FAQ
What is Estate Planning?
Estate Planning is preparing for the transfer and management of a person’s estate. A number of tools may be used in estate planning to accomplish the person’s wishes or reduce tax liability. These tools may include wills, trusts, powers of attorney, insurance, and other arrangements to accomplish the person’s wishes and reduce tax liability.
What is an Estate?
The definition of an estate depends entirely on the situation. Generally speaking, an estate is everything a person owns including real and personal property. But a probate estate does not include several assets a person may own including life insurance. And a taxable estate may include property that one does not think of herself as owning. This is why it is important to consult a knowledgeable attorney when planning an estate.
Who Needs an Estate Plan?
Everyone does. Having an estate plan is so important that states create one in case a person didn’t do it himself. Estate plans are particularly important for anyone who has a person who depends on her for support, such as minor children or disabled family members.
Even if someone doesn’t have a person who depends on her for support, estate plans are important for everyone because they don’t just plan for death. They also plan what happens if a person becomes incapacitated or disabled. An estate plan will consider who makes medical decisions as well as how to pay for treatment. For example, if a person becomes disabled and a loved one must sell the person’s property to pay for treatment, the disabled person would need to have signed a power of attorney for property prior to becoming incapcitated or the person’s loved one must ask a court for permission to sell the property. A power of attorney is preferable because anytime courts and attorneys get involved the time and expense increases dramatically.
What Happens to my Property if I Don’t Have an Estate Plan?
Every state has a plan in place in case someone dies without an estate plan. The plan is called intestacy.Intestacy is based entirely on blood, marriage, and adoption. In Illinois, property goes to one’s spouse and children (1/2 to the spouse and 1/2 to be divided among the children). If someone doesn’t have a spouse or children, then the estate goes to the parents and siblings. Intestacy is a cookie-cutter plan intended to follow most people’s wishes but doesn’t take into account any tax planning or special considerations someone might have.
What is the Most Basic Estate Plan?
Obviously, everyone has different goals for his estate plan. But there are several documents every person should have prepared in order to provide for herself (in the event of a disability) and the people she cares about. These documents include a Will, a Power of Attorney for Health Care, a Power of Attorney for Property, a HIPPA release form, and if desired, a Living Will. Future posts will describe these documents in more detail.
What is a Will?
A will states where an owner’s property goes when the owner dies. It must be created while the owner of the will has the appropriate mental capacity. It can be changed with a codicil or revoked at any time so long as the owner again has the appropriate mental capacity. The will appoints an executor who oversees the estate until all property is distributed, and, like intestacy (see “What happens to my property if I don’t have an estate plan?”), uses the probate process to distribute the property. Probate is a court proceeding that determines whether the will is valid, gives the executor authority to carry out the directions in the will, and oversees the executor’s collection and distribution of the property. We will talk more about probate in later posts.
The will may also recommend who the court should appoint as guardian for minor children and disabled adult children. Before appointing the person recommended in the will, the court will verify that the guardian appointed in the will will provide for the welfare and best interests of the children.
What is a Power of Attorney for Property?
A power of attorney for property gives someone (an agent) the ability to control the property owned by the person signing the power of attorney (the grantor). The amount of control and the length of time that the power is given to an agent can vary. For estate planning purposes, the grantor signs a durable power of attorney or a springing power of attorney to insure the agent can use the grantor’s property and money to care for the grantor in the event of a disability. The durable power of attorney takes effect immedicately and continues to be effective even if the grantor becomes disabled. The springing power of attorney takes effect at a future date such as when the grantor becomes disabled. Both the springing power of attorney for property and the durable power of attorney for property automatically terminate when the grantor dies.
Being appointed as an agent in power of attorney is an incredible responsibility because the agent may even be able to sell the grantor’s property if she thinks it is in the grantor’s best interests. Special consideration must be given to who should be the agent, what control the agent should be given over the grantor’s assets, and the length of time the power of attorney is in effect.
What is a Power of Attorney for Health Care?
A person appointed in power of attorney for health care (an agent) will determine who makes health care decisions when one is unable to make them for herself. The person signing a power of attorney appoints an agent to consent to medical procedures in case of incapacity.
Without a power of attorney for health care, Illinois law provides who should make health care decision. The order begins with the guardian of the incapacitated person. If no guardian exists, then health care decisions are made by the incapacitated person’s spouse, followed by adult children and parents.
What is a Living Will?
