WHAT IS ESTATE PLANNING?
By: Silas Danielson & Macy Anderson
Planning for the future can be overwhelming and stressful – particularly when the conversation centers on end-of-life healthcare and the disposition of your assets upon death. These are difficult conversations to have, but they are critical to reducing the stress on loved ones in the event of your passing or incapacitation.
Estate planning refers to the overall process of putting a plan in place to address end-of-life and after-death issues. There are a wide variety of estate planning “tools,” including wills, trusts, health care directives, powers of attorney, major gifts, etc. An estate plan will look different for each individual, because each individual’s situation is unique. The estate planning process is flexible, and this allows you to address each individual part of your estate. Whether you own a business that will continue operating after your death, you have minor children or grandchildren in your care/custody, or own just a few major assets (home, car, and investment accounts), estate planning offers you a chance to think about major end-of-life decisions and the legacy you wish to leave behind.
One common misconception about estate planning is that it’s helpful and necessary only for individuals with a high net worth. The truth is that having your final wishes documented is critical for anyone, regardless of wealth, because almost everyone has at least some personal assets that will require distribution, and everyone has the potential to be in a position where critical medical decisions need to be made. In the absence of this type of planning, loved ones are left with difficult decisions and an often complex court process. This complex and potentially expensive process can add additional, unnecessary stress to your family and friends during an already difficult time.
Another common misconception is that a “will” and “living will” are synonymous. These words, while frequently used interchangeably, are actually two different concepts. It is important to note the distinction so that you can best document your wishes in a legally enforceable manner.
Wills
A will is a formal document outlining how you wish to have your money, property, and personal belongings allocated and distributed after your death, including who you want as your personal representative. In the absence of a will, Minnesota’s intestate succession laws will govern how your assets will be divided. These succession laws have a predetermined hierarchy for distribution of your assets – spouses and children come first, followed by grandchildren, parents, brothers/sisters, or other distant relatives if there are no closer relatives. Minnesota’s intestate succession laws do not permit for the distribution of property to friends or charities. Therefore, if you wish to leave property or other assets to a friend or charitable organization, you must have a will that specifically outlines this desire. If you have minor children or grandchildren in your care and custody, wills can also provide an opportunity to dictate who will care for your children in the event of your death.
Consequences for dying intestate (without a will) often come in the form of increased time, money, and stress for your family and friends. The court is likely to be more involved in the distribution of your estate if you die intestate, and this can in turn increase attorney and court fees. The first thing the court will do is name a personal representative who will oversee the distribution of your assets. Due to the immense responsibility that falls on a personal representative, you likely want to designate someone you trust. You, and not the court, are in the best position to make decisions related to personal representatives, asset allocation, and care/custody of your children. Therefore, it is important to document your intent and wishes in a legally enforceable manner.
Health Care Directives
A health care directive (or what some refer to as a “living will”) is legally enforceable documentation of an individual’s health care wishes in the event that the individual becomes incapacitated or is otherwise unable to communicate. This document designates the individual(s) who you want to make health care decisions on your behalf and can provide what, if any, end-of-life care you wish to receive. The goal of a health care directive is to eliminate difficult decision making, provide clear documentation of your wishes, and ultimately provide peace of mind and reduce stress for family and friends.
If you do not have a health care directive and a critical health care decision needs to be made, your doctors will look to your closest family members to make decisions for you. This can become complex and stressful if you have multiple children, more than one generation of close family members (e.g. adult children and adult grandchildren), or if your closest family members are unaware of your wishes or unwilling to honor them. Even the closest of families face conflict when deciding on health care matters for a loved one. A decision to pursue or forego end-of-life care is far more difficult to make in the moment of a medical emergency as opposed to in advance. Many people have strong opinions on their health care wishes, but it is critical that these wishes are well-documented to eliminate any confusion or uncertainty.
Power of Attorney
Another estate planning tool commonly discussed is a power of attorney. A power of attorney is written permission for someone else to care for your property or money matters for you. The person giving the power is called the “principal” and the person taking care of things for the principal is called the “attorney-in-fact.” The power of attorney document is usually used when the principal is incapacitated or otherwise unable to make his/her own financial decisions. An attorney-in-fact does not need to be a licensed attorney, but it should be someone you have a great deal of trust in. If you name a power of attorney, you are still free to act for yourself, but the attorney-in-fact can also act for you. A power of attorney can be limited in time or scope with appropriate documentation, and a competent person can revoke a power of attorney in writing at any time.
Taking Action
Estate planning can seem overwhelming, and it may be a complex process depending on your individual circumstances. Sitting down with an attorney can provide you with the opportunity to evaluate which of the many estate planning tools best fits your needs and desires.