Do People Still Need "Estate Planning"?
I was surprised this week to receive an email from a financial advisor with whom I have had a long term relationship, and who I believe is an exceptional financial advisor, and has the credentials and industry recognition to establish him as one of the best. His email said that he has had a number of clients recently who "don't really need estate planning," but who do need the basic estate planning documents: a will, a durable power of attorney, a designation of health care surrogate and a living will. The email was surprising, especially coming from this particular advisor, because it obviously suggests that estate planning may be unnecessary for certain people, but basic estate planning documents (at least a basic will) are needed by virtually everyone. I totally agree with the second part of that equation, but the first part is puzzling.
The amount or degree of estate planning needed by a particular individual, or couple, may vary with the individual's circumstances. However, the "need" for estate planning is present for everyone who owns any assets (even just a homestead), anyone who owns life insurance (requiring a beneficiary designation), a retirement plan or IRA (also requiring a beneficiary designation, and perhaps most importantly, those folks who have minor children - regardless of how many assets they may have, or whether they have retirement plans or life insurance.
Notwithstanding the popular misconception that all an estate planning lawyer does is take the information and fill in the blanks in some forms, and then charge what is often considered outrageous fees, the fact of the matter is that estate planning lawyers (at least the real estate planning lawyers) engage in much analysis and thought when deciding what paragraphs are put into an estate planning document. It isn't merely filling in the blanks. Let me try to explain, and perhaps remind everyone, including my financial advisor friend, that even the "simplest" of situations merits thoughtful estate planning.
Let's start with the most commonly understood estate planning document: the basic will. First, notice that I used the term "basic" will, not "simple" will. The term "simple will" is an oxymoron. There is no such thing as a simple will, no matter how simple the perceived circumstances an individual may have.
The first thing we must understand about a will is this: ALL wills must be probated. If you have a will, and you own assets at your death that need to be transferred to the people you want to receive those assets, at least in Florida, it must go through the Florida probate court. The discussion of probate will have to wait for a different entry, but I will discuss one aspect of probate before continuing with my discussion of wills.
The cost of probate is one of the issues that should be discussed with the estate planning lawyer, when doing your estate planning. There is a cost of probating even the simplest of estates. We have a statute in Florida that provides that the Florida probate lawyer handling the probate of an estate is entitled to compensation. The statute provides that 3% of the gross estate is "presumed reasonable" for ordinary probate. If any of a number of circumstances are present, the probate attorney is entitled to additional compensation for "extraordinary" services. The services deemed "extraordinary" are detailed in the statute.
Why is the cost of probate an issue to be discussed with the estate planning attorney? Through the use of a revocable living trust, one can potentially avoid probate. Why is that significant? In the simplest of cases, assume the probate estate consists of nothing more than a home. Assume the home is worth $100,000. Assume there is a $90,000 mortgage on the home (netting $10,000 of equity). The probate fees for probating that estate, based on the statutorily presume reasonable fee of 3% of the gross estate, is $3,000. The out of pocket costs associated with that probate (filing fees, publication of the notice of the administration of the estate, recording fees, etc.) might be in excess of $600 based on current probate court fees. As much as $3,600 could be expended on the probate for just the probate attorney and the probate court fees.
On the other hand, with proper estate planning, using a living trust, or other estate planning tools that are available and known to the experienced estate planning lawyer, that probate could be avoided - completely. The pure economic savings from avoiding the probate is at least $3,600 (for a one asset estate consisting of only a homestead). The avoidance of the probate process from a psychological or emotional perspective is, as they say in the commercials, priceless!
There are other, potentially far more valuable, benefits to estate planning, even for basic estates. The first, and ultimately the most important, is to provide for the care of minor children. Thorough your properly drafted will, you can designate who you want to be the guardians of your minor children upon your untimely demise. The probate court is obligated to follow your wishes, absent a specific finding that the appointment of the person you have designated at the guardian is unfit to serve in that capacity.
