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The Cost of Doing Nothing

The most popular estate planning option: doing nothing. The more technical term for this lack of planning is called “dying intestate.”

Dying Intestate: “Dying intestate” simply means that you have decided to depart this world without creating any estate planning whatsoever, not even a will. While your family will be horrified at this prospect, your unintended beneficiaries, the government and the probate court, will be delighted. Because by dying intestate, you have allowed the government to draft your estate plan for you. As a result, they can tax your estate and impose other costs at the maximum amount allowable by law. Also, your estate will go to people according to how state law decides, not what your personal wishes may have been. For example, most married couples want their share of the estate to be used by the surviving spouse before the children inherit. However, if you have a blended family situation and provided no direction ahead of time, when you die, the court will only give one-third of your estate to your surviving spouse and two-thirds to your children from a previous marriage. Regardless of your family’s particular circumstances.

This is the most popular estate planning option. Almost two-thirds of us will choose to do no estate planning before we die.

But this problem is exacerbated before you die if you have no incapacity planning documents in place. If you become mentally incapacitated and can no longer handle your own affairs, without the proper documentation drafted ahead of time, you will have to go through a legal proceeding where a court appoints a guardian to handle your personal affairs and a conservator to handle your finances. The procedure is oftentimes referred to as “living probate.”

And living probate can be a living nightmare for you and your family for several reasons. First, it’s a humiliating process. You are declared incompetent in a public proceeding. Next, the court is in charge. The court will decide which people will manage your affairs; it’s neither you nor your family’s choice. Most of the time, the court will chose a family member, but that’s not a guarantee and no guarantee they would chose the “right” family member.

Because of this court proceeding, there is lag time in the management of your affairs due to paperwork and delays. Of course, these hassles can add a lot of stress to what is already a very stressful situation for your family.

Finally, living probate can be very expensive. Typically, there are court fees, attorneys’ fees, expert witness fees and accounting fees. Additionally, once your conservator has been appointed by the court, this person has to give an annual accounting to the court on how your financial affairs have been managed. This is true even if the court appointed your spouse or one of your children as your conservator.

Doing nothing does not sound like an appealing prospect for your family. Remember, that is who you’re doing estate planning for. It’s not about you. When your estate plan is operational, you are either dead or mentally incapacitated and don’t know what’s going on. Proper estate planning is for your family’s peace of mind.

Another Message From the Marketing Director

Greetings, My Subjects!

Today, I will discuss a topic that may be sensitive to your inattentive ears, but is important in improving your status as a species. The topic: sleep deprivation. You humans have got your hours backward. It’s not eight hours asleep and sixteen hours awake. It is sixteen hours asleep and eight hours awake.

You have a saying, “the early bird gets the worm.” Two things in rebuttal. First, really??? You’re admiring birds?! For shame! You only admire birds when they’re deep-fried using the Colonel’s special recipe. Otherwise, they’re carriers of disease, ignorant, and frustratingly airborne. But delicious.

Did I say “two things?” Yes! Secondly, the correct quote is “the early bird tried to get the worm, but was captured by the more alert cat.” And I’m more alert at 4 A.M. because I had been sleeping since 8 P.M. And I will go back to sleep at 8 A.M. and sleep until 4 P.M.

See how that works? The more you sleep, the more energy you have conserved for the eight hours you only need to be awake. Your inefficient sleeping patterns are contributing to your mediocre status in the hierarchy. I mean, how many hours of “Honey Boo-Boo” must you watch before you might think, “hey, it might be best for me to sleep now, so I can be awake at 4 in the morning to serve ‘Inky’ breakfast and give him unconditional love and homage. It’s been quite selfish of me to sleep until 7.” At least then you would be serving the greater good.

Until next time.

Your Omniscience,

‘Inky’

Durable Powers of Attorney: The Power of Trust

Durable Powers of Attorney: The Power of Trust

by Richard E. Phillips

What Is It?

A Durable Power of Attorney, sometimes called a Financial or Property Power of Attorney, is a useful and powerful document in your estate planning portfolio. This document appoints your agent to handle any matters it’s entitled to under the terms of the document, subject to state and federal laws. Typically, your agent is granted the authority to do all things you would do acting on your own behalf. There are exceptions under the law, such as voting on your behalf or serving on a jury. Historically, a Durable Power of Attorney was used due to a person’s unavailability. If someone was going to be out of town or out of the country for an extended period of time, that person would appoint an agent through this document to handle their financial affairs while they were gone.

