4 DOCUMENTS EVERYONE NEEDS: THE CORE OF LIFE AND ESTATE PLANNING BY JAMES SCHLEIFFARTH, ESQ.* ESTATE PLANNING THAT MAKES SENSE

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1 ESTATE PLANNING THAT MAKES SENSE SCHLEIFFARTH LAW FIRM JIM SCHLEIFFARTH, ESQ. ST. LOUIS, MO DOCUMENTS EVERYONE NEEDS: THE CORE OF LIFE AND ESTATE PLANNING BY JAMES SCHLEIFFARTH, ESQ.* As any individual or family looks to the future, there is a myriad of difficult decisions to make and clearly too many planning items to address at once. But before facing these sometimes overwhelming tasks and considerations, there are four fundamental life and estate planning documents that everyone needs to have. The preparation of a will, powers of attorney over health care decisions and financial decisions and a health care directive (often referred to as a living will ) is absolutely essential for everyone, no matter their income or wealth status. Other planning considerations are undoubtedly important, but these four core documents make up the basis of anyone s life and estate plan. Effective and timely life and estate planning provides benefits for the individuals undertaking the planning as well as their family, friends and other loved ones. Addressing critical life events and decisions before they occur accomplishes three main things: (1) discussion and consideration of these topics foster thoughtful and deliberate decisions, (2) proper counsel and preparation will lead to the most desirable results from the standpoint of personal preferences, convenience, and tax reduction, and (3) an individual can rest assured that their wishes will be carried out in the event they are unable to make decisions for themselves.

2 The preparation of these four documents is not an overly burdensome or expensive process. A skilled attorney can prepare these documents in a relatively short timeframe and should offer a quite reasonable fee, especially if your situation and desires are not overly complicated. While each life and estate planning situation is entirely unique and requires personal consideration and attention, a discussion of the principles and details of these core documents will help you get a start on the process. 1. Will OVERVIEW: Often referred to formally as one s last will and testament, a will needs to be a part of every individual s financial plan for the future. Everyone from average-income folks to very wealthy individuals benefit from this sometimes simple, yet critical document. WHAT DOES IT DO?: A will designates who should receive one s property upon their death. Wills designate the recipients of property (called legatees or devisees ) ranging from grandma s family pearls, to a bank account to the family residence. While a will may spell out a detailed list of who gets what, it also gives categorical gifts and should have a residual clause which provides for all unmentioned items to pass to a named recipient(s). In addition to creating the scheme and details for posthumous gifts, a will often includes the following: (a) nomination of guardianship for minor children (b) establishment of a testamentary trust to be formed upon death (c) naming of a personal representative of the estate (d) granting of gifts to specific charities or other organizations WHAT HAPPENS IF I DON T GET ONE?: If an individual dies without having ever prepared and signed a will, the distribution of their property will be left to the laws of the state in which they reside or where the property is located (see Mo Rev. Stat. Ch. 474). Referred to as intestate succession this process may distribute property in a manner unsatisfactory and confusing to both the decedent and potential heirs and devisees. Missouri laws are not tailored to individual wishes, needs or circumstances. For example, one-half of a decedent s property may pass to their children (regardless of the quality or even knowledge of these relationships), while their spouse is still living and remains dependant on this money and property (see Ch ). Property can potentially be given to the state of Missouri, in the event no appropriate heirs are available (see Ch. 470). While there are no laws requiring the preparation of a will, there is a little question to its benefit. ATTORNEY OR FORM?: While a will can be prepared by an individual with or without professional assistance, there are some concerns with so-called form wills. While rough, fill-in-the-blanks forms are

