Have You Done Proper Estate Planning?
© 1999, 2004 By Lorin Castleman, Attorney-at-Law
The Castleman Law
Firm
A Professional Corporation
5870 Stoneridge Mall Road,
Ste. 207
Pleasanton, CA
94588
(925)
463-2221
Fax (925) 463-0328
RETURN TO ESTATE PLANNING ARTICLES
Everyone has an estate plan, whether intentional or by default. If you think you have no plan, because you have not made out a will or a trust, you still have a plan--it is simply one that is dictated by the laws of the state where you reside at your death. People who die without wills or trusts are said to die intestate. State law provides the rules of distribution that must be followed when a person dies intestate. In most cases intestate estates must be probated, which involves a court proceeding, and in many cases state law may require a distribution that you would not want. It is a very good idea to avoid intestacy by having a will or a "living trust" that is designed for your particular needs. In most cases a revocable "living" trust is better than a will.
Joint Tenancy
You also have an estate plan if your assets are held in joint tenancy. Many people put their assets in joint tenancy for the purpose of avoiding probate. What people do not understand is that joint tenancy only avoids probate when there is a surviving joint tenant. In other words, joint tenancy does not avoid probate all together--it only delays it. When the last former joint tenant dies, the property will be probated, unless it has been transferred to a trust. The joint tenancy form of ownership may also have many unintended and unfavorable consequences. For example, if a person places a home in joint tenancy with a son or daughter the entire property is usually subject to attachment by a creditor of any one of the joint tenants. Another problem with joint tenancy is that once the asset that is held in joint tenancy passes to the surviving joint tenant he or she owns the property outright. Once again the property is subject to attachment by that person's creditors. Also, the survivor has absolute control over the property. If the surviving joint tenant is a surviving spouse who remarries, it is quite possible that the property may never end up in the hands of the decedent's children. There are also significant estate, gift, and income tax problems that can arise from joint tenancy. Holding property in joint tenancy usually has unintended bad results.
Designation of Beneficiaries
Another form of estate planning that may have unintended results is the designation of beneficiaries of insurance and retirement plans. In this area the problems arise from the failure to coordinate beneficiary choices with the rest of the estate plan. Usually individuals are designated as beneficiaries; but in some cases it is better to designate trusts as beneficiaries. Beneficiary designations make no provision for estate tax planning, and will not protect the beneficiary from creditors or unscrupulous people. This area is too complex to discuss in this article, but keep in mind that you should always ask your advisors about coordinating beneficiary designations with the rest of the plan. In any case, you should almost never designate your estate as a beneficiary.
As you can see, unintended and unfortunate results can occur without proper planning.
Proper Estate Planning
What is proper estate planning? It involves a plan that is carefully designed to meet your goals. It requires a cooperative effort between you, your attorney, and other appropriate members of your estate planning "team," such as a financial planner, a life insurance agent, and a CPA. The plan should not be thought of as a series of transactions whereby the financial adviser provides (sells) investments, the insurance agent provides (sells) insurance, and the attorney provides (sells) a trust or a will. In my view, that is the wrong approach.
Instead of taking the transaction, i.e., product oriented, approach, you should view estate planning as an ongoing process that evolves as your needs, goals, and family change, as the laws change, and as new estate planning tools and techniques are developed. It is a process of continually evolving entrance, growth, maintenance, and exit strategies. Proper planning requires professional thoroughness which respects the overall well-being of you and your family.
Your goals should include the following:
Saving the greatest amount of taxes and post death administrative costs possibly--not only in your own estate, but in the estates of your spouse and your descendants.
Initial Meeting
Proper estate planning begins with a call to your attorney to schedule a meeting. The attorney may or may not charge for the initial meeting. You should ask if the meeting will be with the attorney or with a paralegal. If the initial meeting is only with a paralegal, you may be dealing with a "trust mill " office. If the initial meeting is with both the attorney and a paralegal, or with just the attorney, you will probably be better served. Also, ask if the attorney will want you to provide information about your finances and your family in advance, so that the attorney can prepare for the initial meeting. In our office we always send a questionnaire to new estate planning clients which the client must return before our initial meeting; that way some advance preparation for the meeting can be done by the attorney. You should ask how long the meeting will take. If you are told that it will be for no more than ½ half hour, you might want to consider another the attorney. Even with advance preparation it is my experience that good initial planning meetings take between 1 ½ to 2 ½ hours.
After the initial meeting, documents will be prepared for your review. Those should consist of, at least, a revocable "living" trust, a "pour-over" will, a certificate of trust, a durable power of attorney for asset management in the event of disability and an advance health care directive (formerly known as a health care power of attorney). Another meeting should then be held. At that meeting the attorney should thoroughly explain the documents to you. You should then be given an opportunity to thoroughly review the documents before you sign them.
Funding the Trust
If you use a revocable "living" trust, which we recommend in most cases, the trust must be properly funded as soon as possible. That is, assets must be transferred to the trust. If this is not done, you will have wasted your money and your assets will either have to be probated through the "pour-over" will, or they will pass outside of your plan. Find out if the attorney's office will do the funding or if you will be left to do it yourself. Our office insists on doing the funding to ensure that it will be done and that it will be done correctly.
Attorney's Fees
How much should you expect to pay for a quality plan? Fees vary significantly, depending upon the size of the estate, the amount of tax planning needed, the complexity of the plan and its distribution scheme, whether or not the family involves children or grandchildren of different marriages, the expertise of the attorney, the amount of counseling and guidance given by the attorney, whether or not the attorney's office will do the trust funding, as well as the geographical area. I am always hesitant about mentioning fees in articles, because it is like saying what it will cost to cure an illness before the doctor has seen the patient. On the other hand, I think that it is important for people to have a realistic expectation of what good planning involves. In very general terms, you should anticipate that fees for an estate that does not require estate tax planning will be in the range of $2500 to $3500 dollars. If tax planning is required, the range may be $3500 to $5000 for estates up to $3 million. Those ranges do not include life insurance trusts, charitable trusts, or planning for generation skipping. For large estates, it is difficult to give a range, because of the varying complexities of each situation, but the fees will be considerably more. It is true that you can have off-the-shelf plans for less money, and for a very few people that may be all right. But don't expect much in the way of counseling, funding, or a plan designed to fit your particular needs.
Plan Maintenance
Once your plan has been done, it must be maintained. I recommend estate plan review conferences not less than every two years. If there are changes in your family, your desires, or your financial situation, you should always contact your attorney to see if your plan should be changed.
Upon the death of a family member who has either a will or a revocable "living" trust, it is extremely important to consult your attorney as soon as possible. Even if there will be no probate and/or estate tax to pay, there are many estate administration issues that must be considered and addressed.
Proper Estate Plan Requirements
In summary, proper estate planning requires:
Many trusts and plans do not work because of one or more of what I call the "3 Fs": Failure to fund, Failure to maintain, and Failure to administer after death. Do not let any one of the 3 Fs occur to you or your family members.
© 1999, 2004 By Lorin Castleman, Attorney-at-Law. All rights reserved