What is Estate Planning?
Estate planning is most-often thought about in terms of a single document, a will, which identifies to whom a person wants his or her property distributed at death. However, such a definition does not truly encompass the idea of Estate Planning. Rather, estate planning is the total process of arranging your affairs in such a way that all your wishes and needs can be carried out. Thus, a good estate plan accounts for not only your intended distributions at death, but also anticipates how your own needs will be addressed if you suffer an injury or illness that leaves you unable to manage your own affairs. A good analogy is the distinction between life insurance and disability insurance. Life insurance provides a payment at your death; similarly, a Will provides a map for how your property is to be divided at your death. Disability insurance replaces income when you cannot work. A life insurance policy with a large death benefit will be little use to your family if you are still alive, but lack the capacity to work. Similarly, a Will can provide a great roadmap, but without a total plan to address lifetime needs, your estate may still suffer. Estate planning is comprehensive planning.
What happens if I die without a will or estate plan?
If you don’t have an estate plan, the legislature has a default plan for you. The default statutory rules are rarely what anyone would choose and can create unfair results and discord among your family. Here are just a few examples:
- Imagine you die without a will and are survived by your spouse who now has to pay all of the household expenses on one salary. You are also survived by wealthy parents. By statute in North Carolina, your assets and property will be divided between your spouse and your parents if you do not have a will.
- Imagine you die and leave behind a loving spouse and young children. You might think that your surviving spouse will get everything and use it to continue to care for your children. However, if you do not have a will, by statute in North Carolina, your spouse and children will divide your assets and property. Since your children are too young to own property, the court will need to appoint someone to manage the inheritance for your children. The court may appoint your spouse to do so, but your spouse will be restricted in the use of the funds earmarked for each child and will have the hassle of filing a detailed accounting of the use of each child’s funds every year.
- Imagine you are estranged from your parents but are very close to your sister and have helped to support her throughout your life. If you die in North Carolina without a will and without a surviving spouse or child, your parents will get everything, and your sister will get nothing.
Not having an estate plan can also mean that your estate will be depleted by taxes and probate costs that could have been minimized or avoided with proper planning. Failing to have an estate plan can also cause problems during your life. If a serious illness or accident leaves you unable to manage your affairs or make decisions about your medical care, a court will appoint guardians for you unless you have powers of attorney in place to name people you trust to make these decisions for you.
For a discussion of the significant consequences affecting minor children of parents dying without proper planning, please see the response to the question, “What will happen to my children if I pass away?”
What will happen to my child if I pass away?
Estate planning is simply essential if you have a minor child. Suppose you and your spouse are involved in a fatal accident while on vacation or on a date. If you do not have an estate plan, a court, rather than you, may decide what is best for your child personally and financially, and family members may influence the court to make decisions with which you would not agree. This can be a time-consuming, stressful, and sometimes costly proceeding, and, while your child is waiting for a court to decide his or her fate, he or she will be left in limbo during what is already the most difficult time of his or her life. Child Protective Services may get involved, and your child may be placed in temporary foster care. Your child may also be caught in the middle of disputes among family members over who should care for him or her. At the end of all this upheaval, the court may appoint someone to be your child’s guardian whom neither you nor your child would have ever chosen. The potential risks to the well-being of your child are too great to delay putting a plan in place to care for him or her if you are no longer able to do so yourself.
However, if you have had the foresight to do estate planning in which you have nominated an appropriate guardian for your child, you will make a tough time more stable for your child. North Carolina law requires the court to give “substantial weight” to any guardian nomination you make as long as your nomination is in the best interests of your child and does not violate the rights of a surviving parent who has not willfully abandoned your child. Naming a guardian to care for your child often reduces the court’s involvement to a mere formality and means it is highly likely your child will be cared for by someone you trust to have your child’s best interests at heart.
If you have not planned ahead, the court may also get involved to decide who should manage your child’s inheritance. If you do not have an estate plan that provides for your child’s inheritance to be held in trust by someone you choose until your child reaches a responsible age, the court will assign someone to manage your child’s funds until he or she reaches age 21, when he or she will have full control of the funds. If you want to be sure that someone you trust is handling your child’s inheritance in accordance with your preferences and that your child does not have unfettered access to the funds until he or she is able to responsibly manage them, you need to have an estate plan.
How much does estate planning cost?
No one likes surprises when it comes to bills. That’s why, for the majority of estate plans, Sodoma Law, P.C. bills on a flat fee basis so you will know up front how much your estate plan will cost. The flat fee depends on the type and extent of estate planning necessary to meet your needs and goals. If unforeseen circumstances arise or your planning strategy changes so significantly that a change in the fee becomes necessary, we will let you know and obtain your approval before proceeding. A primary benefit of the flat fee approach is that you will not have a billing clock running in the back of your mind, so you can take the time and ask the questions necessary to have the reassurance that your estate plan achieves your goals.