3 widely available, they pose potential risks with respect to enforcement as well as clarity and accuracy. An experienced attorney practicing in estate planning matters should be able to prepare a will uniquely fitted to your needs, desires and budget. Proper will preparation requires both expertise and a solid understanding of the individual circumstances and desires of a particular individual. An appropriate attorney should (i) specialize in estate planning, (ii) be willing to take the time to determine your financial and family circumstances, and (iii) offer a summary of the available estate/life planning documents. 2. Power of Attorney over Financial Affairs OVERVIEW: A financial power of attorney is a key component of anyone s life and estate plan. Life circumstances may place an individual in a position (or location) where they are unable to make or execute key financial decisions for themselves. A power of attorney over financial affairs addresses these concerns and circumstances. WHAT DOES IT DO?: A power of attorney over financial affairs grants a named individual (called the attorney-in-fact ) the authority to act in your behalf with respect to your financial affairs. A properlydrafted power of attorney will be clear in its specifics and will limit this authority in accordance with the needs and wishes of the individual. In other words, financial affairs can be specified to mean one specific bank account or piece or property, or can be specified to refer broadly to all financial affairs. For example, a power of attorney can be prepared to only grant your attorney-in-fact authority to write checks from a specific checking account or to sell a particular piece of real estate. Furthermore, a power of attorney document can be written so as to only become effective (i.e. only give the person authority) upon the occurrence of some specified event, such as your mental or physical incapacity. If so desired, the attorney-in-fact would have no authority whatsoever prior to the occurrence of that event. Powers of attorney are often prepared between spouses or other close family members in this respect. Finally, a power of attorney can be durable so as to exist throughout your mental or physical incapacity, or can be made to only function until that time. As indicated, these documents are very flexible and can be adapted to meet the needs and wishes for your particular circumstances. WHAT HAPPENS IF I DON T GET ONE?: Powers of attorney over financial affairs are about your ability to have your property and financial matters handled effectively, conveniently and quickly in the event of difficult or unforeseen personal circumstances. Without a power of attorney, if you become incapacitated, someone would have to seek the appropriate determination through a court process to be granted authority to make these sorts of decisions. In addition to the obvious timeliness and convenience problems of not having a power of attorney, the door would also remain open to disputes regarding

4 your capacity and ability to make your own decisions. In the event of any question as to your whereabouts, further complications would also be anticipated. ATTORNEY OR FORM?: Powers of attorney are most appropriately prepared by an experienced attorney. Variances of circumstances and timing of powers of attorney require expertise and an understanding of what you want to accomplish with this document. While the need for a power of attorney is clear, the fee involved in their preparation is typically quite reasonable. 3. Health Care Directive (aka Living Will) OVERVIEW: A health care directive, which is commonly referred to as a living will has gained popularity in recent years. In Missouri, living wills are specifically authorized and recognized under Section 459 of the Missouri Code. One may recall the news phenomenon regarding the case of Terri Shiavo, which brought particular attention to the considerations involved in preparing a living will. WHAT DOES IT DO?: A living will specifies the type and level of health care (or life support) that you want to receive in certain circumstances, if you are unable to effectively communicate your wishes. Typically, a living will would indicate life saving/prolonging procedures that you do not want to have applied to you. Further the health care directive would indicate life-sustaining procedures that you would like withdrawn in the vent you suffer from particular conditions or ailments that you indicate in the document. A living will may (if so desired) defer to the guidance of a specifically-named individuals with respect to these decisions. WHAT HAPPENS IF I DON T GET ONE?: Health care directives are about you having control over your body and the procedures used to sustain your body when you are unable to make those decisions. In the absence of a living will, these decisions will be left to medical professionals and potentially to family members who may or may not be aware of your beliefs and preferences (or may be unwilling to follow your preferences). The aforementioned case of Terri Shiavo is usefully representative of the sort of discord and potential ugliness that can ensue, both in and outside the court room. ATTORNEY OF FORM?: A health care directive (living will) can be readily prepared by an experienced attorney. While the substance of these documents is somewhat straightforward, the detail of their content and the specificity of their declarations favor professional preparation. Furthermore, recent changes in the law with respect to HIPAA compliance make the effectiveness of health care directives increasingly dependent on particular language with respect to HIPAA. While individualized counsel and preparation are advised, generally satisfactory forms are available through the Missouri Bar (see

