When asked about estate planning, many people say that estate planning is all about protecting your assets. While there is some truth to that statement, it’s probably not what you think. What is your most valuable asset? Did you think of your home, your business, your stock portfolio or your retirement account? While those are all valuable assets, your most valuable asset is your family and loved ones. You protect your other assets like your home or business by buying insurance. You protect your investment assets by diversifying and choosing an investment company you can trust. But what about your family and loved ones?
Many people do not realize the serious emotional and financial consequences their death or incapacity can have on their families and loved ones. Whether it’s a breadwinner who failed to provide for his family after his death, a parent who didn’t name a guardian for her minor child, or a man who never addressed who would make his healthcare decisions, failure to plan can have serious negative consequences for your family and loved ones. Don’t leave your family unprotected if something were to happen to you. Here are eight easy ways you can protect your family with estate planning:
8. Get Organized
Some people tend to be very secretive about their estate plan. This is a bad idea. If a person has an estate plan but doesn’t tell anyone about it or where the documents are located, how can they expect their wishes to be followed? We often get phone calls from people who recently lost a loved one and have no idea whether their loved one had an estate plan or where to even start looking for one. If the person had an estate plan, maybe their family will find it, maybe they won’t. The only guarantee in that situation is that the family will have to spend time and money during a difficult time sorting out the estate. An estate plan is not like a deed and does not have to be recorded. As such, there is no central database for estate plans. The only way you can be sure that your family knows of your estate plan and knows where to find it is if you tell them! Plan to keep all your estate planning documents in one location, like a binder. You should also consider giving your loved ones copies of your estate planning documents. When we prepare your estate plan, we can create CDs with copies of your estate planning documents to give to your loved ones.
Another important step to getting organized is to locate all of your assets and keep a written list with your estate planning documents. You should list all of your bank accounts, the name of the bank and the account number. Include all insurance policies and retirement accounts. Also, if you own any real estate you should write down the address of each piece of real estate or keep a copy of the deed with your list of assets. You don’t want your family trying to figure out if you had an insurance policy or a bank account and where to find them. Get organized to save your family from unnecessary stress and expense during a difficult time.
7. Plan How Finances & Property Will Be Controlled During Incapacity
Whether it’s writing a check for your mortgage, paying your electrical bill or buying groceries for your family, managing your finances is something you probably do on daily basis. But what if you’re not able to manage your finances yourself? What will happen to the mortgage, the electrical bill or the groceries that feed your family? Even though you are not able to do so yourself, those bills and expenses must somehow be paid for. If you fail to plan for how your finances will be handled during incapacity, the only option for your family is to go to court and get a court order appointing someone as your conservator who will be able to handle your finances. Your family can expect to spend between $3,000 – $5,000 just to get the court order. In addition, it could take months to get the court order, all while your bills are piling up. You do not want your family to have to go through the expensive, time consuming and emotionally difficult process of a conservatorship.
The better route is to plan for how your finances and property will be controlled during incapacity by creating a Financial Power of Attorney. A Financial Power of Attorney allows you to name an agent who can handle your finances while you are incapacitated. An agent under a Financial Power of Attorney can pay your mortgage, pay your electrical bill, and even pay for the groceries your family needs. Your family won’t have to spend time or money trying to get a court order because there is already an agent that you picked (not the court) who has the power to handle your finances.
6. Control Attorneys Fee and Minimize Potential Probate Problems
Many people don’t realize that failing to adopt an estate plan can result in your family having to spend thousands of dollars and hours in court to sort out your estate. When a person dies, a probate proceeding is initiated to handle the deceased’s estate. An informal probate of an uncontested estate may cost around $2,000 – $2,500 and last six to eight months. An informal probate is typically used when the deceased left a Will and no one contests the validity of the Will. A formal probate is required when there is a contested estate, meaning either the deceased left a Will but there are challenges to the validity of the Will, or when the deceased left no Will at all. A formal probate can cost tens if not hundreds of thousands of dollars, since formal probate is litigation which can include hearings, depositions, motions, discovery and a trial, just like any other Superior Court litigation. Formal probate usually takes much longer than informal probate. If trial is necessary, a formal probate could last one to two years or more.
The best way to control attorneys’ fees and minimize potential probate problems is to create an estate plan. Failing to plan will likely increase the amount of money your family has to spend on attorneys’ fees, especially if family members disagree about how your estate is to be divided. Since a valid Will typically triggers an informal probate, the amount of money your loved ones will have to spend to sort out your estate will be significantly reduced. In addition, your loved ones will likely complete the probate process in much less time than a formal probate would take. Moreover, having an estate plan will help maintain family harmony and reduce family infighting by making your wishes clear at the outset.
5. Address Healthcare Decisions
When preparing your estate plan, you should think about who you would want to make healthcare decisions for you if you are unable to make those decisions yourself and what kind of medical actions should be taken. Failure to do so may result in the same situation Terri Schaivo’s family found themselves in a few years ago. Terri Schaivo was a 26 year old woman who suddenly went into cardiac arrest and collapsed at her home. The doctors said that Terri was in a persistent vegetative state and would not recover. Terri’s husband was appointed as her guardian and consequently was able to make decisions about Terri’s medical care. Terri’s husband’s decision to let Terri go by removing her feeding tube sparked a massive court fight with Terri’s parents that brought national publicity. For years Terri’s husband and parents fought in court over what they thought Terri would have wanted. The judge ultimately sided with Terri’s husband and allowed the feeding tube to be removed.
