Estate Planning

Estate Planning

Protecting our loved ones in the event of our death or incapacity is something of great importance to us. Regardless of the size of your personal estate, it is important to make sure that you have the proper documents in place to protect you and your family. Proactive planning helps to ensure that your wishes are carried out, and helps your loved ones avoid unnecessary stress and legal expenses.

About the estate planning process: First, we will ask you to complete an Estate Planning Questionnaire which give us some basic information about your family and your assets. During your initial consultation we will ask you a series of important questions to set your estate planning goals for your family’s future, your financial assets, and healthcare decisions. Next, we will prepare the necessary estate planning documents, and forward you a summary of the plan.  Then we will meet to carefully review the purpose and implications of each document before you sign them. We will make sure that you understand the documents that you are signing, and their implications on you and your family.

Some Examples of Important Personal and Estate Planning Documents Everyone Needs:

1. When to update your estate plan

Most people will agree that planning for your death or disability is something that you know you should do, but unless there is a specific motivating factor (e.g. illness, impending trip, etc.), it is easy to put it off.  Once you execute your estate plan there is a sense of relief that you have completed it, you can check it off your “to do” list, and forget about it.  Unfortunately, it is not that simple.  You should review your estate plan at least every 3 years to make sure that it still reflects your wishes.  You should also consider having it reviewed by an attorney at least every 5 years OR if any of the life circumstances listed below apply to you.

Change in Marital Status.  If you have gotten married, separated, divorced, or lost your spouse, it is time to update your plan.  The State of Ohio gives surviving spouses certain rights under the law, but those rights are not a substitute for a proper plan.  Can you be sure the State of Ohio knows what is in your best interest?  Don’t wait until it is too late to find out!

Upon divorce, the laws of the State of Ohio may help you by providing an automatic revocation of any bequests that you have made to your former spouse in your Will, as well as revoking their nomination as an executor, trustee or guardian.  This means that the alternates that you named will now become the primary actors in your plan.  Are those choices still appropriate?  Updating your documents after an informal separation from a spouse is especially important, because under the law you are still legally married. If you don’t want your estranged spouse making decisions for you or inheriting all of your assets, then you better have a proper plan in place!

You Are in a Committed Relationship but are not Legally Married.  There are many couples who are in committed relationships but are not married, and want to protect their partner in the event of their death or disability. The laws of the State of Ohio will provide access to your next of kin to visit you in the hospital or inherit your assets upon your death, but they do not give your partner any rights.   A proper estate plan can provide your partner with financial security, legal standing, and peace of mind in the event of your death or disability.

You Have Started a Family or Have Become a Grandparent.  The birth or adoption of your first child or your first grandchild is a huge milestone.  Parents must provide for their children in the event of their death or disability.  This includes memorializing critical decisions about who should care for them physically and financially if you are not able to care for them yourself. Grandparents may want to modify their estate plan to include financial benefits to their grandchildren.  In either situation, this is a good time to update your plan.   

Your relationships with the people you have previously chosen to help you or give your money to have changed.  Let’s face it, relationships change over time for a variety of different reasons.  Someone that you nominated to serve as your child’s guardian or make healthcare decisions for you, may no longer be the best person to serve in those critical roles.  If you had a falling out with someone, you may no longer want them to benefit financially upon your death.  These are easy updates to your plan that can avoid significant unintended consequences upon your death or disability.

Someone you have named as a beneficiary in your estate plan is receiving income/asset based government assistance.  Sometimes children or adults receive income/asset based government assistance, such as Medicaid or Supplemental Social Security Income, due to a medical disability.  Unless there is a proper plan, your bequest to them may disqualify them from continuing to receive their benefits or may go to repay the government for the benefits provided.   If you want them to maintain their current benefits AND benefit them in your plan, you may want to consider a Special Needs Trust.

You have purchased real estate out of the State of Ohio.  If you have inherited or purchased a vacation property or other real estate in another State, then you may want to consider setting up a Trust or LLC to hold the real estate interests.  A Trust or LLC would help avoid the time and expense of having probate estates open in two different states.

Significant Changes in Net Worth and/or Change in Tax Laws.  The changes in Federal and State estate tax laws have been a relief to most.  The Ohio Estate Tax was eliminated on January 1, 2013, so Ohio residents will no longer have any estate taxes due to the State as a result of their death.  The Federal Estate Tax Exemption has been raised to $11.2 million per person ($22.4 million for a married couple) in 2018.  This exemption is scheduled to sunset at the end of 2025, reverting the exemption to $5.4 million per person ($10.8 million per married couple).  With these tax law changes, does your current plan still fit your needs?  If you have a plan that is more than 10 years old, it is likely more complicated than current laws require.

