Avoiding the What Ifs: Creating an Updated Estate Plan

For many, the COVID-19 pandemic brought an increase in anxiety, stress, and fear due to the countless unknowns. Job loss, illness, loneliness, and mortality remain prominent of our everyday lives.

However, while thinking about these possibilities and the potential impact they may have on you and your family can be worrisome enough, being caught unprepared in the event of a tragic situation may be worse.

Our lives do not occur in a vacuum. Without proper planning, an unexpected event such as loss of employment, illness, or even death can wreak havoc on all other aspects of our lives; that is why planning for the unexpected is important. An integrated, “goals-based” approach, taking into consideration individual needs and circumstances, can be used to create an overall plan to efficiently achieve financial, estate, and family goals. Addressing your overall financial picture (investments, taxes, financial planning, estate planning, retirement, legacy, and risk management, to name a few) can help you fit together all of the “pieces of the puzzle.” 

Estate planning can be an essential part of this process for many reasons, including the fulfillment of dispositive goals. With all the anxieties and unknowns weighing on our minds, it might feel like there is suddenly a pressing need to get our affairs in order. In these uncertain times, we can take comfort in being proactive. Now might be a good time to meet with your team of legal and financial advisors to review the questions below as you consider the “what if” scenarios and develop a plan to help reach your and your family’s goals.

What Estate Planning Documents Do I Need and Why?

Many people assume having a will is sufficient, but estate planning is more than just preparing a will. An estate plan typically should, at a minimum, include both financial and health care powers of attorney, a Health Insurance Portability and Accountability Act of 1996 (HIPAA) waiver, and living will. While a will can provide for the disposition of your assets upon your death, it is not legally effective to deal with a variety of other situations that could arise during your lifetime, such as incapacity and the need for someone to make medical or legal decisions on your behalf.

In keeping with a goals-based approach, estate planning should incorporate an integrated approach to determine which documents may be necessary to accomplish your objectives.

The documents you may want to consider including in your plan are set out below.

A Will

A will is a legal document that allows you to direct the distribution of your property following your death. Without a will your state’s intestacy statute will dictate who receives your property (which may not reflect how you want your assets to be distributed). For example, do you want a child to receive a large sum of money at age 18? What if you have a child or a spouse with special needs? Do you want an estranged family member with whom you have no relationship to receive assets that you have earmarked for a child or other beneficiaries?

In addition, a will gives you the ability to appoint a guardian for your minor children. Although the ultimate decision as to the appointment of a guardian rests with the appropriate court, by appointing a guardian in your will, you provide the judge with your preferences and may minimize the possibility of family conflict over who should care for your children. When choosing a guardian, you may want to consider not only those willing and qualified to take the job, but individuals who share your values and way of life.

Further, a will allows you to appoint an executor to oversee the distribution of your assets — the person who will be charged with carrying out your wishes when you are not here to do so yourself. You may want to keep in mind that acting as an executor is not an honor; rather, it is a job which requires completion of critical duties. Before you choose an executor (also known as a personal representative), you may want to weigh not only the qualifications of the individual but whether they have the time to devote to the numerous legal and tax duties required of the position. For many, appointing an individual as personal representative together with an institution can provide the right balance of technical experience and familial context.

Financial Power of Attorney

If you own any assets or property in your own name, you may wish to create a financial power of attorney. When you own an asset in your own name (for example, real estate, a bank account, or an investment account), only you have authority over this asset. If you are unable to make decisions regarding your assets, you may need to delegate authority to someone else to handle those assets should the need arise.

A financial power of attorney appoints an individual, commonly referred to as your “agent,” to handle your financial affairs should you become incapacitated or unable to handle day-to-day decision making.

Your agent will be able to act on your behalf by paying your bills, making investment decisions, handling tax and real estate matters, depositing money, and transacting other personal business you would otherwise have handled yourself. Without such a document, it may be necessary for a court to appoint someone on your behalf to handle these matters. Generally speaking, many people would prefer to choose who will make these decisions for them should the need arise rather than having a court make that choice. A financial power of attorney gives you that ability.

Health Care Power of Attorney

Much like a financial power of attorney, a health care power of attorney allows you to designate someone (your agent) to make medical decisions for you should you be unable to make them for yourself.

If you are over the age of 18 and do not have a health care power of attorney, if you are incapacitated a petition will need to be filed with the appropriate court and a judge will appoint a guardian to make you health care decisions. Potentially, this could lead to unnecessary cost and delay which may be avoidable with the correct documents. Again, would you prefer a stranger to make these decisions, or would you rather determine who will have this ability.

A Living Will

If you are over 18 years of age, you may want to create a living will. A living will, also known as an advance health care directive, allows you to specify what end-of-life treatment you do or do not want to receive if you become terminally ill or permanently unconscious and will not survive without the administration of life support. A living will takes the decision to remove life support out of the hands of family members during a very emotional time by stating your wishes in advance.

