Recently, one of my friends emailed me the following:
Clark, can you help me. As you know my dad died several years ago. My mom is 80 and doing well but she is afraid to discuss estate planning. I know she has a simple will which leaves all to my brother and sister and me. Her house is worth about $800,000 (though she and my dad bought it for $16,000 way back when - not even a down payment today!) and she has some investment and savings accounts. I know she needs a revocable living trust so we won't have to go through probate, but I don't know how to broach the subject with her. Could you send me some basic information I can give her and my brother and sister to help them see the need for planning?
This is not the first time I've received this request. Below is a draft of a letter I sent my friend to give to his mom. I think it lays out the issues in a gentle and informative way.
Dear Mom:
I know it’s a difficult subject, but it’s time we talk about your estate planning. By this I mean wills and trusts. It’s becoming more evident that you need to prepare basic documents to protect you and the family. I know this is a topic you don’t want to discuss, but unfortunately, ignoring it won’t make it go away.
You and dad worked hard to prepare for your retirement and you have done exceptionally well. The most important thing now is that you have enough to live a long and comfortable life. However, as Benjamin Franklin said, no one can avoid death and taxes.
As we’ve all learned over the years, facing difficult tasks and working through them always brings a sense of peace and accomplishment, but avoiding difficult tasks brings anxiety and fear. Let’s face the uncomfortable topic of planning together so that you no longer have to worry about it.
There are a few important things you should take care of right away and I will help you each step of the way.
First, you should prepare an ADVANCE HEALTH CARE DIRECTIVE. This would allow us to make health care decisions for you if you can’t. It would also express your wishes regarding end of life decisions. I know you don’t want a Terri Schiavo experience.
Second, my understanding is you and dad drafted wills to leave your property to each other then to us. If drafted properly, a will can get your property to us, but it comes with a steep price: PROBATE. When property is transferred through a will, the remaining family members, us kids, will have to take your estate through probate. Probate is a court process that usually takes at least nine months and involves an attorney and many court hearings and usually costs about 5% of the gross value of your estate. That’s 5% that will go to attorneys and court costs – not to us.
There is an easier and less costly solution: a REVOCABLE LIVING TRUST. You may have heard of revocable trusts. Many of your friends have them. A trust is used instead of a will for the primary purpose of avoiding probate. When you create a trust, you and your trust attorney will transfer the title of your property, including your home, to the trust. You will control the trust and all your property, just like you do now. However, because your property is in the trust, the family will not have to go through probate. Not going through probate will save approximately 5% of the estate value. With the value of your home alone, that would save around $40,000.
Third, in addition to the trust, you should also prepare a DURABLE POWER OF ATTORNEY FOR PROPERTY MANAGEMENT. As it stands now, if you became incapacitated, we could not take care of you. We would have no authority to sign on your bank or investment accounts. Instead, we would have to hire an attorney and go to court for a CONSERVATORSHIP hearing to ask the judge to authorize us to take care of you - pay bills, buy your groceries, pay for your medical care, etc. Like PROBATE, a CONSERVATORSHIP hearing is expensive and time consuming and it can be embarrassing. Testimony would be needed in court to determine if you were mentally able to handle your finances, etc. You can avoid the cost and pain of a conservatorship hearing with a trust and a durable power of attorney. Both documents could name us to manage your affairs for you if you become unable to do so without the need to go to court.
Putting together an estate plan can be done in a relatively easy manner – probably no more than two attorney meetings and it can be completed in a few weeks. And once it’s done, you can relax confident that you have taken care of this important responsibility.
Finally, one warning. There are many companies out there who prey on the elderly. They promise you cheap estate planning if you buy an insurance or investment product from them - often a product you don't need. Stay away from these companies. I'd be happy to find a knowledgeable and kind attorney to help us prepare an estate plan for you to avoid the delays, costs and hassles of probate and a conservatorship hearing.
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