Estate planning is dead?

I came across an article in Forbes today called “Estate Planning is Dead.”  It is dangerously misleading about the need for a proper estate plan, but buried under all of that is the true message that Mr. Scott, the author, believes and was trying to deliver.  And it is a message I can get behind.

That message is that traditional estate planning isn’t about you, it is about what will happen when you die.  It is a plan based around the two great inevitabilities: death and taxes.

Estate planning, with the proper planner, can and should be more.  It should be about your legacy.  What you have brought into this world, and are still bringing into this world.  Proper planning is more than a snapshot of who you are.  It is a projection of what you will be and a plan to be even more of who you are.

Meeting with clients, many have to take a deep breath and say something like “Here we go!” when they start to make their plan.   It feels more like they are about to jump out of an airplane instead of making a sound financial decision.  But it is a sound decision, not just for the estate, but for YOU.  As estate planning draws to a close, my clients feel relief, secure in the knowledge that they can live their lives with a significant chunk put finally in its place.

Dare to reorient your thinking about estate planning.  Think about YOUR future.

Anthony Bourdain’s Will Reveals A Rarely Considered Asset Category

Famous food critic Anthony Bourdain’s fortune, initially reported at $16 million, is being probated in New York at $1.2 million.  This could be just misreported information, but often travelers like himself will have offshore assets that will not be probated in America.

In addition to his cash and tangible assets, most of which was left to his daughter, he left his frequent flyer miles to his wife.  Not all frequent flyer programs will allow miles to be passed on, but if you travel as often, or even a tenth as often as Anthony Bourdain, this is another area to consider when making an estate plan.

How do I change my will?

Everything changes in time, including what we have and who we want to give it to.  Changing your will is not overly complicated, but it is important to do it the right way.  There are a few ways to do it.

  • Add a codicil to your will

A codicil is an addendum that adds to or changes the terms of your will.  Like a will, the document must be witnessed by two uninterested witnesses.  It should be kept with your will, and you should let some trusted people know where it is and that it exists.

  • Rewrite your will

Since most wills are short documents, rewriting a will can also be done relatively quickly and simply, as long as all of the legal requirements of writing a will are met.  The old will should be phyiscally destroyed, and the new will takes its place.

New tax laws means it is time to review your estate plan.

The Tax Cut and Jobs Act signed into law on December 22, 2017, doubled the estate tax exemption.  So nobody needs an estate plan any more right?  Unfortunately not.  This doubling is not slated to last forever, and depends highly on who is in control of congress when the bill sunsets in a few years.

You should look at this instead as a window to make changes that could save you millions.  If you answer yes to any of the following questions, you should review your estate plan with an attorney.

  • Did you get married or divorced?
  • Did your spouse pass away or become incapacitated?
  • Are there any new children in your family?
  • Did any of your beneficiaries have any of the above changes in their family, or do they have any new financial problems?
  • Are your designated fiduciaries still able to fulfill their roles?
  • Did you sell or buy any significant assets?
  • Did you move to a new state?
  • Did you retire?

To speak about any of these changes with a responsive, qualified attorney, click or call today.

Is an unsent text a valid will?

Last year in Australia a man committed suicide and was found with his phone near his body.  On the phone was a text leaving all of his worldly possessions to other relatives, not his immediate family:

Dave Nic you and Jack keep all that I have house and superannuation, put my ashes in the back garden with Trish Julie will take her stuff only she’s ok gone back to her ex AGAIN I’m beaten . A bit of cash behind TV and a bit in the bank Cash card pin 3636 MRN190162Q 10/10/2016 My will.

The Australian supreme court ruled that the message was a valid will, and the instructions in the text message were carried out.  The Australian law on what makes a will valid is similar to California.  A will must be signed and dated by the maker of the will and witnessed by two witnesses, but the court can overlook those requirements if it is satisfied that a document is meant to be the will but doesn’t meet the criteria.

In that case, there was enough outside evidence to satisfy the court that the will was valid.

Given the general attitude of California cases, California courts are unlikely to find an unsent text to be a valid will.  If nobody witnesses the will, it must be handwritten, signed, and the court must be able to figure out the date of the will.

The court can (but does not usually) ignore these requirements if the writer doesn’t meet them entirely, but even then the will must be signed.  California allows for digital signatures, but an unsent text message is not a digital signature.  Most of the relevant code sections are here.

Either way, it would be an expensive lawsuit in California with claims from both the widow and the other family members.  Even if the man had followed the California instructions for a holographic will,  it would not be cut and dry, and his assets would be subject to probate.

This whole situation could all be avoided by a few hours of preplanning.  Even when using a form will, consulting an attorney will ensure that everything is correctly filled out.  Don’t leave the future of your loved ones to chance.

Why does probate cost so much?

