Living Wills and HIPAA Medical Privacy
From 1996 to 2003 Congress was changing the rules on medical privacy. The Health Insurance Portability and Accountability Act (HIPAA) requires that hospitals and medical care providers not discuss a patient with anyone other than their spouse. If your living will has a medical agent or health care power of attorney other than your spouse, you need to add a HIPAA release to the document.
Imagine if you are injured and unable to make decisions for yourself, but the medical information necessary for informed decisions cannot be provided to your proxy. Your wishes for how your medical care should proceed will be ignored. Get a HIPAA release in your documentation so that your agent has the information he or she needs to communicate with your care providers.
All Living Wills crafted before 1996 need to be updated. If your will was created between 1996 and 2003 check and make sure there is a notarized HIPAA release as part of the documentation.
Doubling your Estate Tax Exemption with an ABC Trust
You can use a trust in your estate planning for a variety of reasons, avoiding probate is usually the primary reason. But did you know you a married couple can double their estate tax exemption using a trust?
Consider a married couple with $5 million in assets. When the first of them passes away, the original trust (let’s call it trust A) can move the exemption amount (currently $2 million) into a separate trust (call it trust B), avoiding taxes. When the surviving spouse passes away the remainder of the original trust is passed into a new trust (trust C) and take advantage of another $2 million exemption. This type of cascading trust arrangement is commonly called an ABC trust.
If the surviving spouse had inherited his/her partners assets via a single trust, then all the combined assets are subject to estate tax, with a single exemption when the surviving spouse passes away. With tax rates of 45% as they are currently, an ABC trust would have saved our couple’s estate $900,000 in taxes.
Estate Taxes: Obama and McCain talk about 2010
The “death tax” debate is part of this year’s presidential campaign. According to CNN, both candidates will work to make estate taxes return after the 2010 repeal. You might recall that exemptions are increasing in 2009, to $3.5 million and a 45% rate before the estate tax goes away completely in 2010. And if nothing is done, in 2011 the tax rates return to prior levels, with a $1.5 million exemption and a 50% rate.
Obama favors fixing the 2009 levels for 2011 and ongoing, with a $3.5 million exemption and a 45% rate. Married couples will be able to combine their exemptions, eliminating estate tax on many estates under $7 million. Nick Shapiro, campaign spokesman for the Obama campaign cited the Congressional Budget Office “Senator Obama’s plan would completely exempt 99.7% of estates from taxation.”
McCain wants to reduce the rate from 45% to 15%, similar to the capital gains rate. And he would like to raise the exemption to $5 million ($10 million for married couples.) Doug Holtz-Eakin, policy advisor for the McCain campaign says “The goal is to allow small businesses to grow and expand.”
Critics of Obama’s plan say his plan is unappealing to business owners, while critics of McCain’s plan call his approach fiscally irresponsible, benefitting the wealthiest estate owners with no way to pay for it.
Both candidates agree on one thing, a return to estate taxation after the single year repeal of 2010 - so tax planning is still a vital part of smart estate plans.
I Don’t Want to Talk About It
Seven words that create so much grief: ”I don’t want to talk about it.”
Sometimes an aging parent brings up their death and the children balk. Sometimes it’s the other way around. Either way, not talking about is worse, so how do we get to the point where talking is OK?
Successful approaches probably vary, but most of us subscribe to one of two schools on how to cope with “uncomfortable but neccessary.” Rip off the bandaid, jump into the deep end, grit your teeth and go. If this is you, then driving into the headwind might work - but keep your antennae up - you don’t want to hurt the one who has trouble talking. Use matter of fact words, a tone of voice that is light and even, and pepper the talk with lot’s of lifelines: ”of course this is a long time away” and “just in case, it won’t really happen” and “fifty years from now.” Some families use humor in this circumstance, but only if that is your family’s pattern - macabre humor could easily make the discomfort worse.
I like the “desensitizing” approach myself, easing into the discussion over time. The idea is to gently push, never enough pressure to create hard resistance, backing off quickly when discomfort starts. “OK, we don’t have to talk about this now, but we will sometime.” Followup up every once in a while, adding a comment, sharing an idea or reflection on the topic until one time bringing it up feels normal, and the topic rejections from the reluctant party lacks the emotions of prior rejections. At this point ask for agreement to talk about it “sometime” without a timeline, because this is easier to accept. Once you have an agreement to talk about it “sometime” the pattern changes, the next time you ask for a time to discuss it - the next visit, or a lunch date, or even after the next holiday get together if you have the luxury of time. At this point it is important to get a date, even if it’s far in the future. Once it’s on the calendar, keep making short comments on the topic, not enough to discomfort but enough to keep the topic simmering. Don’t let the reluctant one off the hook, if they find an excuse to break the appointment make another one in the same conversation. Once it becomes inevitable, they’ll want to “get it over with” and you’ll find on the appointed day that it’s a lot easier to discuss it fully, with all that apprehension melted away to nothing.
First Child on the Way?
