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  • The Write Stuff – An Estate Plan Is Only Four Documents Away


    It should come as no surprise that the general population of the U.S. is aging. According to the Administration for Community Living, which was created by the U.S. Department of Health and Human Services, people who were age 65 or older represented 14.5% of the population in 2014, and that number is expected to grow to 21.7% of the population by 2040.

    When aging, most people would prefer to have a plan in place to ensure that their needs and goals will be met, even if they are incapacitated or pass away. While many people believe they do not have enough money to need an estate plan, the need for an estate plan is not solely related to the amount of one’s wealth.

    As explained below, a basic estate plan is comprised of four legal documents and is quite simple to establish.

    Last Will and Testament

    A will directs the disposition of the probate estate. The probate estate consists of assets held in the decedent’s name alone that do not have a beneficiary designated. When a person passes away without a will, their estate will be distributed as directed by the Commonwealth’s intestacy law, which may not be as they would have desired.

    A common misconception is that a will is not needed if every asset is jointly owned or has a designated beneficiary. Of course, there must be a surviving joint owner for this plan to work. If both owners pass away simultaneously in a common accident, the estate will need to be probated, as there will be no surviving joint owner.

    A will is also necessary in order to designate a personal representative, who will carry out the estate. The personal representative will gather the probate assets, pay valid debts, and make distribution of the estate to the beneficiaries as set forth in the will. Further, if the decedent leaves behind minor children, a guardian can be designated in the will to take custody of these children.

    Likewise, a trust can be established in a will that would provide ongoing protection for minor children — or possibly for other beneficiaries who should not receive their inheritance outright, usually due to spendthrift concerns. When there is no will in place, the power and ability to make these designations and to direct the disposition of property is forfeited.

    Healthcare Proxy

    A healthcare proxy is a document that designates a healthcare agent, who would make healthcare decisions in the event of incapacity of the principal (person signing the proxy). The healthcare agent would step into the shoes of the principal and make decisions as they would if they were able. For example, they may decide whether a certain medication should be taken, whether a certain medical procedure should be done, or whether there should be an admission or discharge from a medical facility.

    ‘Living will’ language is normally included within the healthcare proxy. The living-will language addresses end-of-life decisions and generally sets forth that the principal does not want extraordinary medical procedures used to keep them alive when there is no likelihood of recovery. This can be a difficult decision to carry out; therefore, care should be taken to name someone who would be able to honor that decision. Individuals who have an advanced illness may choose to establish medical orders for life-sustaining treatment (MOLST) in addition to a healthcare proxy.

    A MOLST is a medical order form completed by a patient and their physician that relays instructions about a patient’s care, including stating which treatment should be given or otherwise withheld. A MOLST would eliminate the need for living-will language in a proxy, but the best practice would be to reference it in the proxy.

    Durable Power of Attorney

    A durable power of attorney is a document that designates someone to make financial decisions. This document is usually in full force and effect when it is signed, but it is expected that it will not be used unless you are unable to handle your own financial affairs. It is also possible to grant a springing power that does not take effect until incapacity arises.

    The power of attorney is a very powerful document that is as broad as the powers granted within it. It gives authority to the designated person to handle all financial decisions, not just pay bills. In most cases, the person named will be authorized to handle real estate, life insurance, retirement accounts, other investment accounts, bank accounts, and any other matters involving money. As such, the person chosen to serve in this capacity should be someone with financial savvy who can be trusted without reservation.

    Homestead Declaration

    The homestead declaration, once properly recorded in the Registry of Deeds, declares a principal residence to be a homestead. The homestead declaration protects the equity in the primary residence up to $500,000 from attachment, seizure, execution on judgment, levy, or sale for the payment of debts.

    In some cases, such as advanced age or disability, the equity protection can be up to $1 million. If a homestead declaration is not recorded, there is an automatic $125,000 of equity protection. In addition to some other specific exceptions, a homestead declaration will not protect the real estate from nursing-home costs or tax liens.

    Conclusion

    With these four documents, most people can help their family members or trusted companions avoid expensive and painful legal hassles related to their ongoing care and their estate.

    Individuals with more complicated estates may require different or additional documents to fully protect their interests and their beneficiaries, but for the majority of people, an estate plan is only four documents away.

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