HIPAA Waiver

If you are over the age of 18, you may want a HIPAA Waiver. While your health care power of attorney and advance health care directive will likely contain language that allows your agent to access your medical records, it is not uncommon for medical facilities to refuse access to medical information without a stand-alone HIPAA waiver. This back up document allows your family members to have access to your medical information so they can speak freely with your health care providers in case of a medical emergency or your incapacity. 

If I Already Have Estate Planning Documents, Do I Need to Do Anything?

Your estate planning documents may be the most important documents you will ever write. Often though, after being executed, they are put away for safekeeping and not looked at again. That can be a mistake. You may want to review your plan regularly as your life evolves to determine if your documents still accurately reflect your goals. For example, consider the following common, but important, reasons for contemplating updates to your existing documents:

1. Relationship Changes: Family dynamics can change considerably over the years. Changes such as marriage, divorce, birth/adoption, and death may affect how your estate will be distributed. Also not to be forgotten are cherished pets who will likely need caregivers and possibly trusts.
2. Asset Changes: Changes in the value of your assets over time, whether an increase or decrease, may require a careful review of your plan. Tax consequences will differ depending upon the value of the estate. Major asset changes such as starting a business may also require decisions regarding the management and disposition of your interest in that business.
3. Digital Assets: Frequently overlooked, digital assets (such as domain names, electronically stored photos and videos, email and social media accounts, and online accounts with various financial institutions) are widely used by most individuals. These are often controlled by “terms of use agreements” which are generally required before an online account is established and dictate who actually owns the information in the account upon a user’s death or incapacity. As a result, upon your death or incapacity, a third party (such as your executor) may not be able to access your information without proper authority. It can be important to properly plan for these assets by including in your estate planning documents authorization for your executor or trustee to access your digital assets and by keeping a list of passwords. You may also wish to consider the use of a digital asset trust to allow for access to these assets when needed.
4. Change of Location: Laws governing disposition of assets and administration of estates differ from state to state. A will is governed by the law of the state where you reside. If you subsequently move to a different state, it is important to update your will to ensure that the laws of your new state will not in any way alter the disposition of your estate. It is crucial to understand how the new state handles probate, property, and estate and inheritance taxes so as to optimize your will for the laws of your new state.
5. Tax Law Changes: State and federal tax laws can change frequently. Together with your legal and tax advisors, you should consider how any such changes may affect you and your beneficiaries. As wealth, assets, and circumstances change, additional legal strategies may be necessary for efficient tax planning.
6. Current Events: As the world changes, sometimes existing documents require revisions or updates in order to properly deal with current issues. For example, as we saw during the recent pandemic, intubation may be necessary to treat COVID-19. You may need to review language in your living will regarding intubation which is may be prohibited in some circumstances. Supplemental language specific to treatment for COVID-19 may be necessary.
7. Change of Heart: Of course, there is always the chance that you may simply change your mind about certain provisions of your documents. For example, your assets may have changed, the individual(s) you have chosen to carry out your wishes are no longer the same individual(s) you would choose today, family dynamics have changed, or you may want to benefit a charity or organization about which you are passionate. There are a variety of ways to help charities and loved ones with the use of trusts. You may want to discuss the available options with your team of advisors.

Next Steps – Create your ICE Pack (In Case of Emergency)

Remember, even the most carefully drafted documents will be of no value if your loved ones do not know where they are located. Consider creating the following, in case an emergency arises.

1. A folder containing copies of your estate planning documents, which someone knows how to find. 
2. A special envelope containing your health care documents that is easily accessible should you need to be hospitalized. You may also want to have a copy of your Health Care Directive/Living Will on file with your personal physician and local hospital.
3. Lists of important information for your loved ones to easily access:

• Relevant personal contacts who should be notified in the case of an emergency.
• Assets, debts, expenses, account information, health care and life insurance documentation, as well as other important information should your designated agent, under either a financial or health care power of attorney, need to act on your behalf.
• Online accounts and their usernames/ passwords so that electronically stored photos, videos, email and social media accounts, as well as online accounts with various financial institutions, can be accessed.
• Medical history, medications, and health issues for your health care power of attorney agent(s). Also, do not overlook the importance of having a conversation with your designated agent regarding your wishes.

Finally, do the individuals named in your documents know you have chosen them to serve in a fiduciary capacity? Before you name someone to take on any of these responsibilities, it is important to discuss this with them beforehand.

Conclusion

In these uncertain times, being proactive by putting appropriate and up-to-date estate planning documents in place can help alleviate stress and create a measure of certainty and peace of mind that will serve you and your family well in the years to come. Your PNC Private Bank® team is here and ready to work with you and your advisors.

For more information, please contact your PNC Private Bank advisor.