What is a Good Estate Plan?

A good estate plan: (1) sets forth how your affairs will be managed if you become disabled (2) dictates who will manage your affairs in the event of your incapacity and/or disability (3) states to whom your assets will pass upon your death and how they will pass, (4) identifies who will settle your affairs upon your death, and in doing so, saving as much in court costs, estate taxes, expenses and attorney’s fees as possible, and (5) avoids the expense, time and lack of privacy that is associated with guardianship and probate.

Here is our Estate Planning Process

Most estate planning attorneys emphasize document creation rather than counseling. In order to develop a solid estate plan that is customized to your specific needs and goals, a thorough understanding of your hopes, dreams, goals, and aspirations is absolutely necessary. To do this, we need to know about your family, your children and grandchildren, and any others to whom you would like to inherit from you. What are their interests, their strengths, and their weaknesses? Are they good with finances? Are their marriages stable? Do you want to make sure that your assets stay within your bloodline rather than ending up in the hands of unanticipated beneficiaries (such as a future, former son-in-law or daughter-in-law)? Have your children had creditor issues? Do you want to shield the inheritance your children will receive from claims of their creditors? If this is a second marriage, do you want to insure that upon your death, both your surviving spouse and your children are taken care of? Do you want to protect your assets in case your surviving spouse remarries? These are just some of the issues that must be explored when designing a comprehensive estate plan. In meeting with you, we depend on you to provide the answers to these very relevant and sensitive questions. Although we can advise you about the law, we rely upon you to provide us with the answers to these questions in order to design a customized estate plan tailored to your specific goals and needs.

Your estate plan will only work if each and every one of your goals are met. If your estate plan does not accomplish each and every one of your goals, it will fail. Your family members will bear the burden of dealing with an incomplete and/or failed estate plan.

The reason why some estate plans do not work is because both the attorney and the client consider the estate plan as a transaction or a one-time event rather than a process. The laws change, clients’ goals and expectations change, clients’ financial situations change, and people change. In order for your estate plan to work well, it must be adjusted, amended, and modified to meet those changes. In other words, your estate plans should be regularly reviewed so it can “breathe.”

How You Own Assets Is the Key

Everything in estate planning comes down to how your assets are owned. There are several different types of ownership. Assets can be owned solely in your own name. Such assets must go through probate upon your death in order to pass to your beneficiaries. Usually, a will is used to pass assets to your beneficiaries upon your death. Assets that are owned with another person can be owned with rights of survivorship. This is called joint ownership. Such assets pass immediately upon death to the surviving joint owner or owners. Certain types of assets enable you to designate beneficiaries upon your death. Examples of such assets are life insurance policies, retirement accounts, and transfer on death (TOD) accounts and pay on death (POD) accounts.

Why joint ownership should be avoided

• Joint tenancy does not avoid probate…it simply delays probate. The asset must still pass through probate when the last, surviving owner dies.
• Joint tenancy makes no provisions for estate tax planning.
• When you own an asset with rights of survivorship, it may pass to unintended beneficiaries. How might this happen? You may have a disagreement with your joint owner. You cannot change your joint owner without his or her consent. Or, if your joint owner survives you, he or she may leave the asset to unanticipated beneficiaries; that is, to beneficiaries you would not have designated yourself.
• Joint ownership makes estate tax planning difficult.
• A jointly held asset is subject to the claims of your joint owner’s creditors. If your joint owner is a spendthrift, you could lose much of your share of the asset’s value at a forced, sheriff’s sale.
• Adding a person as a joint owner may subject you to gift tax consequences.
• Once you add a person as a joint owner, a gift of a portion of your asset has been completed. If you need the asset at a later time for any reason, you have no legal right to its return.
• Adding a joint owner to an asset of yours to avoid probate may result in gift tax exposure to you, and the need to file a gift tax return, and may also result in the loss of a “step up” in basis for your joint owner if you die first. This could greatly increase capital gains tax exposure should your new, joint owner sell the property after your death.

What can go wrong with a beneficiary designation?

• Clients often do not update beneficiary designations upon divorce or the death of a designated beneficiary. This could result in your retirement plan assets and/or life insurance proceeds being payable to your ex-spouse upon your death.
• Frequently, beneficiary designations are left blank, incorrectly completed, or not properly authenticated. When this happens, such assets may have to be probated at great expense to the estate.
• Beneficiary designations often make no provision for estate tax planning.
• Designating a beneficiary on a simple beneficiary designation form does not allow you to provide creditor protection, divorce protection or bloodline protection for your beneficiaries after your death.

Is a will really the best way to pass assets to your beneficiaries?