Do you have an appropriate amount of Insurance?  Now is a good time to review your life insurance policies, disability insurance, and long-term care policies as well.  Has your personal or financial situation changed significantly since you purchased those policies?  Will the policies provide sufficient financial resources for your family if you are no longer able to work?  Should you start considering long-term care insurance? If you are not sure, call your financial advisor for a review.  If you don’t have one, please let me know and I will refer to you a qualified professional.

Your life is constantly changing while your unattended estate plan stays the same. It is important to keep your plan up to date, so you are prepared when the time comes to put your estate plan into action.  Unless you require fundamental change to your estate plan, updating your plan is usually far less expensive and time consuming than setting up your original plan.  Don’t wait until it is too late!

2. Basics of guardianship of minors

The Basics:  Guardians of Minors 101

Most parents don’t want to imagine what life would be like for their children if they were no longer around. Where will they live?  Who will take care of them?  Will they have enough money? Parents can fairly easily ensure that their children have the necessary financial resources, but it is much harder to ensure that their children’s physical, emotional and spiritual needs will be met.

Difficulty deciding whom to nominate as a child’s guardian is one of the most common reasons that parents put off establishing an estate plan.  While it is not possible to replace the relationship that a parent has with their child, with proper planning it is possible to help a client ensure that their child will be placed with a loving, caring adult who will be able to provide a secure and stable environment for them.  Procrastination, and failure to nominate anyone to serve as guardian leaves this decision to chance.

There are two types of guardians for minors in Ohio, guardians of the person and guardians of the estate.  While the same person can technically serve in both roles, parents may consider nominating two distinct people who can each thrive in their respective role.

The duties of the guardian of the person include: (1) protecting the child; (2) providing them with suitable financial support (from the estate); (3) providing such maintenance and education for the child; and (4) obeying all the orders and judgments of the probate court related to the guardianship.  Guardians of the person are not required to be Ohio residents, so anyone that you trust may be nominated.

The main responsibility of the guardian of the estate* is to manage the assets of the ward’s estate.  They are required to be Ohio residents, thus allowing the probate court to maintain jurisdiction over the ward’s assets.  Trusted family members or friend are generally the most common option.  They generally know the strengths and weaknesses of your child, plus they may not charge much, if anything, to oversee the inheritance. However, they may be busy with and distracted by their own life and financial responsibilities. Also, they may find it difficult to say no to an irresponsible heir. Another option is to appoint a professional fiduciary, such as an institution (e.g., a trust company) or an individual (e.g., your CPA). Interestingly, the upsides and downsides are the opposite of Option 1.  A hybrid approach may be the best option, as the family appointee knows the strengths and weaknesses, and the professional helps preserve family relationships when the minor child asks for a Lamborghini on their 16th birthday!

*Note: It is generally recommended that assets left to a minor be done so in a trust.  Therefore, rather than a guardian of the estate being the primary financial point person for the minor, it would be a trustee.


3. How to choose a guardian for your child

I advise clients to brainstorm a list of all potential guardians.  The list should include all of the people who: (1) they know and trust; (2) know their children well; (3) are actively involved in their children’s lives; (4) interact well with their children; and (5) their children love and trust.  The list should include everyone from parents to siblings, aunts and uncles, cousins, and close family friends.  Once that list is complete, it needs to be narrowed down to a few top candidates, then organized in order of preference.

Next, parents should make determinations about the suitability of people on their list.  It goes without saying that those who have a criminal history, or history of child abuse (even suspected) should be eliminated.  Then the process becomes more difficult.  Does the person have the maturity to provide a stable household for their child?  Do they have the physical stamina and life expectancy to care for their children until they reach the age of 18?  Will they be a good role model for their children (i.e. do they trust their judgment, are they responsible, patient, honest, and dependable)?  Do they deal well with adversity, or have they exhibited a pattern of bad behavior, irresponsibility, dishonesty or volatility?  If you do not respect their choices and how they have lived their life, they should probably be crossed off the list.

