Painful estate planning questions you must answer to avoid disastrous estate planning mistakes

Many of my estate planning clients have put off their estate planning for months, and even years sometimes. Part of this is because death or disability is something we don’t want to think about, and part of it is because some of the questions are difficult to answer.  What my clients do not always understand is that (1) it’s my job to help them to make the decisions, and (2) if they don’t decide, then someone else – a stranger – will decide for them. Here are some questions you need to consider when thinking about estate planning:

  1. The guardian for your children. This is probably the most important decision you will make.  In case the unthinkable happens – you and your spouse are out together on date night and get into an accident and are both hospitalized or worse. What do you think will happen to your children, who are at home with the 19-year old neighbor babysitting? The police will likely take your children into protective custody – foster care – until a proper guardian is named.  If you have a formally-named guardian in your estate planning documents (and not some hastily-written page), then you can avoid this awful experience for your children.
  2. Who will get your stuff. If you don’t decide who gets your stuff, the state will. And perhaps more importantly than the couch and the jewelry is the estate itself.  Do you have minor children? Do you want them to inherit hundreds of thousands of dollars when they reach 18? Do you perhaps want to hold back some of the estate to pay for college, or at least to let them mature a little before coming into (and losing) a great deal of money right at 18? The only want to do this is through trusts.
  3. What do you want the doctors to do if you are sick and can’t speak for yourselfIf you don’t decide how you want the doctors to treat you and what extraordinary measures will be taken to save your life, then the doctors will endeavor to keep you alive as long as they can.  Do you want to survive by machine alone? If not, then you need to tell someone!  Tell your parents and your children, and create a power of attorney that legally records your wishes.  If you don’t do this, you could cause your family to scramble to determine what YOU would have wanted.
  4. Who will help you to manage your assets and estate if you can’t? Most of us are more likely to experience a slow decline than go out with a bang.  Because of the advances in medical and health care, we are living longer and with better-quality lives. But as we slow down, there is a chance that we will start to lose our ability to pay our bills and manage our finances.  To avoid the painful, time-consuming and expensive process of conservatorship, each of us needs to designate someone to make decisions on our behalf if we become unable to.  This is relevant to individuals of all ages, as surviving traumatic brain injuries is getting more and more common.
  5. Where are your documents? Part of creating your estate plan in making sure everything is in one place: your will, trust(s), powers of attorney, bank/investment/life insurance/retirement statements, pre-need funeral planning documents, and passwords/keys/online account information.  There is nothing worse than making your grieving family rummage through your stuff to find what they need.

Estate planning is the last thing that you can do for your family to make your passing easier. Isn’t your family worth it?

Estate planning when you don’t have children or other heirs

Most of us first think about estate planning once we have a child. We know that having a child means we have to create something to secure our children’s future should something happen to us. But what about when there are no children? I have several clients who fit this profile in various areas in the Bay Area, and I have done estate plans – created living trusts – for single and married, childless, individuals and couples in Oakland, San Ramon, Lafayette, Walnut Creek, and Pleasanton, among others.

There are a variety of different options for you if you don’t have children or other natural heirs. You can leave your estate to your siblings, parents, or other relatives, such as cousins. One client of mine set up an educational trust for her younger family members to help them to pay for college. You can use the opportunity to support a charity, as one client of mine is supporting a local animal rescue charity in her estate plan. In addition to animal charities, there are a wide variety of disease and disorder charities that are always seeking donations. Schools also will gladly accept donations in the form of bequests, so you can support a school that helped you to get where you are. One of my estate planning clients is leaving a substantial grant to UC Berkeley in their trust.

If you don’t create an estate plan and don’t have natural heirs, then your estate will go to the state. While you may not think this is too terrible, perhaps since you didn’t know exactly who to leave your money and assets to, I urge you to consider this:

1. What do you want your legacy to be? Leaving it to no one – the state – means there is no legacy at all.
2. There are so many deserving, hard-working, underfunded charities out there. Isn’t there at least one you would like to support?
3. You worked your entire life to create your estate and your legacy. Why not leave it to a cause important to you?

The probate process in California

Many people know that it is wise to create an estate plan that allows your estate to avoid probate when you pass away.  But few know or understand why probate it something to be avoided. One of the ways to understand it is to take you through the process of what happens when someone passes away.

