Is your estate plan complete? Before you answer, you might want to take a look at this insightful article from Kiplinger that talks about elements of a good, complete estate plan. The article was written by California attorney John Goralka, and we think it makes some solid (if somewhat basic) points about the things your estate plan should be designed to accomplish. Goralka lists four of these essential elements, which we’ll examine below. 

One more thing we found helpful: Goralka also mentions a few things apart from the “official” documents that we think your estate plan ought to include, such as what he calls a “personal directions letter.” Adding this kind of written communication to your estate plan is a powerful way of helping your loved ones make decisions on your behalf in the event of your incapacity, and it will make it more likely that your final wishes after death will be honored. 

All Estate Plans Should Accomplish Four Basic Goals 

“There are many types of estate plans, both complex and simple, revocable and irrevocable,” Goralka begins. “However, all estate plans should accomplish four basic goals” – one while you’re living and the others after you’ve passed away. 

“First, if you are sick and unable to act, your estate plan should empower the designated person to step in to help make decisions,” Goralka explains. Then, once you’ve died, your estate plan should distribute your assets to the right people, handle the distribution at the right times, and ensure that the wrong people can’t tamper with your wishes for their own gain. 

Let’s look deeper. 

Giving Someone the Power and the Insight to Act on Your Behalf 

This first function of a good estate plan is sometimes overlooked. One thing we like about Goralka’s article is that he not only stresses the importance of empowering someone to act on your behalf, but also adds the necessity of making sure they know just what it is that you want them to do, and how you want to be treated. 

“If you are sick, your estate plan must empower your designated person to act on your behalf for financial matters,” he writes. “This person may act as the successor trustee or as the attorney-in-fact under a power of attorney. Most estate plans will require a letter from your doctor, or perhaps two doctors, confirming that they have examined you and that you are not able to handle your affairs.” 

However, finances are one thing, while healthcare is another. Goralka explains that the medical community, whose members are “always concerned about potential liability,” is above all going to be cautious about allowing someone to make medical decisions on behalf of another person. Your plan needs to empower your designated agent to do just that. 

Federal and State Privacy Rules Make Careful Planning Essential 

The federal law known as HIPAA governs the privacy of medical information. HIPAA, a 1996 law, stands for the Health Insurance Portability and Accountability Act, and establishes rigorous federal rules about the sharing of personal medical data. Many states have also enacted their own privacy laws.  

“Federal and state law may prohibit your doctor from releasing medical information about you,” Goralka writes, “including confirming that you lack the capacity to handle your affairs without an existing authorization to do so.” That’s why, besides a financial power of attorney, your estate plan should include a healthcare POA with a written HIPAA authorization to ensure that the person you designate can make decisions for you without the expense and delay of going to court. 

Advance Health Care Directive Plus a Personal Directions Letter 

Most estate plans include a document called an advance health care directive. While this is important, it’s also severely limited, says Goralka. 

“An advance health care directive form typically provides very little guidance other than whether you would like your life artificially prolonged by extreme measures,” he writes. For that reason, Goralka suggests, “Consider also utilizing a personal directions letter with more specific guidance and discussion of your wishes.”  We think this is an excellent idea.  

He cites some specific questions that such a letter might help answer. “For example,” Goralka asks, “do you wish to be at home? Do you want to know all the specifics regarding your medical condition? What should your condition be before treatment is stopped? Is the ability to communicate with your loved one important?” 

The personal directions letter is a huge help to your health care agent, eliminating the stress of trying to figure out what you would say if they could ask you. At the same time, as Goralka points out, “Having specific written information detailing your wishes can ensure that your wishes will be followed” with less interference from family members and physicians. 

Making Sure Your Assets Go to the Right People 

Most people would probably agree that this is the most basic function of an estate plan. 

“When you die,” says Goralka, “your assets should go to your desired beneficiaries or family members.” For that reason, “You need to detail your desired beneficiaries in a legally enforceable manner in your trust [or will]. If you do not do so, then your actual heirs may be established under the probate code of your state of residence, which may not reflect your wishes.” 

Generations ago, when so-called “nuclear families” were the norm, rules of inheritance were usually simpler. Things are different today. “Today’s modern families include unmarried partners, domestic partners, adopted children, children from prior relationships, children going through a divorce and other relationships,” the article observes. “Your trust or estate plan should ensure that your assets and legacy go to the right people that you designate.” 

Making Sure Your Assets are Distributed at the Right Times 

“Your estate plan should not only get your assets to the right people, but they should receive those assets at the right times,” says Goralka. He lists several types of beneficiaries for whom the timing of a bequest can be critical. 

Too young: “If your [heirs] are underage and not yet financially mature, you may wish to restrict control over investments and spending until they are financially mature,” Goralka states. This can be accomplished in several ways, including particular types of trusts. 

Elderly, ill, disabled or addicted: “These beneficiaries may need a lifetime trust,” Goralka writes. While it seems odd to lump these categories together, we do see his point. 

Not good at handling money: “These beneficiaries may need a spendthrift trust,” says the article. This type of trust limits fund access to specified amounts and purposes.  

Receiving government benefits: “These beneficiaries should inherit in a special needs trust to prevent the loss of the governmental benefits while still enjoying their inheritance to the extent permitted,” Goralka recommends. Benefits like Medicaid and VA support are means-tested, and a poorly-handled inheritance can cause benefits to be interrupted or lost. 

As Goralka adds, any of these conditions or circumstances might change after you pass away. For that reason, he says, “You may wish to give your successor trustee the power of flexibility to modify or adapt a beneficiary’s trust provision after your death.” 

Keeping Out the “Wrong People,” Including the IRS 

Goralka suggests your estate plan be tailored in such a way as to prevent your assets from going to the wrong people.  By inference, he seems to include Uncle Sam in that list – at least to the degree that he recommends guarding against paying more in taxes than is necessary, 

“If your assets are to go to your children or other named beneficiaries,” he writes, “then you want to be sure those assets are not lost if your child gets divorced, files for bankruptcy or faces lawsuits or other creditor claims.” This requires specialized work by a legal professional to make your plan as airtight as possible. 

This same degree of planning can also minimize the tax bite from an inheritance. “We do not want your beneficiaries to incur loss due to court costs and probate fees,” Goralka states. “We want to minimize income tax owed by your beneficiaries on future income to the estate if possible. We want to avoid estate tax, and we do not want your beneficiaries to pay estate tax.” This also requires careful preparation, particularly for larger, more complex estates. 

The bottom line, Goralka concludes, is clear. “You worked a lifetime to create a legacy for your loved ones,” he says, “and careful planning is needed to ensure that your legacy goes to the right people at the right times and keeps the wrong people out.” 

Rajiv Nagaich – Your Retirement Planning Coach and Guide 

The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public. Retirement: Dream or Disaster joins Rajiv’s ground-breaking DVD series and workbook, Master Your Future, as a powerful planning tool in your retirement toolbox. As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.  

You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then this book is must-read. 

Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more. 

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.  

Your retirement can be the exciting and fulfilling life you’ve always wanted it to be. Start by reading and sharing Rajiv’s important message. And remember, Age On, everyone! 

(originally reported at www.kiplinger.com)