Another important consideration is the work schedule of the potential guardian.  Do they have a job with regular hours that will allow them to spend time caring for the child, or do they work around the clock and travel frequently for work?  If they are appointed as guardian, will the child be left with a paid caregiver more often than the you would allow? The importance of geography cannot be overlooked either.  If the potential guardian lives across the country, the child will have to uproot their entire life (after just losing their parents) to start anew.  Given the age of the child, is the guardian who lives far away a better choice than someone who lives close by that will allow the child to stay close to their current friends and activities?  It is far easier for a younger child to move than an older one.   This should be a more frequent point of discussion as the children move closer to the age of majority.

Another important consideration is whether the potential guardian is married.  If not, can they provide the necessary stability and attention for the child?  Many single parents do a great job of raising their children, but it can often be much more of a physical, emotional and financial challenge.  If they are married, do you like their spouse?  Many people want to nominate a couple to take custody of their children, but I strongly discourage that since 40-50% of all marriages end in divorce (60% of all second marriages).  The last thing that parents would want is for their children to be caught up in a divorce battle.  If you trust both parties, then they should still nominate them in order of preference, rather than jointly, so their wishes are clear.

It is also important to consider whether the potential guardians have children themselves.  If so, do their kids get along with them?  Can they handle more kids?  What do they think of the potential guardian’s kids?  Will they be a good influence on their kids?  If not, perhaps they should be crossed off the list since their kids will have constant exposure to them.

Lastly, in making this decision one cannot overlook the financial impact of raising a child.  If the potential guardian is not financially stable, then taking on the responsibility of raising additional children will put further stress on an already unstable situation.  According to the US Department of Agriculture (USDA) it costs a middle income family $245,000.00 to raise a child from birth to age 18, or $455,000.00 for an upper income family in 2015.  Both figures EXCLUDE the cost of higher education.

Once the list has been narrowed down, you should be counseled to talk to the potential guardians about their willingness to take on the responsibility.  This should not be a single conversation, but rather one that occurs regularly as the children age and the potential guardian’s life changes.  Relationships change over time so legal documents should be updated regularly to reflect those changes.

While this decision can be daunting and overwhelming for many people, those who do a good job of documenting their wishes, and who talk to those involved in their estate plan (including their older minor children), will provide the smoothest transition for their children if the unthinkable ever happens.

4. How does my divorce affect my estate plan?

The end of a marriage can be devastating, and it turns your entire world upside down. First, there is the grief over the lost relationship, and dealing with the subsequent re-organization of a family.  Then later panic may set in with questions like:  Will my ex-spouse still inherit all of my assets if I forget to update my Last Will and Testament?  Will my ex-spouse still get to make medical decisions for me if I don’t update my healthcare power of attorney?  Can my ex-spouse access my bank accounts with the Power of Attorney that I granted him while we were married?  An estate plan that was so carefully thought out at one time, suddenly becomes your worst nightmare.

Rest assured that you are not the first person to panic over these issues! Ohio law provides that aspects of an estate plan directly relating to the ex-spouse will be automatically be revoked following a divorce or dissolution. Specifically, Ohio law provides that if a person who executes a Will reaches a settlement of property rights following a divorce, annulment or separation, “any disposition or appointment of property made by the Will to the former spouse … shall be revoked.” Therefore, any specific bequests (directions for the transfer of property upon your death) to your ex-spouse will be automatically revoked and will be treated as if your ex-spouse had died before you.  Therefore, you can rest assured that your ex-spouse will not inherit from you.

If your ex-spouse was designated your executor, trustee, attorney in-fact, POA, or guardian, that designation will also be revoked.  This means that your ex-spouse will not have the legal right to access any of your financial accounts with a Power of Attorney.  It also means that they will not have the right to make medical decisions for you if you become incapacitated.

It is important to remember that your entire estate plan will NOT be revoked automatically by a divorce.  Therefore you must make sure that the people who you originally named to serve as alternates in your plan are still appropriate choices.  For example, do you still want your ex-spouse’s brother to play a role in your estate plan? That is a crucial question, since now they may be your primary agent given the automatic revocation provisions. Additionally, affirmative steps must be taken to make sure that your children are taken care of in the event that you or your ex-spouse are not able to take care of them for any reason.   Trusts may need to be set up to safeguard assets for minor children, and guardians may need to be appointed for their care.