Most young adults put off planning for their heirs - with few assets, little obligations that outlive them, and a sense of immortality in the mix who can blame them? Then a baby comes along, and everything changes. Along with deciding a name, picking a crib, and a sudden urge to live it up comes an almost overwhelming sense of responsibility. This is the perfect time to start estate planning.
Who will care for the child if something happens to the parents?
This question launches more wills than any other, and rightfully so. A simple will can instruct those left behind how to care for dependents. It’s a difficult question, and some uncomfortable dialog can ensue as the odd parenting styles of crazy siblings, other kooky relatives and friends suddenly become heated dinner topics. Before kids, opinions about a spouse’s relatives may have been swept under the rug - but when deciding who will care for your baby, everything gets said. Remember to follow good disagreement etiquette: keep it impersonal, respect the opinions of others, find tactful words to describe shortfalls, include positive comments as well, you know the drill. Along the way you’ll learn what is important to your spouse, and maybe a little about what’s important to you as well. Having a child together forces communication and communication to much higher levels, so get used to it.
In the end you might be lucky - a clear choice will emerge. Or not, and you may need to cast the net wider. In any case don’t give up or postpone for later. The harder it is to choose a guardian for your child, the more important it is to do so. Don’t leave it to an unknown judge to make this choice. Then see a lawyer, and write up the will.
Inheritance with Strings Attached
Let’s say your assets are substantial, and you are worried that your children will misuse the estate you worked so hard to build. Many people place restrictions on their children’s receipt of the inheritance.
Common restrictions pass the money to the adult child in stages, with some money available at age 18, with more disbursements over time. Imagine your heir running to the luxury car dealer or down the aisle with an unscrupulous partner in marriage as soon as they get their hands on the money, and you understand the concern. Some parents hold back a major portion of the inheritance until their children reach old age, thereby insuring their retirement. And some even put conditions on the inheritance, trying to avoid subsidizing lifestyles they don’t endorse or to incentivize behaviors they support.
But consider this: if you can’t influence your children as a living parent, how will your estate manage it? And if you do decide to place conditions on disbursement, be sure they are completely unambiguous. You probably don’t want the trustee making a judgement call about whether a struggling artist who is creatively engaged has achieved ‘gainful employment’ and is worthy of disbursements. What if the trustee doesn’t appreciate the art? What if the trustee would rather the money stay under his/her control, earning safe interest and generating fees for the trustee in the process?
Providing support while the heir receives an education is another common element of an estate plan. Be sure to be specific, will the estate support the heir if they are in college full time, or just if they are taking classes? Do trade schools count? Do classes in macrame at the civic center count? And how long is this allowed to continue? We heard of heirs in their thirties still in college, getting one degree after another while being supported by the estate - is this OK? Decide what makes sense for you and your children, then be very specific in your will or trust documents.
The most common advice it to allow young adults access to some of the estate right away. Let them splurge, waste, or wisely conserve the asset as a learning experience. If you want them to learn how to manage money, they need practice. And room to make errors. Providing further distributions over time allows the person receiving the inheritance to build skills and life experiences, creating the best chance for success.
What is an Estate Plan
OK, an estate plan is a good idea, but what is it exactly? An estate plan speaks for you when you are no longer able. It helps your loved ones navigate through the legal and medical mazes surrounding severe illness and death. And it creates clear and simple directives that let others know how you want the end of your life to be handled. How your medical care will proceed in the worst case scenario. How your dependents will be cared for. How your assets will be distributed. And it empowers those you trust with the authority to communicate for you. Without an estate plan and the essential documents you and your possessions will be at the mercy of the bureaucracy.
Four documents are normally included:
- Living Will - outline what you want in severe medical circumstances
- Durable Medical Power of Attorney - give someone else medical authority if you can’t make decisions or communicate
- Durable Financial Power of Attorney - give someone the ability to act for you financially in the same circumstances
- Will (and a Trust if appropriate) - determine what happens to your estate and responsibilities when you die
Talking to Parents About Planning
No one wants to talk about dying. When my dad wanted to talk about his arrangements I didn’t want to be there. Inside a voice was saying NO NO NO so loud I wasn’t able to really listen to what he was saying. After he passed away suddenly some of those conversations came back to me, and I realized the wisdom in his need to discuss the inevitable.
Then my wife and I had two children, and planning for their future became another loud voice in my head. We went to a lawyer and learned about how a will was essential, allowing us to name guardians. Of course that meant we had to have some frank conversations about our extended family members, and that was not fun. Eventually we agreed on candidates, spoke to them about their role, and drafted the will.
When my mom approached 80 years old she asked me to help her plan, and to be her executor. As the youngest of 5 children I was a bit surprised, thinking it was the eldest child who normally stepped up. I think she appreciated my openness about our will planning, and our financial management of our own affairs. So I read up on estate planning and helped her setup her affairs with the following self imposed rules.
First rule: I was a helper, not a decision maker. I tried to be neutral and to facilitate her own decision making process, for example I didn’t try and change her choice of executor.
