AN ESTATE PLANNING RECIPE

Curtainpic

By: Charles Curtin, JD, LLM, CTFA

Trust Officer

The Honesdale National Bank

Unlike cooking, baking is an exact science. To create a great cookie or pie, you must follow the recipe to the letter. There is little room for deviation. For many, fresh baked treats evoke fond memories of childhood and the eager anticipation of waiting for grandmother to take that delicious smelling morsel out of the oven. I do not have such memories unfortunately. My grandmother was not a good baker. If she did not have a particular ingredient that the recipe called for, she would substitute another. No Vanilla extract, no problem. Let’s add caramel. She would even leave essential ingredients out of the recipe altogether. Butter, anyone? I loved my grandmother, but I really could not eat her cookies. I often use my grandmother’s baking as an analogy when I review client’s estate plans. Estate planning is more than just having a signed Last Will and Testament. A number of other items are needed for an estate plan recipe to be “complete” and not half-baked.

Powers of Attorney - Signed and executed Powers of Attorney are an essential element to an estate plan. The documents allow for the creator (the “Principal”) to appoint someone to act on his or her behalf (the “Agent”). Powers of Attorney come in two flavors – Financial and Health Care. They are effective during the life of the Principal and end upon his or her death, at which time the Last Will and Testament becomes the operative document.

For financial matters, the Agent designated in the Power of Attorney steps into the “shoes” of the Principal’s every day monetary life. The Agent, depending on how broadly the document is drafted, can sell the family home, write checks, pay bills, and even make gifts of property. In a time of crisis, a valid Financial Power of Attorney ensures that the Principal’s financial obligations are being met without interruption. However, the Agent must always protect the financial best interests of the Principal, so it does not give him or her the ability to use the Principal’s monies at the Mohegan Sun.

The other Power of Attorney is the Healthcare Power of Attorney. This Power of Attorney provides that in the event the Principal is unable to make or understand matters regarding his or her medical treatment, the designated Agent is then substituted to make limited health care decisions and communicate with the Principal’s health care providers. Under HIPAA rules, health care providers can only talk to and release information to Authorized Agents under a valid Health Care Power of Attorney. A Health Care Power of Attorney in Pennsylvania is normally executed in conjunction with a Living Will. The Living Will outlines to the Agent and medical providers the Principal’s desire regarding the initiation or withholding of life-sustaining treatments, like CPR and Chemotherapy.

Proper Beneficiary Designations - An often overlooked, but extremely important facet of a successful estate plan is the proper beneficiary designation of financial accounts, especially retirement accounts. In general, if these accounts have named a beneficiary, they are not part of the “probate” estate and as a result, not governed by the terms of a Last Will and Testament. The person selected upon the opening of the account at the financial institution will receive the property after death. If improperly designated or neglected when completing an estate plan, the account proceeds may pass to the wrong heir, as well as possibly cause negative income tax complications.

Last Will and Testament - Finally, the icing on the cake for a complete estate plan is a Last Will and Testament. A Last and Will Testament is more than a document outlining who gets the house and car. It provides for the naming of a person to oversee the management and distribution of the estate’s assets (i.e., the Executor/Executrix). A Last Will and Testament also allows for the appointment of a guardian to care for any minor children. When a person passes away without a Last Will and Testament, the state’s particular law will determine how the estate’s assets are distributed. If the estate has minor children, a judge who does not know the family’s circumstances will determine the proper guardian.

An estate plan is too important to be baked like my grandmother’s cookies. If you are considering putting together an estate plan, it is recommended to consult one of the tremendous estate professionals in this area because as I like to say, “Local advice is often best.”

The Honesdale National Bank and its employees do not render legal, tax, or accounting advice. Accordingly, you and your attorneys and accountants are ultimately responsible for determining the legal, tax, and accounting consequences of any suggestions offered herein. Furthermore, all decisions regarding financial, tax, and estate planning will ultimately rest with you and your legal, tax, and accounting advisors. Any description pertaining to federal taxation contained herein is not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Code. This disclosure is made in accordance with the rules of Treasury Department Circular 230 governing standards of practice before the Internal Revenue Service.