For our purposes here, imagine for a moment that it’s not you that is passing away, but rather your closest family member – except for this discussion let’s choose someone other than our spouse.  Take a quick moment to think of how difficult that would be to lose someone you love so dearly.  And now, imagine all that there is to do when someone passes away:

  1. There’s the funeral, which generally happens pretty quickly and plans are made within hours of the death.  There are decisions to be made about clothing, caskets, scheduling day and time, who will read, what will they read, will there be a gathering afterwards, will there be food, where will it come from, who will be invited…it’s overwhelming.
  2. Then there’s the will – is there one?  The life insurance, the retirement accounts, the bank accounts.  You go to the house: do you know where your loved one keeps the important documents?  Would you be tearing apart the desk, the file cabinet, the drawers?  What would you find?  How would you feel about having to search?

REMEMBER:  This is all in the first few hours and days after the death, at a time when the loss is most shocking, most raw, and most difficult to deal with.

  1. Once you find the documents – did you find them? – you have to figure out how to transfer the property, and generally – without a plan – this means the probate process, which we’ll talk about in a minute.
  2. In come the lawyers, the lawyer’s fees, the appraisers – the strangers, in your home, in your life.
  3. To transfer the property, the pay the debts, to sell the house – or even transfer it – to get access to the bank accounts…all of these things can take weeks, months and years.
  4. The probate process, which is the court procedure for transferring your property when you don’t have an estate plan or have just a will, is a long, arduous process.  It involves:
    1. Multiple court hearings and appearances, lawyers, accountants, appraisers…
    2. A timeline of 2-3-5 years…or more
    3. Cost:  A huge cost.  Probate fees and costs can take up to 8-10% of your gross estate – that’s your assets not including your debt, so if you have a house worth $300,000 and nothing else, probate fees can be up to $30,000
    4. You have – your family has – worked your entire LIFE to create and build your estate.  Why give it to lawyers and courts?

In the probate process, while the cost is a big consideration, the time is also key because you and your family need and want to move on from the death and the grief, and when the probate process continues on for years and years – and you can’t sell the house, and you can’t get access to the accounts, then it drags out the normal emotional process way beyond what is healthy.

Does this sound like something you want to go through?  Something you want to put your family through?

Now, what if I were to tell you that there is a BETTER WAY?  A way to avoid ALL of this trouble?  There is, and in fact it’s pretty easy to set up. If you create your estate plan, and within it a living trust, then you can avoid all of the probate hassle. You can even do your estate planning online with us! Click here to access our online estate planning portal.

Estate planning is more than legal documents: Ethical Wills

When I work with clients on their estate plans, I work with them on the legal aspects, such as their living trust, will, and powers of attorney.  But I also work on other aspects of their estate plan and getting their affairs in order.  For example, I work with them to talk to their family about their estate plan.  I work with them to pre-plan and pre-pay for their funeral needs.  Happy stuff, right?  Well, it may not be the most desired of conversations, but –

  • It’s necessary.  If you don’t want to talk about it now, you will at some point.  And if you wait too long, you may not get the chance.
  • Once you talk about it once, especially with someone uninvolved like me, talking to the family becomes much easier.
  • If you knew what you were doing to your family but not having the conversations, and making them guess at what you want, then you would never leave anything unsaid.

Another thing that I talk to my clients about is an “ethical will.”  An ethical will is a document where you share your life lessons, hopes, dreams, values, history, faith, love and forgiveness with your family, friends, and community.  Gaining in popularity in the last several years, there are several online websites where you can record your ethical will and keep it, or there are forms you can download and/or purchase.  For my clients, I ensure that they have the document then need to record everything they would ever want to, such as the items noted above, in addition to genealogical, medical, military, and other histories as well as other pertinent information.

As we get older, the desire and need to leave a legacy becomes stronger and stronger.  We want to be remembered, for our lives, for our contributions and for our love.  As long as we are remembered, we stay alive.  Creating an ethical will is a way to leave that legacy that is so important.

Trusts and debt payment: Will a living trust protect me from my creditors?

I am often asked whether creating a living trust will allow the creator to avoid their debts: their mortgage, their credit cards, their other loans and secured debt.  The short answer?  No.

Living trusts are generally created to avoid probate, estate taxes, and allow one generation to pass assets along to the next generation with a minimum of hassle and expense.  Once you pass away, your successor trustee still has to determine what your debts are, pay them from your estate, assess taxes, and then distribute your assets according to your wishes. Living trusts are critical for any family to have, and have many advantages, but they do not shield assets from creditors.

What my debt-averse clients may be thinking of is a spendthrift (or asset management) trust, which does in fact protect the assets in the trust from the beneficiary’s creditors.  Spendthrift trusts are used when an individual or couple want to leave money to someone, usually a child, but don’t want to leave a large amount outright, or all at once.  So, for example, the beneficiary gets a certain percentage or amount at regular intervals (or for specific expenses, like education or health or living expenses), but is not entitled to the entirety of the money until a certain time or age.  In this case, should a creditor come after the child and the money in the trust, so long as there are restrictions placed on the disbursements to the child, then the trust money will be protected against the creditor.  This can mean  a great deal when, for example, there are millions in the trust and the beneficiary gets into a serious car accident with large liability.