Durable Powers of Attorney are still used in this manner today, most often by military couples because a service member will be deployed overseas. But over the last several decades, this document has been used mostly in the realm of incapacity. A person (the principal) becomes mentally incapacitated and has appointed an agent to handle his or her financial affairs during the time of mental incapacity, whether temporary or permanent.

Why Have It?

The reason this document should be included in your estate plan is because you want someone of your own choosing managing your financial affairs for you should you become incapacitated, instead of someone chosen by your local probate court through a guardianship/conservatorship proceeding. That’s right! If you have not designated who will manage your financial affairs in case of your mental incapacity, the probate court will choose someone for you. And it may be someone you would never have intended to control your estate. The process for choosing your conservator to manage your financial affairs for you due to your mental incapacity is popularly known as “living probate.”

Living probate can be a living nightmare for your family. It is a humiliating process where you are publicly declared incompetent by a court of law. The probate court decides who will manage your affairs, not you and not your family. The court process involves aggravating paperwork, delays and expenses. Such expenses include probate fees, attorney’s fees, and accounting fees. Once your conservator has been appointed by the court, you have to go through the further indignity of having your conservator being required to provide an annual accounting to the probate court on how your finances have been managed.

If you have an estate plan built around a fully-funded revocable living trust, the successor trustee you appointed in your trust agreement can take over your estate upon your mental incapacity according to the terms of your trust, thus avoiding living probate. A Durable Power of Attorney should still be drafted in case an asset was not funded into your trust before your incapacity. Then, the agent of your power of attorney can manage that unfunded asset for your and usually has the power to fund that asset into your trust for your behalf. However, if you have estate plan built around a will or no estate planning documents whatsoever, you must have a properly drafted Durable Power of Attorney document in order to avoid living probate.

When Can the Power Exist?

You can decide in your document when the agent of your Durable Power of Attorney has the power to handle your affairs. Your choices are typically either (1) immediately upon your signing of the document or (2) a “springing” power, meaning your agent cannot handle your affairs until a condition is met, such as proof of your mental incapacity according to a letter from your physician. I know that it sounds like a no-brainer that latter option is advisable, but in my opinion the reverse is more often true. The reason being, this document is typically used on an emergency basis, your mental incapacity or you’re at least temporarily unable to handle your own affairs due to a medical emergency. If your loved ones have to wait for a physician’s letter (which he or she doesn’t have to write) before your affairs can be handled for you, then it could be a costly wait, or at the very least, an unnecessary hassle for your family during a stressful time.

We hear the occasional horror story of someone being cleaned out because they appointed the wrong person as their agent. However, we hear these stories because they are a rare occurrence. If you’re married, your first agent will likely be your spouse. Most other times it’s one of your children or a trusted friend. If they have the immediate power on paper, in practice they can handle your financial affairs immediately and seamlessly if something happens to you that leaves you unable to handle your own affairs.

Conclusion

A Durable Power of Attorney is a necessary part of your estate planning portfolio because it can spare your family heartache, hassle, and expense if you have decided ahead of time who will manage your finances upon your possible mental incapacity.

Message From the Marketing Director

Message from the Marketing Director

Look into my eyes. You will do my bidding. Rich wants me to talk to you about his upcoming seminars. But those dates are posted on the newsletter front page or you can call (571) 208-0425 for more information. Your obeisance and acquiescence are needed for a much more urgent matter.

Look at my plate. Meow Mix, really? I demand more substantive fare. Look to your left. No, your other left. You should see a shovel in the corner. If you don’t have a shovel, then shame on you! How did you think you could effectively do my bidding without a shovel?!

[Sigh] Alright, you slackers can use your hands instead. Go out to your nearest field and begin “shoveling” dirt near trees or leaf piles. Anywhere rodents are likely to congregate and cower. I’ll be over at a time of my earliest convenience to check your progress. If you do a good enough job finding dinner, I may split the kill with you. Go forth!

Your Superior,

‘Inky”

P.S. Lowe’s has shovels. Just sayin’.