• Wills guarantee probate for assets that you own individually. Probate may take as long as 9- 18 months to complete, sometimes longer. This can cause delays before your assets can be distributed to your family and beneficiaries.
• There are expenses related to probate that can be avoided with proper estate planning. In addition to higher attorney’s fees and personal representative’s commissions, there are the out of pocket expenses of a surety bond, advertising, and probate fees.
• Wills take effect only upon your death. They provide no disability planning at all.
• The probate process is a matter of public record. Once the probate of your estate begins, anyone can go to the courthouse and read your will, the inventory that identifies the value of your probate assets, and accountings that detail who will inherit your assets, how much they will inherit, and under what circumstances. In short, your private affairs become public.
• If you own real estate in more than one state, multiple probates may be needed. The Register of Wills in the county where you live cannot probate real estate in another state.

A living trust can avoid probate, keep your affairs private, and reduce settlement costs, but only if you keep your living trust updated and properly funded with your assets.

• A living trust can avoid the expense, delay, and public nature of probate, but only if it is properly funded with your assets. Often, attorneys and clients pay far too little attention to the funding process.
• Many living trusts are simply bare bone templates designed with “fill in the blank” questionnaires. For a living trust to work well, it should be properly drafted with details customized to your specific needs, goals and objectives, reviewed and updated regularly, and properly funded with your assets. Failure to correctly align your assets with your living trust will cause it to fail and require your assets to be probated. Failure to take the time to discuss your objectives and family dynamics in detail with your attorney will result in a living trust that does not properly effectuate your intended results.

What is the best process to design an estate plan that works?

Your estate planning goals are not realized just with documents, but as a result of a comprehensive process that produces customized documents that reflect precisely who you are and what you want to accomplish. Every component of your estate plan should have clear, comprehensive and easily understood instructions which set forth how you want your affairs to be handled if you become disabled and after you pass away. Such instructions come in many written forms such as wills, living trusts, powers of attorney, health care directives and living wills. The best estate plans include customized and detailed guidance to your loved ones that help them to effectuate your goals.

How does this process work?

FIRST: Counseling is Key to a Good Design Process: It is critical to work with an attorney who seeks to counsel you and not instruct you. The estate planning consultation should not be a simple question and answer session that addresses only simple word processing inquiries. A dialogue should take place in which family dynamics are discussed. Of your family members, who is best suited for the heavy responsibility of handling your financial affairs? What are the backgrounds of the persons who may be making health care decisions for you if you are unable to do so? What special experience or training do the persons have who will be handling your financial affairs in the event of your disability? Do any of your family members have special needs that must be addressed in the distribution pattern of your assets? These are just some of the counseling issues that should be addressed during the design phase.

SECOND:  Regular Maintenance and Updating is Key to Your Estate Plan Working

A good estate plan is by necessity a process, not a transaction. After your estate plan is implemented, many things can happen that can affect the initial design of your estate plan. The laws about estate taxes, capital gains taxes, retirement assets and income taxes can change. Many of these laws have been changed recently but are not permanent in nature and may sunset back to laws in effect before you signed your documents. The nature and value of your assets may change. Your family and personal situation evolves regularly. Those who you have initially chosen to manage your affairs or make health care decisions for you in the event of disability may, after time, not be the best choices in the future. The laws about trusts, wills, powers of attorney and health care documents may change. For these reasons, it is impossible to guarantee that the estate plan you initiate will work as you intend if it is not regularly reviewed and updated. Upon your death, when your estate plan really has to work, it may cost your family more to settle your affairs than had you engaged in a regular review, maintenance and updating process.

THIRD:  A Proper Design Process and Regular Maintenance Will Save Your Family.  There are three critical phases to a proper estate plan; the design process, the maintenance process, and the settlement process. Each of these phases incurs costs. But the money saved by failing to maintain and update your estate plan may be far less than the increased costs incurred by your family upon your death because the estate plan was not properly maintained. A living trust is only effective to the extent that you have properly aligned your assets with the trust. In addition to updating your living trust to incorporate changes in the law and changes to your family situation, it is critical to constantly review how your assets are titled and ensure that the funding process of your living trust is complete, maintained and updated. Regular reviews with your estate planning attorney are essential.

Take Advantage of a Team of Professionals

A good estate plan is a process which integrates different aspects. In addition to your estate planning documents, your attorney should consider the value and types of financial assets that you own, tax ramifications, and the life insurance you own. Each of these other factors are very specialized and often may affect many of the provisions in your estate plans. For this reason, your other professional advisors should be involved and kept in the loop. They can also provide great assistance to ensure that the assets they manage for you are correctly aligned with your living trust.

Choose the Right Professionals For You.

Estate planning that works is a process. For the process to work, it is very important to maintain regular contact not only with your estate planning attorney, but with your other professional advisors as well in an integrated process. This allows your estate plan to “breathe” and evolve. Choose your estate planning attorney carefully. Many attorneys who are general practitioners may offer to prepare a will or living trust for you but they often deliver a fill in the blank template as your estate plan, not a customized product that addresses your individual needs, goals and objectives. We conduct our estate planning process very differently – our goal is to deliver a thorough, customized and regularly maintained estate plan that works not only now, but for years to come.