Whether meeting groups during estate planning seminars or clients individually, I’ve found there is a general misunderstanding of trusts and their function. Far too many people think trusts are for “others” when they may be ideal candidates for a trust to protect their assets and avoid probate when they pass away. The following are the most common misconceptions:
Anyone who ever grew up with or saw The Brady Bunch will recall the trials and tribulations, albeit humorous, of America’s most famous blended family. What seemed like a rather novel concept in the 1970s is of course commonplace today. According to a recent Pew research study, 40% of married couples with children in the U.S. are step-couples, meaning at least one partner had a child from a previous relationship before marriage. The study further found over 100 million Americans have a step-relationship within their families and approximately one-third of all weddings in America today form step-families.
According to the majority of studies, 40-50% of first marriages will end in divorce. The divorce rates for subsequent marriages are even higher. Divorce has become an industry all its own, involving lawyers, judges, social workers, financial planners and banking and insurance professionals. While dealing with the many components of divorce, including the emotional upheaval of such matters as child custody and support, the essential component of estate and asset protection planning, post-divorce, is often lost.
Transferring property to children as people age, while retaining the right to live at the property for the rest of ones’ life (in legal jargon, “retaining a life estate”), is a common practice but one fraught with problems. The logic is the property will go to the kids when you die anyway, so why not just do it now? Here are several reasons to consider:
While most New Year’s resolutions focus on fitness, weight loss, general selfimprovement and/or job changes, getting your estate plan and assets in order rarely makes the list. According to a recent study by the legal group Lexis/Nexis, a shocking 55% of Americans do not have a Will or other estate plan in place. Another survey found an alarming 92% of adults under the age of 35 have no Will.
A Health Care Proxy falls within the three core documents all persons 18 or older should complete (the other two being a Will and Power of Attorney). It is necessary when you have the temporary inability to make medical decisions for yourself and more often when you are stricken with a permanent inability to make such decisions and have been declared to have little to no likelihood of survival. Understandably, thinking of yourself in an end of life situation without any capacity to make decisions is an awful thought. However, for most people, the thought of being kept alive in that state by artificial means for weeks or months on end is much worse.
When crafting an estate plan, you should provide your estate planning attorney with all family information, a summary of your assets, any negative health or relationship issues in your family and, perhaps most important, a list of goals you want to accomplish. A review of your goals and information can present a situation where a Medicaid Irrevocable Trust may be a strong option (to avoid nursing home costs from draining your assets) or a Revocable Living Trust. Both of these trusts avoid probate, thereby saving time and money. However, while a trust may not be for everyone, the following are the three critical documents it is recommended every adult (over 18) should have in place:
A Power of Attorney is arguably one of the most critical and important estate documents you can complete during your lifetime and is equally the most underrated and misunderstood. In short, a Power of Attorney designates which individuals are in control of your assets and can take care of your affairs in the event you are unable to do so and/or are incapacitated.
The excuses abound for not having a Will: “I really don’t have many assets, what’s the point?”; “I’ll be dead and gone, what do I care?”; “It’s too expensive to complete with a lawyer”; etc. There is also the general denial factor that we all will, in fact, one day die. The truth is, usually for about the same time and money it takes to make a necessary vehicle repair, completing a Will can ensure a lifetime of assets and personal heirlooms go to your spouse, children and/or loved ones with clarity and ease upon your passing.
We’ve all heard stories of hotly contested celebrity estates. Battles over the estate of legendary guitarist Jimi Hendrix were still going on as recently as last year, a shocking 45+ years after his death. The news that musician Prince, who was known to be controlling and astute in his business affairs, surprisingly died without an estate plan immediately spawned litigation which will no doubt go on for years. However, you do not need to be a celebrity or millionaire to become embroiled in, or be the subject of, an estate battle.