In general, however, living trusts do not let you get out of paying your debts. The only way to get out of paying your debts is to not leave enough estate to pay them…which I would not recommend to anyone!

When to update your estate plan

I am often asked when an estate plan should be updated, and in fact I have written on it before.  But it is important to revisit from time to time, particularly when there are new estate laws.  In general terms, an estate plan should be reviewed in two instances:

  1. Each time there has been a birth, death, marriage, divorce, acquisition or disposition of property or a business in the family, and
  2. Every 1-2 years.

By “review” I don’t mean we need to dig up the binder (you do have a binder, right?), and pore over it, page by page.  No.  What I mean is that we need to think about what is in our estate plan.  You should know it in detail because your lawyer explained it so well to you during the process!  So, you want to review who your beneficiaries are, and whether the property distribution you’ve selected still is appropriate.  You want to review who is your successor trustee/executor, as well as who acts as your agent on your powers of attorney.  Have you changed your mind about your advance directive?  These are the questions you should ask yourself, and it really should not take more than 20-30 minutes.  Go through any changes in your family, and see if those changes, or anything else that has happened in the last year or two, make you want to change your estate plan.

In addition, if you have created your estate plan in the last five years, you may want to contact an estate planning attorney now to make sure your estate plan is still the most appropriate for you given the new laws and tax exemption.

In any event, if you have an estate plan that was created before 2008, or powers of attorney created before 2003, you really need to get an update, or at least an opinion on whether an update is necessary.  I don’t know about other estate planning attorneys, but I don’t charge for an estate plan review, even for those estate plans I’ve not created myself.  So what do you have to lose?

Putting your affairs in order: what documents to collect to save your family

Generally, we think of “putting our affairs in order” as something we do after we get the terminal illness diagnosis from the doctor.  There are many reasons not to wait for that time to get your affairs situated, but I’ll leave that for another time.  Today I want to talk about what it actually means to get your affairs in order. First, though, let’s see why it’s important:

Have you ever been the one “in charge” after someone has died?  No?  Imagine this: your nearest and dearest loved one has passed away.  You’ve talked to the hospital and picked a mortuary, so that’s a process that’s been started.  It’s really hard to talk about your loved ones “body” or “remains” while you’re still trying to process the loss in the first few minutes or hours.  But then you feel like you have to DO something, so you head to the house to see if you can find the “important papers.”  Two things can happen at this point:

Scenario one is that you arrive, and already know where the estate plan is, and head right for it.  With it are all of the life insurance policies, retirement and bank accounts, instructions, pre-need funeral planning receipts and contact information, and smaller things like an address book to get in touch with all his/her friends, a locked box (which you have the key) with all of the computer passwords, safe combinations and the like.  There seems to be a lot to do, so you contact the estate planning attorney, who, after asking you a couple questions, says, “there’s nothing to worry about and nothing to do.  Take care of you, your family, and the final arrangements.  Then call me back in a couple weeks if you have questions, but the instructions should all be there…just don’t worry about it now.”  So this is what you do, as you start calling friends and family members and bracing for the days ahead.

Scenario two is that you arrive, and don’t know where anything is.  Does s/he even have life insurance?  Where are the bank accounts?  Was there a will?  Where is it?  You start tearing apart the desk, closets, cupboards,…and find nothing.  Now you’re grieving, in shock, have a million things to do, and now you can’t find anything.  This adds to your stress, so you call in other family members, who are now tearing apart the boxes in the garage.  Everything is chaos, and still no information.  It’s overwhelming to the family.

Which would you prefer your loved ones experience?

The former?  GREAT choice.  Now, here’s what to put in the file:

  1. Your estate plan, with trust and will.
  2. Your powers of attorney.
  3. Your life/long-term care insurance information.
  4. Your retirement information.
  5. Bank account information.
  6. Pre-need funeral planning documents.
  7. Investment account documents.
  8. Deeds of property, such as homes, vehicles and boats.
  9. Health, disability, auto and property insurance documents.
  10. Income source documents (social security, employment, investments, child/spousal support).
  11. Credit card statements and evidence of other debt.
  12. Important papers, such as marriage/birth/death certificates, passports, tax returns, military or genealogical records.
  13. Names/contact information of trusted professionals, such as accountants, lawyers, financial advisors, gardeners, house cleaners or caregivers, home repair professionals (electrician, plumber, roofer, chimney sweep, etc.).

And one final thought: make sure you have at least one trusted friend or family member who knows where it is and what’s in it.