probate is expensive. Probate executors and attorneys collect fees based on the gross value of the estate, which does not take into account mortgages or other debts owed.

Unfortunately, most sates’ intestacy laws discriminate against same-sex couples, considering those relationships invalid for purposes of distributing the estate of a deceased partner who dies without a will. Many same-sex partners will lose both personal property and real estate as a result of the probate system.

Further, unrelated couples lose out on many other protections afforded to married or registered couples. Anyone can become incapacitated without warning. Without properly executed legal documents, your best friend or partner may not be able to visit you in the hospital, let alone make healthcare and financial decisions on your behalf. Sometimes, the chosen or trusted decision maker is cut off from their loved one with no input in matters of medical care or funeral arrangements.

It should be a primary concern for single people and legally unrelated couples to retain these rights through estate planning, in order to protect their assets and establish security for their loved ones.

Estate Planning: Planning Ahead

Your estate is the collection of all your assets minus all of your liabilities. Whether this adds up to $100 or $100 million, your estate needs planning. Estate planning also covers what happens to you during your life, should you become unable to make your own decisions due to illness or accident. Planning ahead decreases the chances of the courts getting involved, saving your partner or friend unnecessary emotional and financial hardship. There are several ways to accomplish this.

Wills

Wills are documents where individuals – known as “testators” – identify who their property will be given to when they die. In a will, you can choose to leave your property to whomever you like, including your partner. Wills also allow you to name a guardian for your minor children upon your passing.

However, wills have disadvantages. For one, property conveyed through a will is subject to the probate process, which as stated earlier is costly and time-consuming. Secondly, wills can and are frequently contested by the family of the decedent, especially when all of decedent’s property is left to his or her partner. Finally, wills are public, which means that anyone can look up your will at the courthouse after you die and find out how you distributed your property.

Living Trust

A living trust allows for inexpensive and time-efficient transfer of assets upon death, without involvement in the probate system. Because title to your assets is owned by the living trust, there is no “estate” to probate you upon your death. Additionally, living trusts are private so no one except the beneficiaries may find out how you distributed your assets. Further, a living trust is less likely to be overturned by a court if it is challenged. This is because you put the living trust into place and lived with it during your lifetime, making it harder to challenge based on intent. Because your living trust takes effect the moment it is signed, you live with it for a while before anyone else assumes management of it. Financial institutions become accustomed to dealing with your living trust so when your partner (or whomever you appoint as your Successor Trustee) takes over for you as the Trustee of your trust, the transition is much easier. A living trust also allows you to plan for the management of your finances during incapacity.

Power of Attorney

A Power of Attorney document allows you to designate the person or persons whom you wish to control your finances in the event that you are incapacitated. This allows your designate a person to pay the bills, collect money that you are owed, access bank accounts, and communicate with companies or organizations that you may have business with. You may tailor your power of attorney to include as many or as few different transactions as you wish. The financial power of attorney can be durable, meaning that it goes into effect immediately, or springing, where it goes into effect only if you become legally incapacitated. Depending on your circumstances, you may need a power of attorney that contains provisions for dealing with retirement assets, such as IRA and 401(k) plans.

If you do not prepare a document relating to your durable power of attorney, someone will have to petition the court to be appointed as your agent. This petitioning process is time-consuming, expensive, and may be emotionally taxing for those involved, especially if there is conflict between your partner and a family member.

Advanced Health Care Directive

An advanced health care directive (AHCD) is similar to a power of attorney. In an ACHD, you appoint a person to be your agent in making health care decisions for you should you become incapacitated. Even if you are legal domestic partners, if may be beneficial to execute an AHCD to clarify your rights as some hospitals may be unfamiliar with the rights of domestic partners. Through an AHCD, you may avoid the problems associated with an estranged or unwanted blood relative taking control of your health and care decisions.

In an AHCD, you can designate the level of care that you would like in the event you become terminally ill and/or incapable of enjoying any quality of life. You can express whether you would like to be place on life support if there is no chance of recovery. An AHCD may also contain information regarding your preferences for organ donation, personal care, and living arrangements.

A good complement to an AHCD is a stand alone HIPAA Authorization Form. Because of HIPAA (Health Insurance Portability and Accountability Act), it is often difficult for loved ones to obtain information about your health and medical care. A HIPAA Authorization Form allows you to pre-designate the persons you want to give permission to speak with your doctor, other health care professionals, and insurance or Medicare providers.

Joint Tenancy

Owning assets in a joint tenancy may also ease the transition of transferring property to your partner. When a joint tenant dies, the other tenant automatically assumes ownership of the entire asset without probate. However, when the surviving joint tenant dies, the asset my be subject to probate if the surviving joint tenant dies intestate or passes their assets through only a will. This also eliminates any guarantee that the jointly owned property will go to your family or heirs. Because the property is completely owned by the surviving joint tenant, the deceased joint tenant has no control of what happens with the property after the death of the surviving joint tenant.

Additionally, property owned in joint tenancy is subject to the creditors and liabilities of each joint tenant. This means that even if you helped buy a house with your partner and are 50% owner of the house, you may lose the house altogether if your partner is the losing party in the lawsuit or has outstanding debts.

Next Steps

To get a head start on your estate planning, contact an attorney that practices trusts and estate law. If you wish to have your intentions honored at death and leave your property to someone other than how the state deems is best, having an estate plan is not just a matter of convenience, it is a matter of necessity.

To contact our office, please call (415) 693-0550 or email us at office [at] jkzllp.com.