5 Despite the detailed nature of these documents, the fees associated with attorney preparation are typically very reasonable. 4. Power of Attorney over Health Care Decisions OVERVIEW: A power attorney over health care decisions complements a health care directive but is unique in its purpose and function. It is generally advised that you have both a health care directive and a power of attorney over health care decisions. WHAT DOES IT DO?: A power of attorney over health care decisions grants a named individual (often a spouse or other family member or close friend) the authority to make certain healthcare-related decisions on your behalf. Typically, this document would grant authority to a spouse or close friend or family member to make decisions for you in the event you are not in a physical or mental state to be able to do so. As in the case of other powers of attorney, the authority you grant to someone else can and should be limited in its scope pursuant to your wishes and preferences. In its own fashion, this document can also help spell out the sorts of treatments you desire while adding some clarity to the question of those which you do not desire. It should be noted that a power of attorney over health care decisions is an entirely separate document from a healthcare directive / living will, in both form and function. WHAT HAPPENS IF I DON T GET ONE?: Powers of attorney over health care decisions are about your ability to have health care decisions made effectively, conveniently and quickly in the event of your physical or mental incapacity. Without a power of attorney, if you face an event in which you are unable to make or communicate your own healthcare-related decisions, these decisions would be made by someone, likely a healthcare professional who is unaware of your desires and/or preferences. Furthermore, someone could seek this authority through a court process, but this obviously fails to address the timeliness concerns and again opens the door to dispute and potential litigation. ATTORNEY OR FORM?: Powers of attorney are most appropriately prepared by an experienced attorney. As is the case with other powers of attorney, variances of circumstances require expertise and an understanding of what you want to happen in these scenarios. Furthermore, this document should be prepared in such a way to complement (and not contradict or confuse) your health care directive (living will). While attorney fees for the preparation of powers of attorney over healthcare decisions usually turn out quite reasonable, the Missouri Bar does provide some satisfactory forms (see that can be used if an attorney is unavailable or otherwise not preferred.

6 5. What are the Benefits of a Trust? Who Needs One? OVERVIEW: Trusts are one of the most misunderstood documents in life and estate planning. While a trust is not typically included in a discussion of the core estate planning documents, it is not far from that discussion. There are numerous variations with respect to the types and functions of trusts, the details of which will be spared from this summary. WHAT IS A TRUST? A trust is established when property of some sort (an account, a home, some personal property, any property) is transferred to an individual in trust for the benefit of some other individual, group of individuals or organization. A trust can hold title to very little property or millions of dollars of property. Trusts can be established during your life, at your death or after your death. Trusts can be established to benefit you, your family, your descendants, a social or religious organization or any myriad of individuals, companies or organizations. Put simply, a trust is a vehicle by which one person holds property for the benefit of another person. GENERAL BENEFITS OF A TRUST: A discussion of the benefits of a trust merits a lengthy and entirely separate article. However, there is some value to understanding a few of the various reasons why someone would want or need to establish a trust. These benefits are entirely dependent on the details of individual circumstances. (a) avoidance or reduction in gift and estate taxes (so called death taxes ) (b) providing for children and other descendants in an organized and prepared manner (c) increased control over property upon death (d) creation of incentives for behavior and accomplishment among descendants (e) increased flexibility regarding planning for incapacity and death (f) creation of on-going funding for charitable or religious organizations (g) potential reduction in tax burden on life insurance proceeds (h) privacy in financial and personal affairs regarding distribution of property (i) avoidance of the cumbersome (and expensive) probate process DO I NEED A TRUST? Trusts are for more than just ultra-wealthy individuals. While not everyone may need or want a trust as part of their life and estate plan, the following circumstances may indicate a need to more seriously serious consider the option of establishing some form of trust: (a) you need or desire to avoid the probate process

7 (b) you need or desire privacy in property distribution (trusts are not public record) (c) you want to establish on-going funding for your family or a charitable organization (d) you have significant net worth (in excess of $1 million) (e) you want to retain some control over the money and property you pass on Summary The potentially daunting nature of life and estate planning can be tamed by careful consideration, proper guidance and an understanding of the core components that make up an effective plan. Life and estate plans do not need to be complicated or prohibitively expensive, but they do need to be taken care of. As discussed above, a will, two powers of attorney and a health care directive form the core of any basic estate plan. When properly prepared, these documents will help navigate difficult life events and unforeseen (or sometimes foreseen) circumstances. Preparing these documents and addressing these matters earlier in life helps ensure that stumbling blocks and even endpoints along life s journey will not lead to personal and family tragedy and conflict that may been avoided. *Jim Schleiffarth practices in the areas of life and estate planning for individuals and families. Mr. Schleiffarth s practice emphasizes superior client service, straightforward legal counsel and reasonable fees. Schleiffarth Law Firm LLC represents estate planning clients of all income and wealth levels. This article is for informational purposes only and should not be construed as legal advice with respect to any particular circumstance or life and estate plan. For additional information, please contact Jim Schleiffarth, Schleiffarth Law Firm LLC, St. Louis, MO, (314) , jks@sch-law.com. ESTATE PLANNING THAT MAKES SENSE SCHLEIFFARTH LAW FIRM JIM SCHLEIFFARTH, ESQ. ST. LOUIS, MO JKS@SCH-LAW.COM