Making End of Life Decisions Part of your Estate Plan

End of life decisions are an important part of your estate plan.

If your end of life decisions are important to you, there are a handful of documents that are typically created during the process of developing an estate plan that can be used to achieve this goal, says the article “Choosing a natural end” from The Dallas Morning News.

The four documents are the Medical Power of Attorney, the Directive to Physicians, the Out-of-Hospital Do-Not-Resuscitate, and the In-Hospital Do-Not-Resuscitate. Note that every state has slightly different estate planning laws. Therefore, you will want to speak with an experienced estate planning attorney in your state. If you spend a lot of time in another state, you may need to have a duplicate set of documents created. Your estate planning attorney will be able to help.  In Texas, attorneys often prepare the Medical Power of Attorney and Directive to Physicians, and Do-Not-Resuscitate Orders are prepared by medical systems.  See Mary’s excellent blog for further background https://galligan-law.com/living-wills-and-medical-powers-of-attorney-why-they-are-important/.

For the Medical Power of Attorney, you are appointing an agent to make health care decisions if you cannot. This may include turning off any life-support systems, refusing life-sustaining treatment and other end of life decisions. Talk with the person you want to take on this role and make sure they understand your wishes and are willing and able to carry them out.  You have the right to change your agent at any time.

The Directive to Physicians, which is basically the Living Will of Texas, is a way for you to let physicians know what you want for comfort care and any life-sustaining treatment in the event you receive a diagnosis of a terminal or irreversible health condition. You aren’t required to have this, but it is a good way to convey your wishes. The directive does not always have to be the one created by the facility where you are being treated, and it may be customized to your wishes, as long as they are within the bounds of law. Many people will execute a basic directive with their estate planning documents, and then have a more detailed directive created when they have a health crisis.  It and the Medical Power of Attorney serve to nominate and provide guidance to your healthcare decision-maker on end of life decisions.

The Do-Not-Resuscitate (DNR) forms come in two different forms in most states. Unlike the Directive to Physicians, the DNR must be signed by your attending physician. The Out-of-Hospital DNR is a legally binding order that documents your wishes to health care professionals acting outside of a hospital setting not to initiate or continue CPR, advanced airway management, artificial ventilation, defibrillation or transcutaneous cardiac pacing. You need to sign this form, but if you are not competent to do so, a proxy or health care agent can sign it.

The In-Hospital DNR instructs a health care professional not to attempt CPR, if your breathing or heart stops. It is issued in a health care facility or hospital and does not require your signature. However, the physician does have to inform you or make a good faith effort to inform a proxy or agent of the order.

If you have specific wishes for your end of life decisions, especially if you want a natural end, speak with your estate planning attorney about how to legally prepare to protect your wishes.

Reference: The Dallas Morning News (Jan. 12, 2020) “Choosing a natural end”

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Inherited Property? What You Need to Know

There are many options for what to do with inherited property, but they depend on debts, costs of property, beneficiaries and your needs.

Many clients wonder what to do with inherited property, particularly real property like a house.  There are choices, and they depend on several factors. Are there other siblings who also have inherited portions of the ownership of the house? Is there another owner who needs to be bought out? Can the heir afford to take on the responsibilities and expenses of a home? Is someone else already living there?  These are all questions presented in the article “What to do when inheriting a house” from The Mercury.

There’s a tax issue to consider, for starters. Property that was titled in the name of the decedent at the time of death or is part of their estate taxable estate and then inherited, receives what is called a “step-up” in basis. This means that there is no federal tax due on the appreciation in value from the time the person purchased the home to the time that the person died.  They may also be state taxes as well.

Let’s say the person bought the home for $100,000 and at the time of her death the property is worth $300,000. The federal government will not tax the $200,000 difference between the original value and the DOD (Day of Death) value of the home. If the heir obtains an appraisal shortly after the death of the home owner and then moves in or if you already live there and the house is transferred into your name, the “clock” starts running again for another tax break, which is an additional $250,000 exclusion from capital gains on resale after you have lived there for two years.  If the property is sold shortly after the person’s death to a third party in an arms-length deal, the sales price would be the DOD value of the inherited property.

Now, this all assumes that any other beneficiaries have been satisfied as to the ownership of the house. A good elder law estate attorney will be able to help with the details, including the transfer of title.

Another issue: is there a mortgage on the house? If so, the new owner may need to satisfy the lender and refinance. If the heir has enough money to meet monthly payments, a strong credit rating to be able to get a mortgage and enough income to maintain the home, then it should be a relatively simple transaction.