You also can provide, through the use of what are called testamentary trusts, for the management of the assets you leave for your children. Why is this so important? In Florida, and most other states, if you designate a minor child as the beneficiary of a life insurance policy or retirement plan, or if a minor child is the beneficiary of a probate estate (by will or intestacy), the court is obligated to establish a guardianship of the property of the minor child. The guardian of the property may or may not be the same person who is the guardian of the person of the minor child. In most cases, for the guardian of the person of the minor child to obtain funds to use for the child's needs, permission must be obtained from the probate court by the guardian of the property. Annual accountings must be submitted by the guardian of the property. The guardian of the property and the guardian of the person must have an attorney. The expenses of maintaining the guardianship of the property will continue until the minor child reaches 18 years of age in Florida. Then at age 18, the probate court turns over to the child whatever assets are remaining in the guardianship — to do with as the 18 year old pleases.
Through the use of those testamentary trusts, you can take control of the property, ensure its use for the beneficial interests of the child, and provide for the distribution of those assets in the manner you think most appropriate for your child's (or grandchild's) circumstance. You can provide for staggered distributions at ages 25, 30 and 35, for instance. Or, provide for a lifetime trust for the child that will provide significant asset protection from the child's creditors or divorcing spouses. You can choose who will be responsible for managing the assets and provide guidelines and directions for the kind of support you want provided to the child. You decide the level, timing and type of financial support your assets will provide.
But, only if you take the time to do proper estate planning.
A very often overlooked, but incredibly important set of decisions that are reviewed in the estate planning process is how to structure your beneficiary designations for your life insurance and retirement plans. Why is that important? Most human resources personnel, most bankers, most life insurance agents, most stockbrokers, most financial advisors, have a basic understanding of the effect of beneficiary designations. But, because those folks do not often deal with the situations that arise when things don't work out as planned (think Murphy's law), they may not have a full understanding of your factual circumstances, your family circumstances, or your estate planning goals and objectives. Designating a minor child as a beneficiary of a life insurance policy or retirement plan is one sure way to see that your assets are dissipated by attorney's fees, probate court fees, administrative costs, and the unsupervised spending of 18 year olds. Reviewing your beneficiary designations is critical to assuring the passage of your financial assets to the persons you want to have those assets, and protecting those assets from such potentially harmful activities as the guardianship of the property of a minor child, probate, or your asset ending up the hands of unexpected beneficiaries (review your current beneficiary designations and ask who takes if those beneficiaries listed are not alive - or are incapacitated - when the benefits are paid).
Other issues that typically are examined with proper estate planning include: what elements are important to be included, or not be included, in your durable power of attorney; who you want to make medical treatment decisions for you in the event you are incapacitated and unable to make such decisions for yourself (designation of health care surrogate); and the expression of your own desires with respect to end of life decisions (the living will and Do Not Resuscitate orders).
All of these basic estate planning documents can be, and should be, tailored to deal with your particular circumstances. You may have needs or desires that are not appropriately dealt with standard off the shelf documents. Only through proper estate planning can you explore these issues, evaluate the options and make informed decisions that allow you to accomplish your own goals and objectives, deal with your fears and concerns, and achieve the results that you want to have happen.
I'm sure that, upon reflection, my financial advisor friend will recognize the over simplification of his statement that he has clients who "don't really need estate planning." In these times of economic turmoil with the focus on cutting expenses and reducing costs, the value of proper estate planning should not be minimized or forgotten. As the old Fram OIL Filter commercials use to say: pay me now (for proper estate planning), or pay me much more later (for probate and guardianships!).
Posted by Randy Coleman at 10/10/2009 10:32 AM 
Categories: Life Insurance Protection,Wills and Probate,Revocable Living Trusts,Estate Taxes,Advance Directives in Florida,Estate Planning,Probate
Tags: asset protection wills in Florida designation of health care surrogate living trusts wills and trusts lawyer asset protection attorney estate planning estates and trusts wills attorney estate planning lawyer beneficiary designation Medicaid planning wills lawyer estate planning attorney titling of assets
Categories: Life Insurance Protection,Wills and Probate,Revocable Living Trusts,Estate Taxes,Advance Directives in Florida,Estate Planning,Probate
Tags: asset protection wills in Florida designation of health care surrogate living trusts wills and trusts lawyer asset protection attorney estate planning estates and trusts wills attorney estate planning lawyer beneficiary designation Medicaid planning wills lawyer estate planning attorney titling of assets
Comments