Earlier this week I wrote about how probate costs run into the tens of thousands even for homeowners that only have a condo.   The family I met last week was understandably angry at the idea of probate.  Why do you have to pay the government tens of thousands of dollars when you die just to give your house to your children?  The answer is you don’t, but only with proper planning, and a will is usually not enough.

Why do I need to go through probate if I already have a will?

Because your will is just the start of the probate process.

First, the court has to examine your will to ensure that it is a valid will.  Then, once it has determined it is valid, the court must appoint a personal representative to distribute the deceased’s assets.  Someone, usually the executor or an attorney, has to:

  • publish notices and notify creditors
  • deduct costs of administration before distribution
  • transfer assets to beneficiaries
  • handle any pending lawsuits and claims against the estate
  • deal with any contests to the will

These all take time and money.  The estate must cover the cost of Judges, clerks, lawyers, administrators, and all of the time and overhead associated with these people.  These procedures are in place to ensure that the wishes of the deceased are carried out to the fullest.

For the majority of cases where the heirs aren’t arguing about, or even thinking about, who will get what, these costs can seem like an unfair burden.  Still, it is the price we pay to ensure that even the least among us has his or her wishes carried out.

Often, these costs are avoidable through proper estate planning. Rather than pay the tens of thousands later, and go through the lengthy probate process, you can increase the speed of distribution and decrease the costs by making plans well in advance.

 

Last week I participated in a clinic to provide simple wills for seniors.  One senior attended because her doctor recommended that she have a will prepared.  She had a simple estate with only a condo and a few small bank accounts and wanted to ensure that her condo passed to her children.

We advised against doing the will even though her estate was worth only about $500,000.  Why?  Because in California, an estate worth over $150,000 in probateable assets MUST go through the probate process, so a simple will would actually cost a lot more than going to see an attorney.

The probate process is expensive.  The government sets the cost of probate, and this year, probate costs 4% of the first $100,000 of the gross value of the probate estate. 3% of the next $100,000. 2% of the next $800,000. 1% of the next $9 million.  

That means that for a $500,000 estate, probate fees are $13,000.  That is just the state fee.  The attorney and potentially the executor also need to get paid.

The estimated attorney and executor fees, in this case, are roughly equal to the probate fees, so passing the estate via simple will ends up costing well over $30,000.

For typical California homeowners with homes worth over a million, these fees can be over $60,000 easily, and even more expensive depending on the complexity of the assets involved.

Both the woman and her adult children didn’t understand why it would cost so much to pass on something she already owns.  The answer is that there are much cheaper and faster ways to ensure your property gets to the those you love, but none of them are free.  There are various ways to set up the transfer via deed and trust, all of which cost less than $5,000.

I’ll explain why probate is so expensive later this week, but for now, just know that a little preparation, even in the simplest of cases, can save a lot on the back end.

To sum up, even with just a small condo, failure to have an estate plan will cost your estate tens of thousands of dollars, where for a few hundred or thousand up front, you can be sure your property goes to your heirs quickly and efficiently.

Will you be an estate tax paying “moron?”

Whether or not you believe Chief Economic Advisor Gary Cohn said “Only Morons Pay the Estate Tax,” estate tax is a real problem for many Californians, especially home and business owners.  It is something to prepare for ahead of time.

Imagine your parent has a family farm or a successful restaurant or small business and a home, together valued at $10 million.   The estate tax would take $1.8 million of that, as this year the individual estate tax is 40% for estates worth over 5.49 million.   With almost $2 million going to the state, many families are forced to choose.  Do you sell the business?  The family home?  For many households, it is like having a leg knocked out from under them, and now all competing companies have to do is lean on them.

There are ways to avoid state tax, but many require years of careful planning.  Most people who pay the estate tax aren’t morons; they were just caught unprepared.  Don’t get caught.

Why everybody needs an advance directive

You are 26, or 34, or 45.   You are with your friends, or your significant other, or your children, enjoying yourself.  A car hits you, or you only fall down, and you can no longer talk or speak or move. You may or may not be conscious. Even if you open your eyes, you aren’t there, yet you are still alive.

For years your relatives come into the room where you lay, a tube stuffed down your throat, blinking away the seconds, day after day.  Finally, they remove the tube but don’t give you pain medication.  They are sure that you can’t feel what is happening.  You sit there and blink and starve until you are gone.

This living hell is regularly reported on and fought over in courtrooms and Congress, and you can avoid it all with a simple piece of paper. The famous example of this is Terri Schiavo, a vibrant 26-year-old who collapsed at home, suffering massive brain damage:

An advance directive is a document that tells the doctors what you want when you can’t tell them yourself.

It is simple enough to fill out an advance directive without guidance, but making sure it is effective and followed is another matter entirely.  Here in the East Bay it is possible to file them with many major hospitals like Kaiser in advance, but a large number of doctors and nurses ignore advance directives because nobody filed them correctly.  Many doctors, absent an advanced directive, will do anything to keep you alive. I for one want them to stop short of anything.