Estate Planning 101
Updated: Sep 3, 2020
Estate Planning 101
An “estate plan” is just that: the plan for your estate. Note that your “estate” is not only your post-death assets, but also your assets while you are living. So long as you are alive and competent there is a great deal you can usually do with your estate. An estate plan provides for what happens at your future death, incompetency, or incapacity.
The benefit with working with a personal lawyer (as opposed to an online estate planning document building service) is getting advice tailored to your family dynamic. Anyone can “have” just “any” plan, but what is the wise plan for you? Shopping online or with the wrong group for your estate planning needs is like shopping at a camping store for supplies if you’ve never been camping. You may spend a lot or a little, and you will definitely leave with a product – but are you ready weather a storm? Better yet, did you get what you need to just avoid bad weather in the first place?
There is no “one size fits all” estate plan; the appropriate combination and variation of the documents described below (and others) depends on your circumstances. Some people value privacy intensely, others do not. Some people value control and specificity in arranging a multi-generational structure of gifting, others want to pass all property at the death in one blow and be done. Some people need to plan for Medicaid, others do not. Some people will have religious concerns about end-of-life care, others will not.
My advice is to (A) have your estate plan written by an experienced estate attorney focused on your family dynamic, and (B) keep your estate plan current as that family dynamic changes over time. You get physicals on your body and oil changes on your car – your estate plan is no different. I have litigated (gone to court in a dispute) most of the below documents, and many of them several times. There is a problem when someone doesn’t have the document they need – but more commonly they in fact “had an estate plan” but it just wasn’t the right plan. Maybe it was bought online and completely missed the reality of the family, maybe it was a great plan at one time but had become "stale" (no longer fit the family dynamic) over time. The variations are numerous.
In most instances today, the average estate plan has some or all of the following standard items:
· Financial power of attorney (“POA”)
· Health care POA
· HIPAA authorization
· Living will
*Future posts will dive deeply into the particulars and variety of each of the above documents, which have their own historical development and modern application. For this post, we will quickly define each one in general terms.
Financial POA: gives someone you name—now your “agent” under the newly codified N.C. Gen. Stat. § 32C, formerly your “attorney-in-fact” under prior law—power to make financial decisions on your behalf affecting your assets. How much power you give depends on your intended purposes of the POA. Some POAs give sweeping powers, such as the power to sell land, give gifts, or even make trusts and fund them with property. Other POAs give only narrow powers sometimes for finite periods of time, such as the short form “Limited Power of Attorney for Real Property" in N.C. Gen. Stat. § 32C-3-303. Financial POAs (unlike health care POAs) can be made “effective immediately” so they may be used by your agent without your simultaneous incompetency.
Health Care POA: gives someone you name—your “health care agent”—power to make medical decisions affecting your health care. Unlike the flexibility of the financial POA (which can be made effective immediately) health care POAs are only effective when a doctor determines you cannot understand, cannot make, or cannot communicate your own health care decisions. See N.C. Gen. Stat. § 32A-20(a).
HIPAA Authorization: provides written statement authorizing the sharing of private patient information. HIPAA stands for the Health Insurance Portability and Accountability Act of 1996 which created national standards to protect sensitive patient information from disclosure without consent. Specifically, 45 C.F.R. §§ 164.502(g) and 164.510(b) have some specific restrictions that must be provided for in a written authorization to allow the transmittal of information. NOTE: it is now standard for HIPAA provisions to be located inside Health Care POAs.
Living Will: gives instruction regarding end-of-life care and specifically regarding the withdrawal of “life-prolonging measures” (defined at N.C. Gen. Stat. § 32A-16(4)) under certain conditions. Generally speaking, these conditions are ones where the patient is “past the point of no return” and only able to be kept alive by artificially supplanting some vital function without hope of recovering, healing, or surviving. Nationwide attention to these legal situations followed in the wake of the Terri Schiavo case, where a 26 year old was left in a persistent vegetative state following a heart attack and her family could not agree on whether to withdraw life-prolonging measures or not - 15 years of lawsuits followed. The upshot was clear: state your wishes about end-of-life care (Terri had no such written statement.) The name "living will" is confusing to many, as they are not actually a “will” (in the sense of last will and testament) and are instead technically identified in the North Carolina statutes as an “Advanced Directive for Natural Death” (N.C.Gen. Stat. § 90-321). An advanced directive is what is sounds like: a direction in advance. NOTE: it is now standard for living will provisions to be located inside Health Care POAs. NOTE: living wills are similar but importantly different from “DNRs”.
Will (Last Will & Testament): disposes of property at your death through probate (a public proceeding under N.C. Gen. Stat. 28A) and avoids the default statutory plan for inheritance in N.C. Gen. Stat. § 29 that otherwise takes place if you have no will, i.e., die “intestate”. For example: many people married without children don’t want their estate going in 50/50 shares to their surviving spouse and their parents, but that is the result without a will under N.C. Gen. Stat. § 29-15(3). Wills give instruction regarding payment of debts, name a person to administer your estate (Executor), and can provide for important circumstances such as the guardianship of minors, trusts for minors and incompetents, and even supplemental needs trusts for those receiving needs-based government income. NOTE: trusts inside wills are known as “testamentary trusts”.
Trust: splits property rights into (a) legal and (b) equitable title, vesting the legal title in a trustee who administers the property, and vesting the equitable title in the beneficiary who gets the use and benefit of the property. Trusts are powerful, valuable planning tools that can provide flexibility and privacy regarding (a) incapacity, (b) probate avoidance, (c) taxes, and (d) planning for those in receipt of needs-based government income, frequently referred to as “special needs” trusts. Probably the greatest and most accurate benefit of a trust is its incapacity planning benefits, whereas the most often over exaggerated benefits of a trust are its purported ability to lower taxes (not the case for most American families) and its purported ability to be more cost-effective than probate (I find it is usually equal to probate if not more expensive, though several factors affect this outcome). I write trusts for many clients, but I do not recommend them to all clients. I most frequently advise trusts for incapacity or special needs purposes. For higher net worth families, the scales do tip towards trusts more frequently.
Give us a call (919-745-9212) to learn more.