Estate Planning Answers

What is in a well-designed estate plan?

A well designed estate plan wraps you in a blanket of protection and peace of mind.

A well-designed estate plan not only tells the world how you want your stuff distributed but protects your freedom of choice during your lifetime.  It sets forth rules and put people in charge to protect you and your money during your lifetime and beyond.

The first, and most important piece of a plan, in my opinion, is the durable power of attorney.  This protects you during your lifetime.  It keeps your family out of court seeking permission to make decisions for you and to manage your property.  And, it is much cheaper to setup a power of attorney than to go to court.

In a power of attorney, you name somebody you know and trust, not necessarily a family member, to manage your affairs and make decisions for you if you can’t.  This person will be in charge of managing your money and other property if you can’t.

For healthcare, you set up a healthcare power of attorney.  This is a power of attorney specifically to make healthcare decisions if you can’t. 

To go along with a healthcare power of attorney you should also setup a HIPAA waiver or protected healthcare information release.  This tells the medical professionals who they can talk to about how you are doing and what is wrong with you.  Without this, the doctors and nurses are limited in what they can discuss and who they can discuss it with.

Finally, we get to the parts of a plan that deal with the distribution of your estate.

First, a last will and testament tells who gets what when.  A will requires probate, but can work with some additional planning.

Second, a trust can be created.  A trust avoids probate and provides for management of assets during your lifetime.  You name a successor trustee to take over managing the property in the trust if you can’t during your lifetime.  Afterwards, the final trustee will follow the instructions in the trust to distribute your property and money.

What is probate when there isn’t a Will?

Most people would rather walk over hot, smoking coals than to go through a probate.  For most people, probate is a long, anxiety filled process.

Probate without a will is technically just administration of the estate.  It runs about the same as with a Will, except the state of Arkansas has decided who will get what, when, and how.

Without a will or trust, the state has decided for you who gets what, when, and how much.  The state has effectively taken control of the situation and taken control away from you and your family.

There are a set of rules and procedures that must be followed as set forth by the state.

The state’s plan is necessarily generic and may not fit your situation or even be close to what you want.

Here are the basic rules:

1. Your spouse of over a year gets about 1/3rd of everything only in your name.  Real estate is retitled as a “life estate.”  This means your spouse can live there and collect rents but can’t sell the house without permission of your children.  Even if the house is sold, your spouse only gets the value of the “life estate.”  That value is based on mortality tables published by the Social Security administration.
2. Your children split the other 2/3rds
3. All your outstanding bills are paid before distribution.
4. All your final costs are paid distribution.  Those include medical bills and funeral expenses.
5. Any attorney fees are paid before distribution.
6. The personal representative fee gets paid before distribution
7. Distribution will occur approximately 8 to 12 months after the case is opened.  Your family can apply for an allowance to get by.  The allowance isn’t much.
8. Money for minors is held in trust or special bank accounts under court supervision until they are 18.  At 18 they get a check to do with as they please.

Of course, without a will in place, it is more likely that your family will fight over who gets what, especially the sentimental pieces.

This can be avoided by taking the time to plan now.

Should I share equally?

Parents struggle with leaving one child less than another.  But what you leave should depend on circumstances as much as equality.

Take the case of Jane and Mark.  They have 2 children.  Their first child is a medical doctor and doing quite well for herself.  Their second child has a learning disability and barely made it out of high school.  He went on to trade school and works as an electrician.  He makes a fair living, but nothing like his older sister.  Should mom and dad split everything equally?  Should mom and dad “favor” the younger child and give him more than the leave his sister?  Is it really favoritism to give the child that doesn’t have as much more than the other?  Or is it really equity?

Those are hard choices for parents to make.  Often parents don’t want to make that choice and will split everything equally, even if one child could use the inheritance more than another.

The harder choice is when one child has special needs and is receiving benefits from the government like SSI or Medicaid.  Many parents want to leave those children completely out so their benefits will continue.  However, with the proper planning up front, that child can have the benefits of an inheritance without losing their access to government benefits.

The first reason you need an estate plan is to be in control of the distribution of your estate.

Without a plan, the State, not you, decides who controls distribution of your stuff.  You lose all choice when a Judge takes over.

Recently I had a lady come in who had just lost her husband unexpectedly.  He owned valuable land close to the XNA airport only in his name.  But he had never written a plan for how that land was to be distributed.

So, the state decided how it was to be split up.  She gets 1/3^rd of a “life estate” in the property.  A life estate means she owns 1/3^rd of it during her lifetime only.  She can’t sell it without his children’s permission.  Then when it would sell, she would only get a portion of the 1/3^rd because it’s a life estate.  Figuring she is about 65 years old; she gets 65% of 1/3^rd of the estate or about 22% of the total instead of 33%.  And the older she gets, the less she gets if the land is sold.

His children split the other 78% evenly between them.

If you want to control who gets what, when, and how much; control who will manage your affairs if you can’t; protect your assets and finances; protect your family; or control who manages your healthcare if you can’t then you need an estate plan.

The second reason is that without a plan, the State, not you decides who controls and manages your money, property, affairs, and healthcare if you can’t.  You lose all power.

Mark had been diagnosed with rapid onset dementia.  Fortunately, his wife brought him in to get a durable power of attorney almost immediately.  After determining that he still had the mental capacity to sign, we had him execute a durable power of attorney with his wife as his agent.

Due to an unfortunate turn of events, he needed to go into long term care about 8 weeks later.

Without his durable power of attorney, his wife would have needed to go to court to get a guardianship.  That would have taken about $3,200 and trips to court instead of the $600 they spent on the durable powers of attorney.  Not to mention, they don’t have to see a Judge and make part of their private affairs public.

The same goes for healthcare.  Without a healthcare power of attorney, somebody will need to step up and get a guardianship to be able to oversee medical treatment.

If you want a say in who will stand in your place to make decisions, then you need an estate plan.

If you want to control who gets what, when, and how much; control who will manage your affairs if you can’t; protect your assets and finances; protect your family; or control who manages your healthcare if you can’t then you need an estate plan.

Not to mention reducing and eliminating taxes, headaches, anxiety for your family, worry, hassles, and money given to lawyers to settle the estate.