Estate Planning is Like Running a Race and Passing the Baton

By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold, NJ Estate Planning Attorney

Let me explain. Let’s start off this article by use of a sports analogy in track and field. We’ve all seen a relay race where the runners exchange a baton as they run around the track. It’s a feat of skill, anticipation and non-verbal communication. The relays we remember – the ones that are replayed on TV highlights – are when the baton is dropped. It’s emotionally painful to the runners and disappointing to us because we “feel” for the runners.

Now imagine that the runner approaching the exchange is the older generation and the runner waiting to take the baton is the next generation. The baton being exchanged represents a generation’s wealth and, you guessed it, it’s dropped in the exchange to the younger generation.

Why, lack of anticipation, communication but more likely, advanced planning. Each person’s story will vary but the outcome is the same, “a bad result”. If you share my sentiments, it is crucial for you to implement the legal documents required for your specific situation.

The first step is be the creation of a valid Last Will to dispose of your individually owned assets. While a Will is an important document in any estate plan, it is not enough to ensure a smooth baton exchange. Understanding which assets are controlled under your Will becomes critical to developing an effective estate plan. Why? If you’re not careful, some or all of your assets may be distributed outside of your Will, which is called “non-probate distribution”.

A Will is effective only if you finish the race. For many people, it’s likely that physical or mental disability will adversely impact the last few laps of life. Therefore, your Will should be accompanied by a durable financial power of attorney appointing a trusted person to make financial decisions during your disability. You should also have a health care directive or Living Will, appointing a person to make health care decisions if you’re unable to do so for yourself.

Remember I mentioned earlier about your estate being distributed outside the directives of your Last Will? How your assets are titled at your death will dictate how they are distributed. Your will only controls the distribution of assets titled in your name individually and will not control assets owned as joint tenants, assets owned as tenants by the entirety, and assets with beneficiary designations or payable on death provisions. Instead, assets owned as joint tenants and tenants by the entirety will pass to the joint owner regardless of what your will says. Similarly, assets with beneficiary designations and payable on death provisions will pass according to those instructions and will not be controlled by your will.

You may decide, as many clients do, to establish a Revocable Living Trust (RLT) as your primary estate planning document. A RLT contains your specific directions as to trust assets just as your will or financial power of attorney applies to assets titled in your individual name.

When your assets are properly titled in a RLT, it can allow your successor trustee to provide for you if you become disabled with little interruption and keeps your estate out of probate (including ancillary probate in a different state). Like a will, a RLT allows a myriad of opportunities for how your estate passes to your heirs, including appropriate income and death tax planning for married couples.

Carefully drafting your Will, financial power of attorney, health care directive and Living Will, beneficiary designations and, in many instances, a RLT with those legal documents, will help you avoid costly missteps and enable you to pass the baton smoothly.

If you have questions regarding estate planning, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please also visit our websites, www.njwillsattorney.net andwww.njtrustattorney.com.