“There Ain’t No Pockets in a Shroud!”
Estate planning can be a complicated and costly process. It is our objective with this brief summary to help (1) simplify the matter, (2) reduce your costs and (3) encourage you to complete your planning with competent legal counsel — this is no playground for amateurs.
The purpose of estate planning is to assure yourself of the proper handling of your financial matters in the event of your death or incapacity and that the amount you leave behind for those you care about is (a) adequate to do the job and (b) is properly arranged and will be distributed according to your wishes. Let’s start with the basics:
Possibly the first and most important item on the estate planning checklist is making sure that your estate is large enough to do the job. You may need to ask yourself a few questions:
- Will any of my financial obligations, whether explicit or implied, transcend my death? These might include: ongoing support for a spouse, children and/or grandchildren; debts including your mortgage(s); charitable pledges to church or school; spousal maintenance and/or child support from a previous marriage; tuition for children or grandchildren; undergraduate and medical school loans, etc. Add these up and compare them to a realistic and conservative estimate of what you will leave behind. If it’s not enough, and it often isn’t, add some life insurance protection to fill in the gap. [As a planning tool, the average physician with a family needs to have an estate — including life insurance — between 15 to 20 times his or her annual income. And don’t forget to insure your spouse with you as beneficiary even if he or she does not produce an income.]
- When should my heirs receive my estate? You should distribute your estate in death the same way you would have if you were alive and had the resources. For example, we see a lot of physicians with their estate plans leaving distributions to their children in one-third increments at ages 25, 30 and 35. The question is, if you became wealthy enough while you are alive to make large cash distributions to your adult children, would you do so without restrictions upon their 25th, 30th and 35th birthdays?
- Have I taken all available steps to protect my assets from ‘predator creditors?’ Sadly physicians are aggressively pursued and sometimes sued successfully, whether or not the legal liability is medically related. Even in the event of an automobile accident in which a physician is deemed to be at fault, but perception is that you have deep pockets and long arms. In the event the judgment goes badly and exceeds the limits of your liability protection, how safe is your estate from these predatory practices? A well-designed estate plan may help limit the amount of exposure physicians and their families have in these situations. Competent legal counsel is invaluable in this planning process.
Now, let’s begin the planning process with a listing and description of some basic documents you will want to consider.
- Will: a statement from you describing who you wish to have as the guardians for your children and how you wish to have your assets disposed of upon your death, as well as you want to administer your probate estate
- Living Will: describes what medical treatment you wish to receive and under what circumstances, for example, in case you are vegetative and cannot communicate your decisions for yourself. In many jurisdictions physicians are required to honor your wishes as expressed in your living will. This document does not require an agent to act for you
- Healthcare Directives and Powers of Attorney: appoint an agent to act for you and can be used for further explanation of the living will and to enforce the living will
- Financial Powers of Attorney: allows a trusted person to act for you in the completion of legal and financial matters and transactions in the event of your absence or incapacity
- Funeral and Burial Instructions: spells this out in advance for your family so they are not left to wonder and try to sort things out among themselves at the worst possible time
- Statement of Wishes: details of certain specific wishes that you would like your family to adhere to after your death by which it may be impractical to attempt to enforce through, say, a will or trust. For example, continued support of a certain charity or having your children and grandchildren attend a certain university or be members a specific religious organization
- Trust: this is a flexible planning tool which you arrange for in advance to hold title to your property. It acts as a person with nearly perpetual life in many jurisdictions. It can hold your real estate, your investments, your automobiles, your life insurance, your bank accounts, practically anything. You name yourself and your loved ones generally as the beneficiaries of this trust. If one of the beneficiaries dies, the trust lives on for the benefit of the other beneficiaries. Accordingly there is no probate process because the owner of the assets [the trust] did not die — only a beneficiary of the trust died. These kinds of trusts have some practical tax savings advantages as well. Your estate planning counsel, along with the assistance of your trusted financial advisor, can craft a well-written and flexible document which will serve your family for generations.
- Irrevocable Trust: this is a vehicle like a living trust except that it cannot be canceled and the terms are generally not modifiable. This is an efficient tool for reducing estate and other taxes. Because it is irrevocable, once you place assets in it you cannot get them back careful consideration must be given here to the terms of the trust and your selection of a trustee — the person who manages the trust and the assets within it.
Please click Advanced Estate Planning for more complex documents.