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The Importance of Advanced Planning

Estate planning is a critical necessity when someone is diagnosed with a terminal illness:  It is vital that the proverbial “house” be put in order.

Timing quickly becomes a concern.  At a certain stage in a terminal illness, it may become difficult to ascertain desires, or identify the information required, to carry out effective estate planning.  In addition, mental competency, which may be affected by symptoms of an illness, as well as medication and “undue influence,” in which a third-party takes advantage of an emotionally vulnerable adult for financial gain, may become concerns.  Once that point is reached, documenting the distribution of assets and other testamentary desires may be very difficult or impossible.  Therefore, estate planning should begin upon receiving a diagnosis of impending death.

Without a Last Will and Testament, the distribution of an estate is determined by California law.   The estate owner’s wishes will not be considered.   In addition, failing to plan for death leaves many questions unanswered, such as preferred end-of-life or palliative care, responsibility for financial and health care decisions, and funeral and burial arrangements.  Without proper planning, the desires of the person who is ill may be ignored or otherwise contradicted.

It also becomes necessary to consider and adopt strategies to minimize estate and income taxes, avoid probate, ensure the correct disposition of property, and otherwise ensure a smooth transfer of property and other assets.  These are best implemented after consultation with financial and legal professionals, who will require effective input from the estate owner.

If an estate plan is already in place, a final review may be necessary to ensure all documents continue to reflect the preferences of the terminally-ill person.  For example, provisions of a will or trust may have been invalidated under California or federal law, requiring amendments to the estate plan.  The birth or death of family members may require the naming of new or additional beneficiaries to life insurance and retirement plans.  The guardianship or financial support of minor children may also need to be addressed.

Rather than leave matters open to someone else’s interpretation, or to the whim of the government, advance planning ensures that someone who is terminally ill is prepared to face the legal and medical issues that lie ahead.

Key decisions fall into five categories:

  • Preparation for death or incapacity. Prior to making decisions concerning an estate, it is important to assess and document mental capacity (competency).  Without that documentation, all subsequent decisions may be questioned and subjected to legal challenge.  If a party is declared incompetent, it may become necessary to activate a Durable Power of Attorney, or ask a court to appoint a conservator to ensure estate planning decisions are made by someone who is legally authorized.   This is also the time to decide how a terminally ill person will live out the rest of their life, for example, at home, in hospice care, in a hospital, or a nursing home.   In addition, decisions must be made concerning end-of-life/palliative care and funeral arrangements, including how those items will be funded.   Finally, it is important to appoint someone to make health care or financial decisions if the terminally-ill person is ultimately incapacitated.
  • Identification of assets and liabilities: A list of all assets and liabilities held by a terminally-ill person will be required to prepare and implement an estate plan.  Assets may include personal property (such as cars, furniture, collectibles, and jewelry), financial investments and retirement accounts, real estate, loans to family members, business assets, and other holdings that generate income.   Liabilities may include outstanding credit card debt, personal loans, tax liens, mortgages, or monthly bills.   Projected medical or funeral costs should also be included among the liabilities.  All documents reflecting assets and liabilities should be collected and filed with estate planning documents.
  • Preparation and execution of legal documents: Prior to impending death, it important to ensure that all instructions concerning an estate are legally-documented in writing.   This may include the preparation and proper execution (signing/witnessing) of a Last Will and Testament, trust agreements, Powers of Attorneys, Health Care Directives, and Living Wills, as well as the appointment of executors, administrators, and trustees.   In addition, all prior estate planning documents should be destroyed.
  • Development of financial strategies: A person facing death should meet with all financial advisors, insurance representatives, tax advisors, and an estate planning attorney, to ensure their properties are properly titled and/or will be transferred in a way that maximizes tax savings to beneficiaries.  For example, it may be advantageous to prepay funeral expenses, make death bed gifts to minimize estate or income taxes, or fund an education savings (529) account for the college education of children or grandchildren.
  • Communication: Discussions should be had with significant others to provide information on the location of legal documents, directives concerning end-of-life care, instructions regarding a funeral and interment, desires concerning organ donation, the pre-death disposition of assets, names and contact information for key financial and legal advisors, and related matters.  It is not necessary to disclose the contents of a will, trust, or other estate planning documents to significant others.

It is never easy to face death.  But when the end of life is inevitable, advance preparation can provide solace and eliminate stress in the final days.  The knowledge that “all i’s have been dotted and all t’s crossed” removes estate planning issues from life’s equation.  It also relieves families from having to deal with financial issues, while still attempting to process their grief over a significant and very emotional loss.