Estate Planning: An Ounce of Prevention, a Pound of Cure

By: Joe Delaney

What would you do if you saw the future and learned that you would die in a car accident next week? Or that you would suffer severe brain injury that was going to put you in a coma for the rest of your natural life?

We don’t have crystal balls to tell us when our time on Earth is up, but some people experience close calls that are as clear a warning sign that our time is limited as you’re going to get.

My friend Paul is arguably in better shape than most people I know. He’s an athlete. He eats right, takes good care of his body. None of this prevented the cardiac arrest that left him flatlined on a hospital bed three times before he was fully resuscitated.

His experience makes us all think about our own mortality and the suddenness with which decisions could be made for us we wish we would have made for ourselves. That’s why, for this article, I reached out to estate planning attorney and expert Jennifer Jaynes to discuss estate planning.

Jennifer outlined the two basic scenarios in which a little planning makes the difference between an orderly, financially conservative administration of an estate and a long, expensive, chaotic process.

WHAT HAPPENS TO MY ESTATE IF I’M INCAPACITATED?

Without a Plan: If you were in a coma and had never specified who would handle your finances or make health care decisions, someone close to you – a spouse, friend or other family member – would need to petition the court to appoint them your conservator. Even if it’s clear to you who you think that person would be, someone must take the time and bear the expense of hiring an attorney to make it official.

Once that is done, the conservator may be faced with extremely difficult decisions regarding your health. Any one of us could be in Terri Schiavo’sshoes. After cardiac arrest left her in a persistent vegetative state, her husband argued she should be taken off artificial life support while her parents fought to keep her alive in courts for 15 years. Before losing the ability to make that decision for herself, Ms. Schiavo likely never considered the possibility this could ever happen to her and her family.

With a Plan: By signing the following three documents, you remove most doubt of what your wishes are while incapacitated.

A Power of Attorneyappoints an “attorney in fact” (not necessarily a lawyer) to manage your finances. It can be effective immediately or upon your incapacity.
An Advance Health Care Directiveappoints someone (commonly referred to as a “health care agent”) to administer your health care decisions and under which conditions you want to be kept alive.
A Health Insurance Portability and Accountability Act (HIPAA) Releaseallows the health care agent you designate to access your medical records.

WHAT HAPPENS TO MY ESTATE IF I DIE?

Without a Plan: Again, someone must petition the court to either appoint a decision-maker (an “executor”of the will, or an “administrator”of the estate if there is no will). The process by which the estate is distributed to creditors and beneficiaries is called probate. It is generally a lengthy process, and one with significant cost, figured as a percentage of gross estate value (not net after debt). A $2 million estate could face probate costs of $33,000; a $5 million estate could require upwards of $63,000 in probate. Not only will these costs diminish your estate, the decisions made by the probate code/probate court may not align with your wishes.

It is also a public process. What documents might your family have to sort through in an attempt to find evidence of who should get what and how much? The stories those documents tell about disagreements, mistakes – in other words, private family business – will be made public.

With a Plan: For around $3,000, a basic estate plan could be sufficient to remove any need for your loved ones to go through probate. It includes the following documents.

A Revocable Living Trustdesignates beneficiaries of virtually any of your assets you specify.
A pour-over willincludes guardianship provisions for minor children.
Transfer documentspre-authorize a smooth transfer of assets to beneficiaries.
It would also include those documents necessary in the event of your incapacitation (Durable Power of Attorney, Advanced Heath Care Directiveand HIPAA Release).

One friendly reminder: don’t forget to fund the trust.As a financial advisor, I see prospective clients make this mistake often. Someone will come in with a wonderfully drafted trust but they will have failed to transfer the stock portfolio, real property and/or other assets into the trust. The most artfullydrafted trust will not do its job if the trust is not funded.

IN CONCLUSION

It is not far-fetched for an athlete to suffer cardiac arrest. It is not unheard of for life or death decisions about someone who had otherwise been healthy to suddenly be in the hands of warring family members.

As part of a holistic financial plan, we at Lifeguard Wealth urge you to consider that while you can’t control how many days you have left in this world, or what happens to you while you’re here, you canhave some control over your legacy once you’ve left it. We’re eager to help you learn more.

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The opinions expressed by myself and other featured authors are their own and may not accurately reflect those of Lifeguard Wealth. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.