Terri’s situation could have easily been avoided with a Healthcare Power of Attorney and Living Will. If Terri had a Healthcare Power of Attorney, her husband and parents would not have fought over who should be making Terri’s medical decisions. Instead, Terri could have named the agent she wanted to make those decisions. Without a Healthcare Power of Attorney, it was left to the court to appoint someone to make Terri’s healthcare decisions. Similarly, had Terri made a Living Will, her husband and parents would not have fought over what they believed Terri’s wishes would have been regarding the end of her life. Terri’s parent’s argued that Terri was Roman Catholic and did not believe in euthanasia. Terri’s husband argued that Terri would not have wanted to be kept alive on a machine when her chance for recovery was miniscule. Without a Living Will, no one really knew what Terri would have wanted. Instead, it was left up to a judge to decide.
When you plan for healthcare decision making, it is critical that you create a Healthcare Power of Attorney and Living Will to ensure that your healthcare wishes are known and followed. Without them, your family could spend significant time and money arguing over life prolonging procedures and who should make your medical decisions. While they are arguing, the hospital bills will continue to pile up. There is no need for expensive and time consuming court battles when your Healthcare Power of Attorney and Living Will can speak for you when you are unable to do so yourself.
4. Rethink Beneficiary Designations
When you purchased life insurance or filled out the enrollment form for your retirement account, you were asked to designate a beneficiary who would receive the funds upon your death. Assets like life insurance and retirement accounts are not typically governed by your estate plan. Instead, these types of assets will pass according to the beneficiary designation on the policy or account. Both life insurance and retirement accounts are contractual relationships between the policy or account owner, the named beneficiaries, and the insurance company or account custodian. So, when the owner dies, the funds must be paid according to the contract, regardless of what the owner’s will or trust says.
Failing to update your beneficiary designations can have significant negative consequences for your family. Often, people name their spouse as the beneficiary. This can turn into a big problem if you get a divorce and forget to update your beneficiary designation. While you might have wanted the proceeds from your life insurance to go to your children, if you fail to update your beneficiary designation those proceeds will end up going to your ex-spouse, not your children. As a result, it’s always a good idea to regularly review your beneficiary designations so you can make updates when appropriate.
3. Plan for Minor Children
If you have minor children, the primary goal for your estate plan is probably to protect your minor children and ensure that they are well taken care of if you are not able to do so yourself. Estate planning for people with minor children is absolutely critical as a Will is the only place where you can name a guardian for your minor children. A guardian is responsible for raising and caring for your minor child. A guardian usually has the same powers and responsibilities of a parent with regards to the minor child’s education, support and care. A guardian may also make healthcare decisions. In your Will you can also appoint a conservator to manage the finances of a minor child. The conservator can be the same person you chose to be guardian, or it can be someone different. The conservator is responsible for collecting and managing the assets belonging to the minor child and using the assets for the child’s education, support and care. By planning now for your minor children’s care you will have the peace of mind knowing that your children will be well taken care of, even if you are unable to do so yourself.
2. Maintain Family Harmony
Your number one goal when creating your estate plan should be to preserve family harmony. You don’t want your family to argue over your assets and possessions after you’re gone. Estate planning is an unselfish act – it’s not about you. Rather, it’s about how you can ensure that your family is well taken care of when you are no longer able to do so yourself. Give some thought about how your choices will affect your family members after you’re gone. For example, you will appoint a personal representative in your Will who is responsible for administering your estate and distributing your assets. If you appoint one sibling as personal representative in your Will, will it anger your other sibling? Or, will one child be upset if you leave a specific item of jewelry to another child? Could your plan for dividing up your assets cause problems between your children? A well thought out estate plan should strive to maintain family harmony, not cause family conflict.
A good first step in maintaining family harmony is to talk to your loved ones about the choices you’ve made in your estate plan. It is far better for your loved ones to hear this information from you, not your estate planning documents after you’re gone. Having these discussions now can not only ensure that you name people who are willing serve in the positions you’ve chosen (personal representative, guardian, healthcare agent, etc.), but will also give you the opportunity to discuss and explain your choices to your loved ones, hopefully preventing any issues in the future.
1. Stop Procrastinating and Make an Estate Plan
Estate planning is about protecting your family. Many people know they need an estate plan but never get around to doing it. Procrastination is probably the number one reason people don’t have an estate plan. Unfortunately, many of the procrastinators will continue to procrastinate until ultimately they die or become incapacitated without protecting their family. That’s ok if you don’t care about the problems and expense your family will suffer if you die or become incapacitated without an estate plan. However, since you’re reading this article, you know that you need to take steps now to protect your family.
Questions About Wills, Trusts or Estate Planning?
If you have any questions about Arizona estate planning, the process, fees or anything else, call Arizona wills and trust attorneys Richard C. Keyt at 480-664-7472 or his father Richard Keyt at 480-664-7478. There is no charge for inquiries about estate planning or estate planning documents.
The Bottom Line
One final thought, acknowledge to yourself what you know to be true – your family is the most important thing in your life and you would never want them to suffer because of your procrastination or unwillingness to pay the relatively small cost to buy the protection they need and the piece of mind you need.