Many life events will prompt people to consider estate planning to protect their assets and family. Many will rush to an attorney before they travel (especially far), start a business, or complete a messy estate administration for a senior parent. An even more common event that triggers clients to prepare an estate plan is when they become new parents, or their aging parent’s guardian. Abandoning their lives of adventure and no longer living recklessly, they sell their motorcycles, stop hang gliding, and plan a family. Young couples often meet with an attorney to discuss their new family’s needs, and to create an estate plan to support themselves and their family.
As an estate planning attorney, I enjoy helping parents with their plans as their families change and grow, and as they, their children and their parents age.
This article provides readers with guidance on what they should anticipate when expanding their families and the various documents needed for a successful estate plan. While this article is geared towards parents or guardians, the advice provided below is also applicable to other family relationships as well.
The initial estate plan protects the parent(s)’ property and person as well as their children’s. Though each person’s estate plan is unique, a typical plan for a married couple who are responsible for minor children includes the following main documents (as well as additional detailed documents):
- Patient advocate designations: Parents may designate a patient advocate to make medical decisions on their behalf in the event that they are no longer able to do so. The power created is quite broad and may include small matters such as medication adjustments as well as more significant decisions, such as whether to withdraw life support. It is important for parents to designate successor advocates as well, should the first named individual be unavailable or unwilling to act.
- Health Insurance Portability and Accountability Act (HIPAA) form: Parents must also sign a separate document naming the same individual(s) they added as (a) patient advocate(s) to assure access to their medical records. Parents may add additional individuals they would like to keep informed of their medical situation but without the power to make decisions on their behalf.
- General durable power of attorney: This document is implemented during a person’s lifetime, if needed. If someone is unable to handle their financial affairs, perhaps because they are temporarily hospitalized, an attorney-in-fact may be appointed by the person to act on their behalf. It is wise to also appoint successor agents.
- Trust: Depending on the value of a married couple’s total assets and other factors, either one joint revocable trust or two separate trusts will be created for them. An attorney discusses current estate tax laws and anticipated changes with the couple and helps them determine the type of trust(s) they need. The trust document(s) provide(s) a roadmap for the designated fiduciary (successor trustee) concerning management of the person’s assets after they pass away. The trust language guides the trustee through their duties and obligations under Michigan law. Finally, the document details the person’s distribution plan. The trustee will follow the person’s carefully detailed wishes concerning who will receive their assets. Attorneys help their client(s) choose the appropriate person to serve as trustee to carry out this important task. This may include more than one person and different roles, depending on the distribution plan. Once the trust is executed, it becomes a separate entity that will own many of the person’s assets in order to avoid probate administration. Careful and accurate retitling of assets is crucial to avoid probate administration and assure all the benefits of the trust are realized.
- Will: A “pour-over” will is created as a safety net to capture assets that were not properly titled to the trust. This most commonly occurs when people acquire new assets, such as real estate, and do not remember or understand the importance of titling assets to their trust. Also in their will, parents name guardians and conservators, to care for their minor children should they pass away.
Parents should carefully select loved ones to care for their children should the children lose them while they are still minors. Estate plans should always be created with flexibility so that law changes, especially those concerning estate taxes, do not require constant revisions. Further, as parents’ families grow and mature, a well-crafted estate plan should not require revisions to account for typical family changes.
As children reach adulthood, it is time for parents to revise their estate plan. This is a natural time for families to meet with their estate planning attorney to adjust their estate plan and asset documents. Each family’s needs and assets vary; the number and types of revisions required differ. Below are a few key considerations to address:
- Children as fiduciaries: Parents may find that one or all of their children have developed the maturity and responsibility required to serve in fiduciary roles. After patting themselves on the back for raising well-adjusted and brilliant children, parents can select which children may act on their behalf during their lifetimes to make medical and financial decisions by revising the patient advocate designations and general durable powers of attorney, or name them as guardians to care for their minor siblings should the parents pass away.
- Distribution plan: Parents may also adjust their distribution plans detailed in their trust(s) to reflect their adult children’s changing needs. Qualified plans’ beneficiary designations may also require revision.
- Financial assistance: As adult children create their own lives, parents may assist them by making gifts or loans or by joining in business ventures. It will be important that these arrangements coordinate with parents’ estate plans and that any necessary ancillary documents are created. These may include:
- Promissory notes
- Gift tax returns
- Deeds and associated mortgages
- Business plans and contracts, such as buy-sell agreements
Now is also the time for adult children to create their own estate plans. Their estate plans will likely not require the same detail or documents as their parents’. At a minimum, adult children should execute the following documents, before they leave for university, begin their “gap year,” or take their first step — wherever adulthood may lead them:
- Patient advocate designations: The adult child may designate their parent(s) to act as (a) patient advocate(s) to make medical decisions on their behalf in the event that the child is no longer able to do so. It is important to also designate successor advocates, should the first individual named be unavailable or unwilling to act.
- Health Insurance Portability and Accountability Act (HIPAA) form: As explained earlier, the HIPAA form must be created to accompany the patient advocate designation. It is crucial for parents or guardians of children about to attend college that the children sign a HIPAA release form, designating the parent(s) to be disclosed medical information to by the health provider in the event an emergency happens. Without a designation, a health provider will not disclose any of the child’s medical information to the parents due to HIPAA privacy laws.
- General durable power of attorney: In this document, the children may designate their parent(s) to act as attorney(s)-in-fact to manage their financial affairs during their lifetime if needed. It is wise to also appoint successor agents.
As parents consider retirement, financial plans are created to sustain their lifestyles and support their medical expenses, especially if they require long-term care. Careful planning in conjunction with their estate planning attorney, financial adviser, and accountant is recommended to best prepare for possible financial needs.
Commonly concerned about the burden they may place on their adult children, aging parents should take care to clearly communicate their wishes concerning their personal desires and assets. Some of the important topics parents should discuss with their attorneys at this time are:
- The need for children’s help, to act on the parents’ behalf
- Long-term care planning, including Medicaid where appropriate
- Estate tax planning
- Funeral arrangements
- Review and possible revision of estate planning documents
Parents’ lives are forever changed once the decision is made to care for another person for the rest of their lives. Their focus shifts to protecting their new family and supporting their children to eventually become successful and independent adults. Helping individuals create plans for their family’s future is one of the most gratifying aspects of estate planning for me as their family attorney.