Death and Taxes: what’s your plan?

  • Published
  • By Maj. Michael Cashman
  • 154th Wing Legal Office

With the tax season upon us, what could be a more appropriate time than revisiting your estate plan? Still today, when we hear the term “estate plan” many think of those folks seen on the vintage TV show, Robin Leach’s “Lifestyles of the Rich and Famous.” (alright millennials, google it.) Not so much anymore.

A well-coordinated estate plan permits use and enjoyment of your property during your lifetime and then passes the property to your chosen beneficiaries in the manner you wish, with the least amount of cost and time. You may find yourself asking “it costs money to give my property to who I wish after I pass?” Yes, ‘fraid so. Sometimes lots of it. If you pass without an estate plan, you still get one; but it is one written by the government. Do I have your attention now?

Four Basic Estate-Planning Documents Everyone Needs:

1. Last Will and Testament and Revocable Living Trust

Regardless of your financial situation, marital status, and family situation, you should have a will. A will is the basic estate planning tool that ensures your property is distributed to the individuals or organizations you choose after your death. Will substitutes (i.e. nonprobate assets) are often used to supplement the will, take advantage of tax laws, and ensure liquidity at the testator’s death. Examples of nonprobate transfers include property passing by beneficiary designation such as insurance, property owned jointly with the right of survivorship, gifts, and trusts. Without a will, the intestate laws in the state in which you are a resident will make these decisions for you. It also means a lengthy and protracted probate process.

What is Probate?

Probate refers to a type of state court. Just as criminal courts deal with criminal matters and civil courts deal with civil matters, probate courts deal with matters of the estate. In some states these courts are combined. In others they are separated. The probate process transfers title in property from the decedent to his or her heirs and beneficiaries. The probating of a will permits a court to supervise the transfer of assets from the decedent to her heirs. Besides transferring the title to property, the probate process is also used to notify creditors of the death of the decedent and require them to submit claims against the estate within a certain period of time; provide for the filing of final tax returns, and to qualify guardians and fiduciaries.

Keep in mind, however, that a will alone cannot keep your property out of probate court following your death. Nor does a will offer the best protection for you and your assets if you’re incapacitated. If you have substantial assets, including real property, you will likely need to execute a revocable trust to protect your heirs from costly probate proceedings and to ensure that minor beneficiaries, and other beneficiaries with special needs, inherit your assets in a trust to best protect their well-being.

2. Financial Power of Attorney

A durable power of attorney appoints an individual to act as your agent regarding financial matters and is important to have if you are ever incapacitated or otherwise unable to access your own funds. Your agent has the authority to transact business in your name, including but not limited to selling/purchasing property, opening/closing financial accounts, making investment decisions, filing/settling lawsuits, and entering contracts. A power of attorney can be crafted based upon your needs. It can be general, providing wide powers; or limited to a special need, such as signing for household goods. It can take effect immediately; or springing, taking effect upon the occurrence of some preconditioned event, like incapacity.

3. Beneficiary Designations

Some assets do not pass into your trust or probate estate. Examples of assets that are typically not probated or transferred into your trust include life insurance policies, most retirement accounts, and some investment or financial accounts. Likewise, the state of Hawai’i has special laws that allow you to avoid probate by designating certain property to transfer upon your death. You must, however, designate a beneficiary to inherit the property before you pass. Failing to designate a beneficiary typically means your estate receives the asset to distribute according to your will or the state’s intestate laws, which may be contrary to your wishes and may have adverse tax effects.

4. Living Will: Advance Health Care Directive or Medical Power of Attorney

An advance health care directive or medical power of attorney gives an individual the authority to make medical decisions for you if you are unable to do so yourself. A medical power of attorney prevents the court from making health care decisions for you or choosing someone whom you may not agree with to make these decisions for you.

These documents, sometimes called a “living will,” also deal specifically with end-of-life and life-sustaining medical procedures and treatment. For instance, if you do not wish to have a feeding tube inserted if you are terminally ill, you can direct your doctors not to do so in a living will or medical directive. You can also name someone to carry out your wishes regarding life-sustaining care. These documents can remove a substantial amount of stress off your family’s shoulders as they try to decide whether to “pull the plug.” If you’ve executed a health care directive, they do not need to guess whether you want life-sustaining medical care or not.

This article was not designed to provide legal advice, but merely as a primer of the topic. A comprehensive estate plan also ensures your loved ones are taken care of and account for possible incapacity or disability. Think of estate planning as a final element of your retirement plan.
For military beneficiaries seeking for more information, please contact the your unit's Legal Office and set up an appointment.