By Trusts and Estate Attorney Kerri Castellini
Estate planning is the process of preparing for the loss of capacity and ultimately passing on of your assets after you have died. When defined in these dismal terms, the process sounds unpalatable and intimidating. However, the reality is that estate planning is a vital necessity for the future and providing for your loved ones. A comprehensive and up-to-date estate plan can be the best gift you can leave your family.
Estate planning can be as simple as creating a last will and testament, or as complicated as preparing several trusts, as well as implementing other techniques to manage estate and income tax exposure. To help you better understand estate planning, I have addressed some common myths:
Myth: I am too young (too poor, too busy, too fabulous, etc.) to worry about estate planning.
Truth: Everyone, regardless of their age or wealth, may wish to consider estate planning. Preparing a durable power of attorney may allow someone else to assist an individual if he or she experiences a catastrophic event, or even, just on vacation. Anyone over the age of 18 may benefit from having an up to date and properly executed power of attorney.
In addition, preparing a medical power of attorney nominates a health care agent to act in the event that an individual can no longer make medical decisions. Furthermore, a medical power of attorney waives the HIPAA regulations so that the named agent can access medical records. Finally, a medical power of attorney can express an individual’s wishes for the administration of life support, nutrition, hydration, medicine and procedures to alleviate pain and provide for organ donation.
Myth: I have a power of attorney, so I don’t need a last will and testament.
Truth: The authority given in a power of attorney dies with the creator. A personal representative or executor may need to be appointed by the court to access the assets in the decedent’s sole name to pay funeral bills and other expenses, and ultimately, make distribution of the estate assets.
Without a last will and testament to nominate a decedent’s choice for a personal representative, the court will rely on State (or District of Columbia) law to determine which individual has priority to serve. In addition, the estate assets will be distributed pursuant to State (or District of Columbia) law, which often does not reflect the decedent’s wishes for distribution.
Myth: Life insurance is not taxed.
Truth: This is partially true, and partially false. Although the proceeds of life insurance policies are generally not subject to income tax, any income that accrues from the date of death of the covered individual may be taxable. Furthermore, life insurance proceeds are considered part of a decedent’s gross taxable estate for estate or death taxes where the policy remains in the decedent’s control at the date of death.
For example, the District of Columbia estate tax filing threshold for decedent’s dying in 2016 is $1 million. If a decedent died owning a life insurance policy worth $2 million, the decedent’s estate would likely have to file a District of Columbia estate tax return and estate taxes may be due.
These are just a few of the several misunderstandings that I frequently hear from clients. Unfortunately, because so much incorrect information exists, individuals sometimes take estate planning into their own hands. Working with an estate planning professional and beginning to assemble a team of trusted advisors can often help ensure that you are provided for during your lifetime and that your loved ones are taken care of after your death.