When you wake up in the morning, the first thought that probably doesn’t come to your mind is that you should get your estate planning started or updated. Let’s face it, while it’s not rocket science, making the decision to take an affirmative step towards beginning your estate planning makes us face the fact that we won’t live forever. That’s why far too many people hold off far too long to begin the process. The long and short of it is … estate planning isn’t something you do when you are old and retired. In today’s world, it is something you do while you are in your income growth years. There is a difference between ESTATE PLANNING and CRISIS planning. Estate planning should be viewed like buying a car. Even though you purchased the vehicle, you still need to put gas in it regularly for it to work and you need to have it inspected regularly to ensure it’s not going to leave you … or your loved ones left on the side of the road…or in this case with documents that don’t work.
In all my years of practice, I’ve heard several theories as to why people feel like they don’t need to do estate planning. Today is the time to dispel those myths for you and help you see why everyone needs estate planning.
Myth # 1: Only Rich People Need Estate Planning
When you think about the term estate planning, what comes to mind? Usually, if you are not a lawyer or an accountant or financial advisor, you only hear about estate planning when some celebrity passes away and it’s determined they neglected to update their will or do proper planning OR if there is a fight amongst beneficiaries. That’s made people generally think that estate planning is just a last will and testament and “leaving my stuff to someone after I pass.” By comparison, when a non-celebrity is faced with doing estate planning, they assume it’s not necessary because they don’t have millions or billions of dollars. That being said, while proper planning does allow you to determine who gets your money and your old records or baseball card collection, it also addresses so much more.
While the last will helps ease the process of your death, what about the Financial Power of Attorney that is used while you are still alive to assist with daily financial decisions that you are unable to make? What about the Healthcare Power of Attorney that allows your agent to make or assist with medical decisions while you are alive? What about a Living Will that explains your wishes if you are end-stage terminally ill? These three documents are just as important, if not more important than the last will to you personally. These are documents you need to do while you are competent…not at the end of the road when it’s too late. Most importantly, if you are young and have children, who are going to take care of your children if you do pass away? These are certainly things that “regular” people go through that are not rich and decisions that need to be figured out sooner rather than later.
If you have not done any planning, you are basically leaving it up to the court to decide through very expensive litigation involving appointment of a guardian for yourself while you are incapacitated or your children once you pass. The court will have no problem appointing someone to make your medical and financial decisions for you…except for it’s unlikely the judge knows you or your wishes nearly as well as you and your family do. This public hearing can be very time consuming which makes it expensive. It can also put your family at odds if they disagree who should be appointed and how and what decisions should be made. These are all important decisions that even people who are not rich face. Why not be in control of your own decisions instead of letting a judge decide your fate?
Myth #2: I Don’t Need a Last Will because I am Married and my Spouse gets Everything.
While there is no doubt that married people generally own assets together and that joint assets are not part of “your estate”, this approach can be very dangerous. How many people jointly own their vehicles with their spouse? How many people consider the assets they brought into the marriage and the fact that it is premarital in nature? How many people have bank accounts here or there that may not be jointly titled? The answer is most people have something … if you think about it, I’m sure you do too.
Even if you can sit here and say you have NOTHING that is only in your name, this is still a dangerous road to take for many reasons. This outright distribution, while easy for you, offers no protection to your family or loved ones. What happens if, after your spouse dies, you get into a car accident and are sued or if you begin having debt management issues and are having trouble paying your bills? If all your assets are in your name alone, they are AT RISK and are available to satisfy any judgment that could be entered against you. This is a quick way to lose what you and your spouse acquired during the years of your marriage.
Have you considered, the possibility that once you pass away, your spouse will remarry? If you had children with your current spouse, would they get anything? I can tell you without proper planning that your assets that you worked hard for during your marriage, won’t just magically pass to your children. It takes proper planning to make those things happen.
Without planning, it’s quite possible that everything you own could go to your spouse. The retirement accounts would go to your spouse since you likely have your spouse as a beneficiary. Your bank accounts assets because you probably have a majority of your property jointly titled. It becomes your spouse’s property the moment you pass and at that point, it’s up to them to plan and use those assets however they want. If they remarry and then pass suddenly, there is a strong possibility that instead of your remaining retirement assets going to your children, it’ll be going to your spouse’s new significant other to do what they want with it, especially if they shared the same views as you on the lack of need to do estate planning. Who wants to work all their life to build up a nest egg to have it go towards the new sports car for your spouse’s new husband or wife instead of to your children? Blended families are common in today’s society. This is a real concern for many people, rich or poor.
Estate planning doesn’t mean that you need to disinherit your spouse. It means the two of you should be sitting down and planning out what you want to happen with your joint property upon either of your deaths, ensuring that the surviving spouse is provided for but that any other assets beyond their care go to the intended beneficiaries. This is only a reality with proper planning.
Myth 3: My Spouse or Children Automatically Get to Make My Decisions for Me
What happens to your legal obligations if you’re left in a coma or stuck in another country. Who can sign documents for you when you are not able? Who can make your medical treatment decisions? In many cases, you will immediately answer, that your spouse, children, or parents can make those decisions for you? But which is it? If you don’t decide who makes the decisions, who does?
While it is correct that if you are married, your spouse has some legal authority over certain decisions (generally the approval IF they AGREE with the doctors’ advice) or how the jointly titled assets are handled that their name is on, it’s not always the case. Both spouses generally need to consent to sell joint assets. If you aren’t able to sign, your spouse will need to obtain a very pricey Guardianship before that marital vacation home can be sold to pay for your medical care. If you’re incapacitated, this sort of sale could be delayed or not allowed at all by the court.
To fix this problem, you can give your spouse healthcare and financial decision-making rights by preparing power of attorneys. The power of attorney is a legal document that lets someone you choose make decisions on your behalf when you are not available to make them yourself. When you create the power of attorney, you decide when it goes into effect and what the agent can or cannot do for you. Why would you want the judge who you never met deciding who to put in charge? Power of attorneys are not expensive. I assure you they are significantly cheaper and much better than the court proceeding for having a guardianship appointed. This is almost always the way to go.
Myth 4: A Last Will & Testament Avoids Probate
Many people believe that once they do estate planning, whether drafted themselves using a form online or by an experienced attorney, they have avoided probate. This is, unfortunately, not the case at all. Whether you pass with or without a Will, probate is still likely going to happen. While the will is a great way to designate who should be in charge of your estate after you pass, who gets your hard-earned savings, and who takes care of your minor children, it has to be submitted to the court for overseeing of the estate and final approval when the estate is completed. While the court is sometimes involved in some estates more than others, it is still a very public proceeding. The world has the ability to quickly find out how much money you had at the time you died and who you are leaving it too (this is why you see all those celebrity stories out there). Even if you do a Living Trust, which has a much better chance of avoiding probate, it doesn’t guarantee it. Going back to my car example from earlier, only a trust that is properly maintained and updated regularly will be effective at avoiding probate … But that’s a discussion for another day.
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