What Should Be The Ultimate Goal Of Proper Estate Planning? What Should Your Plan Accomplish?

An estate plan should accomplish several things. In the short-term, it should address issues that relate to the possibility of disability for you, your spouse, and/or your children. For the long-term, an estate plan should address how to maximize the value of your life’s work, and best protect those people about whom you most care. In regard to the short term, many people have a serious misconception as to what happens if they become substantially disabled. They think that if they become disabled, their spouse or a loved one will take control of their assets and administer them for the benefit of the disabled person. This is particularly true for married couples when they have joint tenancy ownership of bank and brokerage accounts because these assets are immediately available to either joint tenant. However, the problem is that beyond those asset categories, the opposite occurs. If a joint tenant becomes disabled, the asset becomes locked as to all joint tenants. That means that real estate partnership interests, retirement benefits, and any asset you can think of other than bank and brokerage accounts lock up. Thus, upon the disability of any one joint tenant, most assets are not available to meet the family’s economic needs.

Without planning, a family member, who is normally a non-disabled spouse, has to go to probate court to get what’s called a conservatorship in order to unlock those assets so that they can be used for family economic needs. The problem with conservatorships is that the non-disabled joint tenant loses control of half of the assets. When the probate court appoints a conservator, the first thing that the conservator does is inventory the disabled person’s assets and their values with the court. After that, the conservator can’t utilize those assets without the permission of a probate judge. It’s insult to injury in the sense that not only does one have to expend a substantial amount of money to obtain the conservatorship, but once it’s obtained, the conservator, spouse, or other family member loses control of half the assets to the discretion of a probate judge. That’s what happens short-term.

People who are dealing with disability short-term needs, and who don’t have a substantial amount of assets, find that they cannot obtain any help from governmental authorities in the form of Medicaid subsidies unless they substantially spend down all of their financial assets. However, a good estate plan can solve that problem.

From a long-term point of view, when somebody dies, if there wasn’t any proper planning, knowing whom will inherit, and how inherited assets be transferred to them, is pure guesswork. The reason for this is that as people walk through life and acquire assets, they don’t title those assets with a view towards future inheritance. They title assets as acquired according to their life situation at the time each asset was acquired. For example, if you’re married, and you open a brokerage account, the odds are pretty good that you’ll open it up in joint names because it’s a sign of fidelity to the relationship. If you’re single, you’re more than likely to have it in your sole name because you want to maintain exclusive control. If you’re fortunate enough to have a 401K, or other retirement benefit, depending upon where you are in life, you may name your parents because you’re young and unmarried. You may name your spouse. If you’re divorced, you may name your children. But, as your life changes, if you don’t go back and readdress how your assets are titled with a view towards future inheritance by others, serious problems will arise. Because no concerted thought was given to the future, whom will inherit becomes anybody’s guess. Without a plan, you fail to protect the people you love most, and that’s why you need comprehensive estate planning.

When is the best time to start planning? Is it ever too late?

It’s never too late or too early to start planning. Since most young people think they don’t have sufficient assets to require planning, they put off planning. On the back end of the spectrum, the time when it’s too late to plan is if you sustain substantial disability in the form of senile dementia, or Alzheimer’s, and you have done no planning. Once you’ve reached the point where you’ve lost the ability to plan, then it’s too late. That’s the only time it’s too late. You can be 80 and plan as long as you have your mental faculties.

What exactly is a will and does this need to be part of everyone’s estate planning documents?

Many people have misconceptions about wills. The biggest misconception that many people have is that wills somehow cause the avoidance of probate. They believe that by having a will, their assets will not have to go through the probate process when they pass away. However, the opposite happens. When you sign your will, you’re making an advanced reservation for probate at the time of your death. A will is nothing more than an instruction sheet for your chosen personal representative and the probate judge for the administration of your estate inside the probate court. A will can be the essential planning tool if you don’t have a substantial wealth and you’re concerned about the cost of planning. A will can be an effective way to ensure that your assets get transferred to the people you care about the most, and administered in a way that you believe is most beneficial for them. But, the problem with probate is that it is a costly administration. In Missouri, the state where I practice, probate costs for the lawyer and personal representative fees, who some people call the executors, runs on average about 7.5% of the gross value of the assets that have to be probated. For instance, if you have a $100,000 probate-able estate, the cost of the probate is around $7,500. A will does have a primary place for smaller estates. It at least provides security in that it will state whom you wish to inherit under the terms that you think is best. However, if you have substantial assets, and I leave it up to the client to determine what counts as substantial, a trust, while more expensive at the time it is created is a better way to plan. In a trust plan, a will is an essential component, but it serves a totally different function. In a trust plan, the will is a safety net document that sits underneath the trust. Its purpose is to solve problems that sometimes occur in the creation and application of the trust. Meaning, a trust only controls the assets that are titled in its name, and so, the purpose of a will in a trust plan is to allow a way to put assets into the trust when the owner of the trust has failed to do so and then dies. So, it’s a safety net. By designating the trust as the primary beneficiary of a will, we create a method to transfer assets into the trust after the owner dies.

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