Your Will, Durable Power of Attorney and Advance Directive for Health Care Decisions: Three Critical Components To An Effective Estate Plan
Your Will, Durable Power of Attorney and Advance Directive for Health Care Decisions:
Three Critical Components To An Effective Estate Plan
Oregon Lodging Association’s "Lodging News"
April 2007
When was the last time you looked at your will? Have your kids grown up? Have you bought or sold your business? Are you simply growing older and considering retirement? What would happen to your business, your assets, or your family if you were to become sick and incapacitated? These are difficult but important questions that each of us must ask ourselves to assure that our wishes are carried out and our families are taken care of if something happens to us. This article will briefly describe three critical and highly effective estate planning techniques that address each of the questions set forth above and, better yet, provide you with peace of mind.
1. Your Will
Most people are aware of the importance of having an effective will that carries out your wishes as to how your estate will be distributed upon your death. Without a will, Oregon law may transfer certain assets in your estate to those whom you might not want to have such assets. An outdated will might result in the same thing. But have you considered the tax implications of your estate? Both state and federal laws regarding death taxes have been in a state of flux over the past several years, and both sets of laws are highly likely to change significantly over the next several years. This is due, in part, to the so-called "repeal" of the federal estate tax in 2001, which was not really a repeal at all. Rather, the federal exemption from estate taxes has been gradually increasing since 2001 and will culminate in a one-year repeal of the estate tax in 2010. So, if you are planning to kick the bucket in 2010, you can disregard our calls to engage in appropriate federal estate tax planning. But for the rest of us, the continuing changes in the tax law can be factored into our wills, and steps can be taken to minimize the amount of estate taxes that you and your spouse will pay upon your deaths.
We also have to consider the effect of Oregon’s inheritance tax regime on our estate plan. For most of the time since the federal estate tax has been in existence, the State of Oregon’s inheritance tax system tracked the federal law so there was little or no need to engage in additional tax planning to address state taxes. Unfortunately, shortly after the federal government increased the federal estate tax exemption, the State of Oregon decided to disconnect its inheritance tax system from the federal estate tax system. The effect of this is not only a considerably lower state exemption from inheritance taxes resulting in higher state death taxes, but it is now critical to include certain additional provisions in your will to maximize your ability to reduce, and possibly avoid, paying such taxes.
The point here is that if you do not have a will, you need one. If you do have a will and have not looked at it in the past few years, you need to do so.
2. Durable Power of Attorney
The second document necessary to effective estate planning is a durable power of attorney. This document allows you to provide for the carrying on of your business and your life’s activities in the event you become temporarily or permanently incapacitated. Additionally, this document allows you to avoid the burdensome, expensive, time consuming, and sometimes humiliating experience of asking a court to appoint a conservator and/or a guardian to act on your behalf.
Specifically, a durable power of attorney is a carefully drafted power of attorney that becomes effective when one can no longer manage one’s affairs. A durable power of attorney can be used to manage assets, collect income, sell assets, pay debts, execute documents and even to run a business. You can appoint a person, whether it be your spouse, a family member, or trusted advisor, to do all of these things. In fact, the most important decision that you must make is not whether to have a durable power of attorney, but whom to appoint to serve in this capacity.
3. Advance Directive for Health Care Decisions (the "Advance Directive")
Most recall the troubling events that took place in Florida just a few years ago involving Terry Schiavo, a woman who went into a coma and spent years laying in a hospital bed. Her husband was involved in a protracted legal battle with her parents and other family members as to whether to continue or remove her from life support. Regardless of how you personally viewed this exceedingly difficult situation which involved several court battles, the United States Congress and even the President of the United States, the simple fact is that if Ms. Schiavo had prepared an Advance Directive, this matter would have been resolved much sooner and with much less publicity, stress and expense.
In short, an Advance Directive is a document that allows you to express your specific wishes with regard to end-of-life decisions, such as life support, tube feeding, and other matters. In addition to specifying your particular desires, you can appoint an individual who will have the legal authority to make decisions on your behalf. Doctors, hospitals and your family are required by law to honor your wishes as expressed in this document.
As you can see, these three documents – your will, a durable power of attorney, and an Advance Directive – work together to assure that your wishes are honored and carried out.