Do you have an Estate Plan?
As parents, we do all that we can to nurture the little beings that have been entrusted to our care. We love them, feed them, clothe them and cuddle them as much as we can. We do our best to offer them the world. What better way to continue to protect them and care for them, should an unforeseen tragedy occur that sweeps their beloved protectors away, than to leave a responsible and thoughtful estate plan? I know this is an unpopular topic. Healthy parents don’t like to ponder their eventual demise…but, hey, this in fact does happen to everyone, hopefully later rather than sooner but as inevitably as April 15th will arrive.
There are very critical issues that arise should parents procrastinate or decide not to leave a Will. I believe that most parents would be surprised to find out that should they die, their property does not automatically pass to their spouse. In Maryland, if you die without a Will and your children are minors, one-half of your property goes to your spouse and the other half goes directly to your children. Most of us would probably not want to leave our spouse arguing with a sixteen year old over whether the inheritance from Mummy should be spent on a new Mustang. Even more surprising, should your children be over the age of 18 when you pass, your spouse gets only the first $15,000 plus one-half of the balance of those assets. Only if your parents are deceased and you leave no surviving issue does your spouse receive your entire estate. This outcome can easily be changed by drafting a Will that specifically sets forth how you would like your property divided. You can also predetermine at what age your children receive their inheritance, for example, a third at 25, 30 and 35.
Many parents worry about who would take care of their children should both parents die. Without a Will, the courts and social services are forced to appoint a Guardian for children that they do not know. There have been instances of custody battles between aunts and uncles for children left behind. These court battles, with their emotional and financial consequences, may have easily been avoided had the parents named a Guardian in a Will. Even though the court has ultimate power of appointment, the courts will normally give great weight to the preferences of the deceased parent in the Will.
The third major reason people draft Wills is to protect their family from unnecessary estate taxes. As of January 2013, an individual may transfer $5 Million (adjusted for inflation) estate tax free. However, for Maryland and some other states, an individual may only transfer about $1 Million free of estate tax. This may sound like a lot, but with the value of real estate in the greater Washington DC metropolitan area, life insurance policies, retirement accounts and so forth, it is not so difficult to reach the threshold. It’s important for spouses to consider estate planning needs in conjunction with each other, and perhaps, to set up certain trusts within their Wills to take full advantage of tax savings. Keep in mind that the eligibility requirements for tax free transfers is always in flux, so the 2008 limits may be higher or lower from year to year.
I’ll touch briefly on two companion documents to most estate plans. These are the Durable Power of Attorney and the Medical Directive. The Durable Power of Attorney appoints someone, usually your spouse; to make decisions for you should you become mentally incapacitated or otherwise unable to make your own decisions. A document of this sort goes a long way in preserving an individual’s dignity and respecting their values and beliefs. It also avoids what can be an expensive and embarrassing legal proceeding known as a Guardianship. A Medical Directive allows a trusted individual, again usually your spouse, to make difficult medical decisions should you become incapacitated and also sets forth your wishes concerning organ donations and similar matters.