A living will only applies in the narrow situation where one suffers from an incurable condition. It allows a person to withhold or withdraw death delaying procedures if they are diagnosed with a terminal condition– that is, they have an irreversible and incurable condition that will result in death. A living will might not cover a variety of scenarios such as a terminal condition during pregnancy, the withdrawal of nutrition and hydration (as in the Terry Schaivo case), and what happens to one’s body after death. These potential issues can be resolved by an agent appointed in a power of attorney for health care, but would not be addressed by a living will. (See “What is a Power of Attorney for Health Care?”)
In Illinois, doctors will follow the wishes of an agent appointed in the power of attorney for healthcare over the living will.
What is a HIPAA Authorization and Release?
There is one final document that may or may not be a part of the basic estate plan: a HIPAA Authorization and Release. HIPAA stands for the Health Insurance Portability and Accountability Act and is the Federal law that requires, except in certain circumstances, medical information to be kept confidential. A HIPAA Authorization and Release signed by a patient gives doctors permission to give individuals specified in the HIPAA Authorization and Release the patient’s medical information.
If the patient is disabled or incapacitated and unable to authorize the doctor to release the information, then no medical information will be given. An exception to this rule is an agent under a Power of Attorney for Health Care. (See “What is a Power of Attorney for Health Care?”).
Not having a HIPAA Authorization and Release becomes an issue when a person has a Springing Power of Attorney for Property. (See “What is a Power of Attorney for Property?”) Many Springing Powers of Attorney for Property are written to become effective when the person giving the power becomes disabled to the point that she is no longer able to care for her own financial matters. Usually, this is decided by a physician.Because HIPAA prevents doctors from disclosing medical information about a patient without her consent, a HIPAA Authorization and Release must be signed by the patient prior to becoming incapacitated. This allows doctors to disclose information about whether a patient is incapacitated, and thus, whether she is competent to make important decisions regarding her property or whether the authority given to the agent in a Springing Power of Attorney kicks in.
Advanced Care Planning in the News
Let’s take a break from basic estate planning to discuss some current events. There has been much talk recently of Obama’s health care plan and its impact on end of life care.
The specific bill in question is HR 3200 out of the Ways & Means Committee in the House of Representatives. The relevant section number is 1233, “Advanced Care Planning Consultation.”
This bill allows Medicare to make reimbursements to doctors for having advanced care planning consultations for Medicare patients and report the outcome of the consultation to the government.Specifically, in Section (c), the bill advocates discussions about living wills, powers of attorney, and the role of health care agents.
The main point of contention is that doctors would be reporting to the government about the outcome of these discussions with patients. Some people argue there are doctor-patient confidentiality and HIPAAissues. But while there are arguements against reporting decisions to the government, the idea that requiring doctors to report to the government about these decisions would somehow force patients to make decisions that would prematurely end their life is inaccurate.
Doctors would be paid for having the consultation, not reaching a specific decision with their patient. The discussion would be made between a patient and their doctor– not a commission, group, or committee.Reporting to the government about the discussion ensures that the discussions are taking place and that taxpayers (who will fund these Medicare discussions) are not being defrauded. Reporting may also help the government decide whether these kinds of discussions are beneficial to patients in controlling costs and planning for end of life care. Finally, the consultation is not meant to persuade people about one choice or another. It could result in patients deciding they want the full extent of care available in end of life scenarios.
Prather Law Office has a discussion about advanced care planning with every estate planning client. It is important for people to make their intentions clear. After deciding theses issues, clients should discuss their decisions with family and health care agents. It can provide peace of mind to people if they are forced to make emergency or end of life decisions.
What is Probate and Should I Avoid It?
Probate is the court procedure used to distribute a person’s estate. It gives the representative authority to administer the estate, determines whether the will (if there is one) is valid, and oversees the representative’s collection and distribution of the property.
Probate court ensures that a person’s property is distributed according to her will or the state’s intestacy laws if the person had no will or the will is invalid. The process is designed to make sure that there is no fraud or illegality committed by individuals. In addition, probate limits the amount of time creditors can file claims against the estate. This ensures that distributions are final and cannot be taken away later by creditors of the deceased.
Despite these advantages, probate can be a time-consuming and expensive process. This is why people often believe they should avoid it. It is rarely completed in less than a year, and attorneys’ fees and court costs can add up quickly.
Because the assets of every estate are different and these costs can rise quickly, it is important for people to consult a knowledgeable attorney to determine if they should avoid probate.