Second rule: Our discussions were in confidence. I did not share her thinking or her decisions with my siblings without her consent. She needed someone to talk to, a place to air ideas and see how they felt when spoken aloud. Some thoughts didn’t fly, and they were spoken once and discarded. Confidentiality is essential to allow the ‘trial balloon’ and the ‘potential issue’ to surface and be tested in the light of day.
Her main goals were good ones: eliminate conflict in her children after her death, simplify the process, specify her wishes regarding services, and to protect her small estate from taxation.
We set up a living trust to avoid probate (with more than $50,000 in Arizona we did not qualify for the small estate exclusion) and transferred the house title, car title and financial accounts into the trust. All siblings would have an equal share of the cashed out estate. Some estate plans don’t do this, if one sibling has received a larger financial assistance from their parents while alive, they are sometimes left with less than a full share. Sometimes a sibling has higher needs because of a disability or a career that helps the world but does not provide a strong income and receives a larger share. In our case a straight divide made sense.
We talked with the siblings about how to divvy up the personal possessions, as all of us had sentimental attachments to something in our family home. We decided that no items had overwhelming monetary value, so all items were dealt with equally in a round robin selection process when we prepared the house for sale. Sets were considered one item by consent at the beginning of the process. We would draw straws for the order of selection. Some estates have personal items with significant monetary value, and in this case there is often an appraisal done prior, with the divvy process containing dollar value elements to maintain fairness.
Mom was generous in nature, especially as she entered her later years. She would routinely offer to give away items in her home. My siblings resisted her efforts for them to take this or that, saying they really did like that vase or picture, but they wanted it to stay in the home for everyone’s enjoyment for as long as possible. This was by agreement, because it maintained the fairness of our planned divvy. We joked about the caregivers and housekeepers receipt of gifts, since Mom would give them things they liked - but all agreed that her possessions were hers to do with as she liked. If we wanted a particular item (and we all had a few favorites) we had to share that with her, and she would not give those items away. Some families mark items with stickers on the back or bottom to help keep track, but we didn’t find that necessary.
When she passed away, her memorial service was great - just as she wanted. Our family came together and celebrated her life without any concern about inheritance because we all knew it was settled and fair. We were free to mourn, to bond in our love for our mother, and to grieve for our loss.
In the next few weeks I swept her accounts, decided on how to sell the house, and disbursed the majority of her cash assets to the siblings. We got back together with pickup trucks at the family home, and did the divvy. It was a hard day, seeing our home of 40 years dismantled before our eyes, with some sad moments and some tears. One surprise as we dwindled down our efforts and there was a large selection of items left for charity; some were considered emotionally significant. So it went from “I’d like this” to “I can’t let this go to charity, so I’ll take it” with a few hours work in between. None of us smoked, but Dad’s favorite ashtray didn’t go to Goodwill.
Organizing for Your Heirs
When a family enters the home after a death, the priorities are sometimes overwhelmed by emotions and memories. Diving through desks, kitchen drawers and the shoeboxes in the closet are often necessary to locate and secure wills, trusts, financial statements, car keys, etc. This time is better spent on grief, consolation of family members, reflections on the life and love of a family member. You can help by organizing in advance.
Prepare a list of all assets including bank accounts, financial instruments like stock and bond holdings, real estate and vehicles for your executor, and let him know where this list is kept. One good idea is to update the list every year when you do your taxes, and keep the most recent tax return in the same location. Make sure to include a copy of your will and any trust documents in the folder. The original will should be in a safe location (like a fireproof safe or a safe deposit box) but a copy should be in this central location. A copy should also be in the hands of your executor or personal representative, so he or she can plan appropriately.
Sort and label your keys. This can be a bit of fun, when all the keys in your house land in a heap they trigger all sorts of memories. Remembering that car of thirty years past is fun, and so is throwing away the now useless spare key. The organized and labeled keys can be a big help, reminding your heirs about the storage locker, the RV trailer parked in a lot, or the locked shed in a public gardening plot.
Who Needs a Will, and Why?
A will tells how to distribute assets and debts, names the person responsible for settling the estate, names potential guardians for dependents, and hopefully resolves potential conflicts before they start.
A living trust does not replace a will, you still need a will even if you have a living trust.
Young parents especially need a will, even though they are often too busy to arrange for one.
Why do you need a will?
- determine guardians for children or other dependents, with assets allocated to pay costs
- make sure your favorite things go to people who will care for them
- arrange things for your pets, possibly compensating those who will care for them financially
- name an executor (often called a personal representative) and to handle the estate
Your will can be challenged, so it makes sense to prepare it with the help of an attorney who specializes in estate law. Using a form will may or may not be appropriate for your situation, and a mistake in the will can have serious consequences. Most lawyers charge from $300 to $1500 to draw up a will.
Your will should be updated if you move to a new state, or if you have children or a change of financial circumstances.
See: What if there is no will and no estate plan