The expenses (e.g., probate costs, legal fees, taxes) associated with straightening things out after someone dies without an estate plan (or with an estate plan that is ineffective, outdated, or improperly prepared) typically far exceed the cost of an estate plan. Even more significant are the emotional costs to your family caused by the stress, delays, hassle, and potential for disputes and unfair results. Investing the time and resources today to ensure the security of your loved ones is a priceless gift.
How often should I update my estate plan?
It is a good idea to review your estate plan every two to three years to remind yourself of what it says and be sure it is still consistent with your goals. The occurrence of a major life event could materially affect your estate plan—events such as a separation, divorce, marriage, addition of a child to your family, relocation to another state, or significant change in the size of your estate or the types of assets in your estate. If you have been through a major life event since your estate plan was prepared or if there is any question in your mind as to whether your estate plan will be effective, you should consult your attorney to be sure that your estate plan will still achieve your goals and provide maximum security for you and those you care about.
What is the best place to keep my will, trust and other estate planning documents?
In choosing where to keep your original estate planning documents, your objectives should be safety and accessibility. You want to be sure that your documents are safe from such dangers as theft, tampering, water damage, or fire damage. However, at the same time, you want them to be accessible to the right people when they are needed. You can make copies or email copies of your documents to whomever you choose for reference purposes; however, the original signed documents will be necessary under most circumstances for any action to be taken. Keep in mind that generally the same place is not best for all of your documents.
- Your Will and Trust. The best place for your will and/or trust may be a safe deposit box at your bank. It will not be that difficult for your executor to gain access to your safe deposit box when necessary. If you have a trust, you can also put the safe deposit box in the name of your trust so that whoever is named the current trustee can have access. Alternatively, you can store your will and/or trust in a fireproof safe at home. Regardless of where you decide to store your will and/or trust, be sure at least a couple of trusted people know where those documents are and know how to access them. Natural choices of persons to inform about the location of your will and/or trust (and perhaps provide keys or combinations for safes) are your primary and backup executors and/or trustees. Keep in mind that the original of your will is necessary for probate, and, if the original cannot be located, the court will assume that you destroyed your will (regardless of the existence of copies), and your estate will be distributed as if you had died without a will rather than in accordance with your wishes. Therefore, it is of the utmost importance that you keep those closest to you informed.
- Your Durable Power of Attorney. You probably do not want to put your Durable Power of Attorney (DPOA) in a bank safe deposit box since it should be more easily accessible. A safe at home may be a good place as long as your attorney-in-fact (the person to whom you give responsibility for your affairs under your DPOA) knows where it is and can access it.
- Under NC law, your DPOA is not effective upon your incapacity unless it is recorded at the Register of Deeds. It may be a good idea to go ahead and have your DPOA recorded. That way your attorney-in-fact can begin using it immediately if you become unable to handle your affairs for yourself. An added benefit of recording your DPOA is that, if you misplace the original, you can obtain a certified copy from the Register of Deeds. The registration fee for a DPOA in Mecklenburg County is generally about $35.00. We will be happy to assist you with registration.
- Health Care Power of Attorney and Advance Medical Directive. It is of the utmost importance that your health care power of attorney and advance medical directive (HCPOA/AMD) be immediately accessible since it may be necessary in an emergency situation. Your primary and backup health care agents (named in your HCPOA/AMD) should know exactly where the original is. You may want to consider registering your HCPOA/AMD with the Advance Health Care Directive Registry through the North Carolina Secretary of State for a charge of only $10.00 (http://www.nclifelinks.org/). The Advance Health Care Directive Registry will upload your document to their website and send you a registry card with a unique file number and password that will allow you to access the document at any time. You can give copies of this card to whomever you wish (at least your named health care agents) and put copies of the card in your home, glove box of your car, wallet, etc. so that your HCPOA/AMD will be more likely to be available to those in an emergency or whenever it is needed. A private company that offers a similar but more comprehensive service for a yearly fee is Legal Directives, LLC (https://www.legaldirectives.com/index.php)
Is there a legally protected way I can leave money so that my pet will be cared for in the event I am injured or die?
Yes. North Carolina is among the growing number of states that specifically allows pets to be beneficiaries of a Trust. This is a significant advance in the law that allows those who plan ahead to provide excellent protection for their pets. A Trust is a legally protected way to leave money that can be used only for your pet and provide guidelines for how that money should be used to care for your pet.
Do I have to be wealthy to have a Pet Trust?
No. You do not need to be wealthy to protect your pet with a Trust. You can choose not to put money into your pet’s Trust now, and instead have the Trust funded only if you predecease your pet—either by leaving a sum in your Will to your pet’s Trust or by making your pet’s Trust the beneficiary of a small percentage of your life insurance.