Divorce rates for first marriage are high with approximately 4o% ending in divorce.  For subsequent marriages the rate is even higher with approximately 6o-8o% ending in divorce.  Therefore, it is important to understand what happens to all aspects of your estate plan after your divorce. A divorce can leave gaping holes in a carefully considered plan. It is imperative to consult an attorney to make sure that your estate plans puts the people that you trust in charge to take care of you and your loved ones

5. What is the difference between a Living Will and a Will (aka a Last Will and Testament)?

Legal terminology is confusing.  It can be daunting to set up an appointment with an attorney to discuss making sure that your wishes are known when you can no longer express them for yourself.  It is even worse when you are unsure about the correct words to use.  First, rest assured that we are never going to ask you what estate documents you want prepared for you.  We are going to talk to you about your concerns, your goals, your wishes, then discuss what legal documents will best suit your needs and why.

Now to clear up any confusion between A Last Will and Testament and a Living Will:

A Last Will and Testament is the document in which you can direct where all of your real and personal probate property should go when you die.  It also nominates someone to administer your estate, they are referred to as your Executor.  Lastly, if you have minor children, you would nominate a guardian in your Will to care for them after you pass away.

A Will has no legal affect during your lifetime since you are free to revoke or modify it at any time.  It is important to note, that a will only directs how your probate property will be distributed.  Your probate property is any property that (1) is not owned jointly with right of survivorship; or (2) does not have a beneficiary designation on it (i.e. transfer on death (TOD) or payable on death (POD)).  Property that is either owned jointly or has a beneficiary designation is referred to as non-probate property and will pass according to those ownership designations.

A Living Will is also commonly referred to as an Advance Directive. This legal document allows you to state your wishes for end of life medical care.  It is usually follows a Health Care Power of Attorney which sets forth the people that you trust to make medical decisions for you in the event that you are not able to make them for yourself.

In the Living Will you can make your wishes known about what type of care you would like to receive if you have a terminal illness or have no brain activity (i.e. you are brain dead).  For example, you can dictate whether or not you would like to receive CPR, whether or not you would like to be on a breathing machine if you are unable to breathe on your own, whether or not you would like to be tube-fed if you are unable to eat or drink, and whether or not you would like extreme measures taken to sustain life. This would become necessary if you’re no longer able to communicate your medical decisions when you’re still living. The living will can also cover whether or not you would like to make anatomical gifts after you pass away.

This document has no power after death, as it only directs your medical decisions when you are still alive but unable to verbalize your wishes. It is important to note that if you are otherwise healthy and go to the hospital, having a Living Will will NOT be stop the hospital staff from treating you appropriately.  A Living Will is only for end-of-life medical decisions.

Some Examples of Important Personal and Estate Planning Documents Everyone Needs:

  • Last Will and Testament – Is essentially an instruction sheet that directs the distribution of your probate assets and nominates a guardian for your minor children. Without a Will, you would die “intestate.” In that case, state law divides and distributes the estate to surviving family members based on their relationship to you. No consideration is given under state law to how “close” such family members were to you or whether you even liked them!
  • General Durable Power of Attorney – This is a legal document giving another person — sometimes called “the attorney-in-fact” or “agent” — the legal authority to make decisions on financial matters and other issues on your behalf. The exact scope of the power given is spelled out in the document itself. These powers end at death.
  • Health Care Durable Power of Attorney – Allows someone that you trust to make health decisions for you when you are not able to make them yourself. Everyone ages 18 and older needs to have one signed.  A copy should be placed on file with your primary care physician, and a copy given to each of your appointed agents.
  • Health Care Directive (Living Will) – Allows you to make your decisions regarding end-of-life care known to your doctor and your loved ones.
  • HIPPA Release – Authorizes a friend or lived one to access your confidential medical information and to assist you with managing your healthcare, including discussing your care with medical providers. Without this document or specific authorization, there is the possibility your doctor may decide not to speak to your designated “point persons.”
  • Burial Directive and Instructions – Let’s your loved ones know if you wish to be buried or cremated, plus many other details for funeral/memorial services.

Your Personal and Estate Planning Goals May Also Include:

  • A Trust – These come in all sorts of shapes and sizes. Generally speaking, a trust is like a bucket. When you are alive it is your bucket, and you fill it with all of your assets (house, car, bank accounts, life insurance etc.). While you are alive, you can do whatever you want to with your bucket – it’s YOUR bucket after all! When you pass or become incapacitated, the person you appointed as a Trustee will read the instructions on the bucket and carry out your wishes.
  • Special Needs Trusts – To plan for loved ones with disabilities to ensure that they can maintain their essential benefits and enhance their quality of life.
  • Transfer on Death Affidavit – To pass real estate outside of Probate. Think about it as a beneficiary designation for real estate (like what you can do on a bank account)!