Introduction
Sometimes, the hardest part of estate planning for aging parents is breaching the subject in conversation. Nobody likes to talk about what will happen when they die, but as your parents get older, having an estate plan becomes more and more important. Even small, simple estates can turn into a legal nightmare without proper planning.
To help with the process, here are 10 steps to create an estate plan for aging parents.
1. Assess your parent’s needs
Begin the process by having a frank discussion with your parent. Some important questions to address include:
- What level of income will they need to maintain their standard of living?
- Do they have any medical conditions or family history of conditions that increase the likelihood of serious health issues, nursing home care, or home health care?
- If they spend time in a nursing home, will they have sufficient assets to cover the costs, or will they rely heavily on Medicaid?
- Do they already have any estate planning documents, such as a durable power of attorney, an advance healthcare directive, a will, or a trust?
- What are their financial goals?
- What kind of legacy do they want to leave?
- Are there any specific assets they want to leave for particular heirs?
During the conversation, try to get a feel for your parent’s financial situation. What are their major assets? What type of debts and liabilities do they have? Ask to see their most recent account statements; if they’re unavailable, make a point to collect the necessary documents next month when they come in the mail.
As you determine their assets, it helps to walk through the house together and jot down any possessions worth more than $100, as well as items that are sentimentally valuable. Their will is going to include wording to make sure all the contents in the house are properly accounted for, but it helps to specifically identify the more valuable belongings.
2. Assemble an estate planning team
In the world of do-it-yourself projects, estate planning isn’t something you should do by yourself. It’s always best to consult an estate planning attorney and a financial advisor, especially those with enough experience that they’ve seen some of their client’s estate plans through to the end. Even if you opt for DIY will-drafting software, you should at least consult with a local attorney to make sure you’re not running afoul of any state laws. If anyone contests your estate plan in court, you’ll want to make sure your plan documents are valid and binding.
3. Address end-of-life healthcare
As modern healthcare advances and extends life expectancy, end-of-life healthcare plans are becoming more and more important. Even if your parent is in perfect health, an unexpected accident or illness could change that down the road. To make sure your parent is sufficiently prepared, you’ll need three important documents:
- An advance healthcare directive (also known as a living will) to outline their treatment preferences (such as palliative care, resuscitation, and artificial life support)
- A durable power of attorney to authorize an agent to handle their finances while they’re incapacitated
- A healthcare power of attorney to authorize a healthcare proxy who can access their medical files and speak with the doctors
4. Consider their eligibility for government benefit programs
Everyone over age 65 qualifies for Medicare, but there are specific income requirements to qualify for Medicaid (the benefit program for nursing homes and home health). Each state has their own Medicaid agency and slightly different rules, but generally speaking, most people don’t qualify for Medicaid until they have $2,000 or less in personal assets. If your parent wants to utilize Medicaid benefits, they’d either need to exhaust all of their personal assets, or they’d have to gift the assets to others.
Keep in mind, however, that Medicaid has strict rules regarding gifting assets. Any assets gifted in the last 5 years would still count towards Medicaid eligibility, and could result in a penalty that bars them from Medicaid benefits for a period of time. With that in mind, this is a good matter to discuss with your estate planning attorney, who can advise you on your state’s laws regarding gifting, irrevocable trusts, and their impact on Medicaid qualification.
5. Discuss their funeral and burial plan
Of all the estate planning topics, this can be one of the most difficult to discuss. If they have the means to do it, purchasing pre-need services from a cemetery or crematorium can make this much easier down the road. If that’s not financially feasible, at least figure out what their preferences are for their funeral and burial, and document their wishes in an informal letter of intent. A letter of intent is not a legally binding document, but they help to convey the decedent’s wishes and avoid uncertainty.
6. Choose an executor
The executor (also known as a personal representative) is the individual who will manage your parent’s estate when they die. The executor will be tasked with opening probate proceedings, gathering the decedent’s assets, settling their liabilities, disbursing residual assets, and ultimately closing the estate. This is a major responsibility, so it’s important to choose someone who is trustworthy, dependable, and financially savvy. You can designate the executor in the will.
7. Plan how to transfer assets subject to probate
Probate is the legal process of transferring title of ownership of the decedent’s assets. Not all assets are subject to probate, so it’s important to distinguish between probate assets and non-probate assets. These are the most common probate assets that you’ll want to address in your parent’s will:
- Individual bank and brokerage accounts
- Real property owned as tenants in common
- Personal property such as jewelry, art, collectibles, furniture, and vehicles
8. Plan how to transfer non-probate assets
Non-probate assets have a contractual beneficiary that allows them to pass to heirs without going through probate. Considering how probate can be a long, costly experience, it’s best to position most (if not all) of your parent’s assets to avoid probate. Non-probate assets include:
- Bank and brokerage accounts with a payable-on-death (POD) or transfer-on-death (TOD) beneficiary designation
- Retirement accounts (401k, IRA, etc.)
- Life insurance policies
- Real property owned in joint tenancy or as tenancy in the entirety
- Trusts
Instead of addressing these assets in the will, simply work with the financial institution or custodian who holds the assets to make sure the right beneficiaries are listed on the account. You can also name contingent beneficiaries who are to receive the assets if the primary beneficiary passes away before the decedent.
9. Get two disinterested individuals to sign the will as witnesses
A “disinterested” witness is someone who is not a beneficiary in the will. The state of Arizona is one of the few states that actually allow interested witness signatures without invalidating a beneficiary’s claim, but in practice it’s still best to use disinterested witnesses to avoid potential disputes in probate court.
10. Consider using a trust
Trusts are a widely underused estate planning tool. They don’t always make sense for everyone, but they can be extremely valuable for those with considerable assets. Where a will offers instructions for probate assets, a trust actually takes ownership of the assets, and the trustee distributes the principal and/or income to beneficiaries according to the terms of the trust.
Not only does a trust allow your assets to bypass probate, but it also lets you put stipulations on how the trust assets should be used, such as withholding access to the principal value until the beneficiary graduates high school, or only allowing access to trust funds to pay for higher education costs. A trust can be a useful way for a parent to leave a legacy for their posterity.
For long-term peace of mind, contact us to set up a consultation today. We look forward to helping with your will and other estate planning needs.
Call Arizona Estate Attorney Dave Weed at (480)467-4325 to discuss your case today.