Why You Should Consider Trust Planning

Why You Should Consider Trust Planning

By Richard E. Phillips

When most people think about estate planning (if they think about it at all), most people believe their best or only option is a will combined with some joint tenancy or transfer-on-death arrangements for their financial accounts. However, there is a superior method to estate planning that’s existed for several hundred years and allows you to peacefully and privately transfer your wealth after you die to your loved ones. This method is an estate plan built around a revocable living trust.

Like a will, a trust is a legal document which addresses how your estate will be administered and disposed of after you die. However, there is an important difference. A will is a testamentary document by you that does not take effect until after you pass away. Until then, it does nothing for your estate. Furthermore, after you die, the will must be qualified publicly before your local probate court as part of a potentially very expensive government administration.

Unlike a will, a trust is a private contract between you as creator of the trust and the one who is re-titling your assets into the name of your trust (very important!) and you as the manager of the trust assets. The trust is effective immediately upon you signing your trust agreement and will successfully manage your estate upon your incapacity or death, so long as your assets remain titled in the name of your trust or the trust is designated as a beneficiary of your assets.

The main advantages of estate planning through a revocable living trust over other basic estate planning options are the following:

Avoids probate.
Privacy.
Incapacity Management.
Maximizes Death Tax Exemptions.
Flexibility.

Avoids probate. Since a trust is a private contract which determines the terms of how its assets are to be managed upon your incapacity and death, there is no need to have a third party bureaucratic entity administering your estate. The main reason for the probate process is to change title to property from a dead person’s name to that person’s living beneficiaries. With a trust, however, you already retitled your assets during your lifetime out of your individual name and into the name of your trust. Thus, when you die there are no assets owned in your individual name. Therefore, your estate has no reason to go through probate.

Privacy. Because a trust is a private document which is administered privately, there is no need of the public process of probate. No need to have your assets sold at a public estate auction nor will your loved ones be bothered by people looking to take advantage of your estate because they could review your will at the probate court.

Incapacity Management. If you have only a simple will drafted, but you become incapacitated during your lifetime, who will handle your financial affairs for you? If you don’t have an appropriate power of attorney document in place for such a contingency, there would have to be a guardianship proceeding, known as “living probate,” where the court (not you, not your family) decides who will manage your affairs for you. With a trust, however, you can appoint the person who not only will manage your estate after you die, but also in case of your mental incapacity.

Maximizes Death Tax Exemptions. Death taxes have been a plague on transferring wealth for decades. But the fallout from possible death taxes worsens when a family estate plan does not take this issue into account. Every individual is entitled under the law to exempt up to a certain amount of his or her estate after death from the federal death tax. Most couples, however, unwittingly forfeit the use of the first spouse’s death tax exemption by either electing to use the unlimited marital deduction at the first spouse’s death or deciding that it’s best to own joint property in both their names as joint tenants with right of survivorship.

Unfortunately, when a couple owns property together as joint tenants with right of survivorship (or tenancies by the entirety with right of survivorship), the right of survivorship provision applies immediately and transfers the entire property interest into the surviving spouse’s estate. Thus, the first spouse to die’s death tax exemption will not apply to those assets no longer in his or her estate. A trust, however, is a very flexible agreement that can allow the property of the trust to be allocated between both spouse’s estates and maximize the use of both spouse’s death tax exemptions.

Flexibility. As you have read, a trust is a versatile and flexible document. This flexibility is further apparent in how it can work with your transfer-on-death (TOD) accounts in leaving a lasting legacy to your children and grandchildren.

For example, suppose you have two adult children. One is very responsible, but the other is financially irresponsible. Typically, most parents designate their children individually as the beneficiaries of their financial accounts without considering how they can protect the wealth they’re leaving from a child’s creditors or future ex-spouse. Instead, you can establish trusts in your revocable living trust agreement for each of your children (and potentially grandchildren) which take effect on the surviving spouse’s death. The share you leave to each child resides in the trust created for them and protects the assets which reside in the trust from that child’s creditors or ex-spouse. It just depends on the terms you want drafted. Therefore, you designate your trust as the beneficiary of your TOD accounts instead of the children in their individual names.

You can provide peaceful wealth preservation for your family and you don’t have to a Rockefeller or a Gates to afford this type of planning or take advantage of what this kind of estate planning offers your loved ones.