Whereas your elderly grandparents may need trusts that are designed to avoid probate and/or leave various assets to each other, to your parents, or to you, this type of trust may not be what you would need. You may need a Will, a Health Care Power of Attorney, a Durable Power of Attorney, and potentially a Revocable Trust, too, but yours may be very different in substance than theirs.
What Happens If We Don’t have an Estate Plan?
It is important to remember that there are at least two separate portions of “estate planning”. The first is the most commonly thought of idea of “What happens to my stuff when I die?” The second, and much less considered portion of estate planning for the younger crowd is “Who will take care of me if I become incapacitated?” Unfortunately, we all put ourselves at risk of either or both of these portions coming into play every time we get in the car to run errands, cross the street, walk in stores, get on a boat, go surfing, or almost any other actions we may do on a daily basis. We are all aware that accidents happen, and we are also aware that unforeseen medical occurrences can occur without the slightest warning and render us incapacitated as well. It’s uncomfortable to think of it happening to you, but it is a very real possibility. Proper planning for this portion is crucial to ensure you are properly taken care of and your wishes are carried out.
If you are married with no kids, and you don’t have an estate plan or prenuptial agreement providing otherwise, the law in South Carolina provides that your estate goes to your spouse. This may be what you desired, or it may not be; regardless, your spouse must still take your estate through probate before he or she can actually “receive” your “probate assets.”
It’s also important to understand what assets are probate assets. The SC Probate Code defines the probate estate “as the decedent’s property passing under the decedent’s will plus the decedent’s property passing by intestacy, reduced by funeral and administration expenses and enforceable claims.” This probably doesn’t mean much to a layperson, but, basically, assets will be probate assets unless ownership passes to another at death as a result of a contractual arrangement (e.g., beneficiary designation on an insurance policy or retirement account), or by operation of law (e.g., holding title to property as joint tenants with right of survivorship). In addition, if you transfer title to assets to the trustee of a revocable trust during your lifetime, at your death the assets held by the trust are non-probate assets. Joint bank accounts and POD accounts are, generally, non-probate assets.
One common misunderstanding has to do with real property held by husband and wife. The title might be held as tenants in common or it might be held as joint tenants with right of survivorship. In the first case, upon the death of one co-owner, that person’s interest in the property does not automatically pass to the surviving owner as it does in the latter case. It would pass according to the terms of that person’s will, or, if there’s no will, by intestate succession. The classic problem arises when the marriage is not the first marriage for the decedent, but there are children from a prior marriage. In an intestate estate with children and a spouse surviving the decedent, the surviving spouse inherits only half of the decedent’s interest in the property, and the children inherit the other half leaving the surviving spouse owning his or her own half interest and one-half of the decedent’s interest.
Some couples might prefer to use a Revocable Trust for each spouse, also referred to as a living trust. A revocable trust would allow you to avoid probate for assets titled in the name of the trust during lifetime, and can also be easily amended if you later want to change the distribution of your estate to include your parents, children, siblings, nieces and nephews, or whomever else you may want to share in your property. Furthermore, proper crafting of a revocable trust by an estate planning attorney can ensure that your spouse can receive your stuff without having to go through the time, expense, and heartburn that comes with the probate process. Another reason some couples may prefer to create a trust and transfer assets to it during their lifetimes is that probate property controlled by a Will becomes public record, what is held in the trust during lifetime is not.
You have probably noticed that transfer to the trust during lifetime has been mentioned several times. The reason is that if property passes to your trust at your death according to the terms of your Will (sometimes called a pour-over Will), that transfer is subject to probate because that property was held in your name at your death, not in the trust name. To avoid probate on these assets, title must be transferred to your trust during your lifetime.
The primary goal with the “self” portion which generally consists of a Durable Power of Attorney and a Health Care Power of Attorney is to prepare for illness or incapacity. A Durable Power of Attorney is a legal document that gives your agent, a person you choose and nominate, the power to act for you. The Durable Power of Attorney can be limited to take effect only if you become incapacitated and unable to handle things on your own or it can be fully effective immediately upon execution.
With a valid durable (meaning it stays in effect upon your incapacity) power of attorney, your agent should be able to take care of things like paying bills, managing investments, directing medical care for you if you are unable, manage your real and personal property, operate an unincorporated business that you may have, take care of your tax obligations, etc. Without this document, your loved ones may have to petition the probate court in order to obtain the authority to manage your affairs and health care decisions. This can take time that you may not have and is expensive. You can name your spouse or parent or anyone you trust to manage your financial life and your medical life. It is important to name someone you trust, who will consider your wishes, and who can be level headed and responsible in high stress situations.
The second important document relating to the “self” portion of estate planning is a healthcare power of attorney or a medical power of attorney sometimes called a Living Will. This document sets out your wishes for your health care and allows you to make choices. South Carolina has a statutory form Health Care Power of Attorney from which you will choose options relating to organ donation, life-sustaining treatment, and tube feeding. Creating this document allows your agent to better understand your wishes and execute them with hopefully less guilt or weight on their mind.
No matter the size or shape of your estate plan, another suggestion we’ve found helpful is to create what we call an “instruction letter” to your agent or family letting them know what they may need to be on the lookout for if incapacity or death strikes. We recommend including a list of subscriptions you have (not just the Netflix, Hulu, YoutubeTV, and food prep subscriptions, but also various business subscriptions and insider content subscriptions), what bills need to be paid, how to access a safe deposit box (the power to access this is generally given in a durable power of attorney), where your assets and estate planning documents are located (safe deposit box, home safe, under the mattress, which banks have which accounts and what your account numbers are), and any other suggestions you may have. This letter can prove to be useful for your current financial standing as it forces you to consider your bills and subscriptions and may wind up saving you some money.
Given our generation’s familiarity and use of social media and computers in general, working on detailing how you want your social media pages managed and how to access them might be a major issue. Oftentimes, we include permissive language in our Durable Power of Attorneys. Access instructions to computers for finding photos and other important memories can be another issue you want to consider prior to incapacity.
You may not be Prince, a millionaire athlete, tech guru, or investing savant. Estate Planning may be for those people, but it’s also for you. Give our office a call and let us work with you to ensure your affairs are in order if disaster strikes.