We all lead busy lives. Our children, significant others, parents, co-workers and many others place demands on our time, barely leaving us time to do the things that we want to do, much less those things that we should do.
I have spent many hours working with clients and their attorneys to construct estate planning documents that have been structured to meet a client’s needs at the time, but which are not later updated as circumstances change. I’ve also spent a significant amount of time creating estate plans in a hurry in the face of a major life event. Finally, I have assisted with a third variety of planning — plans that are proactively created, communicated to the prospective beneficiaries and periodically reviewed.
Although this last category arguably produces the best results for clients, it is sadly the least common. So why do most people delay in creating a thoughtful plan or fail to regularly review the plan that they have? I hear many justifications from clients or would-be clients for postponing the creation of an estate plan or neglecting its review. Here are a few of the most common:
1. I do not have much, and my family knows what I want to happen to my assets.
If you don’t have an estate plan, the state where you reside at your death has a plan for you. Every state has default legal rules for administering the estate of a person who has made no other plans.
If you are married, these rules of “intestate succession” generally pass all, or most, of your assets to your surviving spouse, provided that your children are also your spouse’s children. If you are not married and have no children, then your parents may receive your estate. This can disrupt any benefits planning or other estate or disability planning that they may have undertaken. If your parents are no longer living, then your brothers or sisters, nieces and nephews are generally next in the line of succession in most states.
It is important for you to know that without a will, you allow a judge, who doesn’t know you, to apply the law and distribute the assets that you have worked for in a way that you may not want. At a minimum, you should consult with an attorney in your state to confirm that your state’s plan is compatible with your wishes.
2. Consulting with an attorney will cost money that I would rather give to my family, spend now or invest for the future.
The law in many states allows for the executor of an estate and her attorney to charge as much as 2% of the value of all the estate assets as a fee. A typical probate estate valued at $300,000 — consisting of a house, car and bank account — could generate more than $6,000 in fees and court costs. If your plan keeps a certain amount of your assets outside of probate, these statutory costs may be reduced or eliminated.
If any of your heirs are presently disabled, or may later become disabled and wish to apply for any government benefits to assist with their care, the lack of effective planning may force your loved ones to spend money that they receive from your estate for their basic needs rather than special things that might add to the comfort of their lives.
For these reasons, spending a little on your planning today can add significant value for your heirs later.
3. I don’t care what happens to my assets because I’ll be dead.
Your estate plan is not limited to the transfer of assets at your death. Revocable living trusts are a valuable estate planning tool that can provide protection if you are ever unable to pay your bills and manage your affairs due the natural aging process, illness or an accident.
It is quite common for a person to serve as trustee of her fully revocable trust tending to her own affairs in the same way she does now. If the creator of the trust were no longer able to manage her accounts and pay bills, a family member, a trusted adviser or a bank or trust company can serve separately or collectively to continue those necessary tasks without interruption.
Without any planning, it may be necessary to incur the time and expense of asking a court to appoint a person to accept this responsibility. A trust also allows for the efficient distribution of your assets following your death, either outright or in further trust for your heirs, without incurring the time and expense of any court involvement.
4. I will never die, and I will always be mentally sharp.
If this is the case, you’re right — you don’t need an estate plan!
Most people are too busy enjoying their lives to think about the possibility of losing their physical or mental capacity or their eventual demise. This is understandable, but it ignores the inevitable. Most attorneys and financial advisers welcome a conversation about planning techniques to ease any future hardship on you and your family that may be caused by your death or disability.
You should have that conversation sooner rather than later, because you’re worth it, and so are your loved ones.
Jim Ferraro is a vice president and trust counsel in the Shreveport, La., office of Argent Trust Company. Ferraro is a 2003 graduate of the University of Missouri at Kansas City School of Law, past president of the family and the law section of the Kansas City Metropolitan Bar Association, and is a member of the Tax and Estate Planning Council of Shreveport.
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