Have the home inspected before moving in. Is the inherited property in good shape? If repairs need to be done, are they budget-friendly, or will they make the inheritance too expensive to be financially viable?  Who will pay for it?  The estate, the heirs, or a new owner?

Property maintenance is another consideration. If the estate can carry costs associated with the property until the property is sold and if the estate can pay for repairs, upgrades and maintenance so the house can be sold for a good price, then that is a reasonable approach to take. If there are other beneficiaries, they should all part of a discussion about how much money is worth investing in the house and what the return on investment will be.

One key concern that I’ve told countless clients over the years is decide early what to do with the inherited property, and stick with the plan.  Maintaining the property is time consuming, potentially costly, carries a risk in the form of liability and may prevent the estate from making liquid distributions if it isn’t sold.  Some of the worst estate administrations I’ve dealt with involved not deciding what to do with inherited property, and that lead to unnecessary cost and years of administration. So, the executor or trustee should decide earlier what to do with the property.

Finally, if the language of the will says “equally to my three children” or language similar to that and one sibling wants to buy out the other two, then an agreement on the value of the house and a plan for working out timing of the sale will need to be created. An estate planning or elder law attorney will be able to help create a family settlement agreement that will include an informal accounting, whereby all of the heirs receive their fair share of the inheritance and all sign off that they have agreed to the transaction.

Reference: The Mercury (Jan. 15, 2020) “What to do when inheriting a house”

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Business Succession Planning in your Estate Plan

Business succession planning is critical in your estate plan to ensure your business succeeds when you’re gone and to preserve value for your beneficiaries.

When people think about estate planning, many just think about their personal property and their children’s future. If you have a successful business, you may want to think about how it will continue after you retire or pass away.  Business succession planning is critical because the value and success of the business will be greatly effected when you pass away.  Planning now will help prevent interruptions to the business and preserve the value for your beneficiaries, and for your employees.

Forbes’ recent article entitled “Why Business Owners Should Think About Estate Planning Sooner Than Later” says that many business owners believe that business succession planning, estate planning and getting their affairs in order happens when they’re older. While that’s true for the most part, it’s only because that’s the stage of life when many people begin pondering their mortality and worrying about what will happen next or what will happen when they’re gone. The day-to-day concerns and running of a business is also more than enough to worry about, let alone adding one’s mortality to the worry list at the earlier stages in your life.  Having been a business owner myself, I understand that the demands of the day seem so important, it’s hard to think about next week, let alone when you’re gone.

Business continuity is the biggest concern for entrepreneurs and one of the key components to address in business succession planning. This can be a touchy subject, both personally and professionally, so it’s better to have this addressed while you’re in charge.  One option is to create a living trust and will to put in place parameters that a trustee can carry out. With these names and decisions in place, you’ll avoid a lot of stress and conflict for those you leave behind.  You may do this as a trust solely for the business, such as a management trust, or as part of your regular estate planning.

They may be upset with you, but it’s better than the other or future owners and key employees being mad at each other.  This will give them a higher probability of working things out amicably at your death. The smart move is to create a business succession plan that names successor trustees to be in charge of operating the business, if you become incapacitated or die.

Business succession planning may include several other aspects.  For example, many owners complete buy sell agreements or similar documents that require a deceased owners estate to sell their interest to the other owners, or address what happens if an owner divorces, or becomes disabled.  Some even address buy outs for retiring owners.  It is also a good idea to consider employment agreements that entice key employees to stay with the company if you should retire or pass away.  These documents can be complex as they touch many issues, but are worth discussing with your estate planning or business attorney as part of your business succession plan.

A power of attorney document will nominate a fiduciary agent to act on your behalf, if you become incapacitated, but you should also ask your estate planning attorney about creating a trust to provide for the seamless transition of your business at your death to your successor trustees. The transfer of the company to your trust will avoid the hassle of probate and will ensure that your business assets are passed on to your chosen beneficiaries. Timely planning will also preserve your business assets, as advanced tax planning strategies might be implemented to establish specific trusts to minimize the estate tax.  See here for more details.  https://galligan-law.com/how-do-trusts-work-in-your-estate-plan/

Business succession planning and estate planning may not be on tomorrow’s to do list for young entrepreneurs and business owners. Nonetheless, it’s vital to plan for all that life may bring, and is critical to prevent disruptions to the business you created.

Reference: Forbes (Dec. 30, 2019) “Why Business Owners Should Think About Estate Planning Sooner Than Later”

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