ESTATE PLANNING 101

The very thought of developing an estate plan fills most people with dread. Contemplating your own demise is not pleasant. However, it is a necessary chore unless you intend to force your surviving family or the courts to make some of the most important decisions of your life for you. For most people, developing an estate plan is not as complicated or painful as they may think. A lot of it is just plain common sense. While every case is different, what follows is a typical estate planning strategy.

The estate plan always begins with an inventory. If you don't know or fully disclose what you own, your lawyer can’t develop an estate plan to pass it on. I typically give my clients a standard form which includes all the questions I will ask in the inventory and organizational interview. I ask the client to take it home and think about the answers very carefully. Then, based upon the information they provide, I develop a strategy.

Unless the client is very wealthy or has special circumstances, the next step is normally advice on how to get their estate in order. Some of this is very simple, such as making sure that all major assets are properly titled and free of liens, judgments or other title encumbrances. I usually advise the client to clean up their financial affairs as much as possible. For example, the client may have $100,000 in the bank earning 5% or so, and a $20,000 credit card balance, costing them 15% or more. It doesn't take a financial planner to figure out what needs to be done in that situation.

The next step is what I call taking things off the table. By this, I mean we go through the inventory and arrange for as many assets as possible to pass outside the testamentary instrument. Typically, this involves making sure that the family home and other key property is held in joint tenancy with right of survivorship with the spouse. Automobiles should usually be titled the same way. We make sure that all life insurance policies and retirement accounts have a properly designated beneficiary and discuss other payable on death accounts at this time.

After we have taken everything off the table that we can, it is time to consider what testamentary instrument best fits the client's intentions and financial situation. For a single person of modest means, a simple will is usually sufficient. For married couples, a set of mirror image wills which leaves the entire estate to the surviving spouse is usually adequate. If the couple have minor children, the testamentary instrument may be a so-called floor pour-over will which places the estate proceeds in trust for the benefit of the minor children and names proposed guardians for them in case both parents should die at the same time. In some cases, a revocable inter-vivos trust or so-called living trust may be called for. Occasionally, usually with wealthy clients, an irrevocable trust and other documents may be called for along with consultation with tax specialists.

In most cases, the entire process of drafting and executing the estate plan takes less than a month. The cost for a married couple of average means is usually less than $500. Some people, particularly men, seem to think that drafting a will will hasten their demise. Typically, the wife has been trying for years to get the husband to step up to the plate and he has steadfastly evaded the issue. I've been in practice several years now and done a lot of wills. So far, I've only lost two husbands and both of them were terminally ill before they contacted me. What usually happens is that the husband is glad to have finally gotten a dreaded chore out of the way and the wife is ecstatic that the future security of both she and her children has been provided for.

HOW MUCH TIME

DOES IT TAKE?

It usually takes about a week from start to finish for a small estate provided everyone's schedule can accomodate it.  Typically, it takes about an hour to do the intake interview for a simple estate and the paperwork is ready within two or three days.

A second appointment is scheduled for the signing ceremony which usually takes less than an hour.  At least two witnesses and a notary must be present for this appointment.

In and emergency or a health crisis, a simple will can be turned around in less than 24 hours.

FIVE MYTHS ABOUT

 "LIVING TRUSTS"

AND PROBATE

Over the past several years, the marketing of so-called "living trusts" has become big business and a lot of people have gotten into it who shouldn't have.  Unlike the traditional trust company which serves a vital function in the community, many of these "trust mills" sell one size fits all, fill in the blanks form trusts for a lot more money than they are worth.  Frequently, the client will be advised by a commissioned salesperson rather than a lawyer and that salesperson will also try to sell the client other products such as annuities or insurance plans.  Given this, there is a lot of untruthful information floating around about living trusts.

1. If I don’t have a living trust the government will get my estate.

This is completely false. If you don’t have any type of estate planning document, either a trust or a will, then the Oklahoma statute governing intestate succession will be applied by the court. Generally, it provides that the estate will go to your nearest relatives under a fairly straightforward set of rules. The only way the estate could escheat to the state would be if no living relatives could be found.

2. My family won’t have to pay any estate taxes if I have a living trust.

While a properly drawn will or trust can minimize estate taxes, a living trust does not in and of itself shelter the estate from Federal estate tax liability. 

3. If I have a living trust, I can qualify for Medicaid so my nursing home costs won’t come out of the estate.

This is completely false. If the assets are controlled by the applicant as they are in a living trust, then they are considered “available assets” in determining Medicaid eligibility.

4. Probate is a nightmare that will eat up my estate.

The answer to this question is directly dependent upon you and the behavior of your heirs. If you leave a tidy estate under a will and your heirs are well behaved, probate is simply an orderly conclusion of your business affairs and the disposition of the remaining assets … all under court supervision. This usually takes less than year, sometimes only a few months, and can cost as little as $2000.00 in attorney’s fees, though it is usually a bit more. However, if you left your affairs in a mess and your heirs are fighting over every single item in the estate, probate can go on for decades and cost a fortune in attorney’s fees. And the attorney’s will get paid out of the estate. But, by the same token, if you left the same mess in a living trust, any of the bickering heirs has the right to petition the court for an accounting of the estate thus starting a judicial process very similar to a probate and probably costing about as much money. Only you can guess what your heirs will do when you pass, but let me warn you, the family arguments in probate court are among the bitterest in the courthouse and they are going to happen if the heirs are so inclined no matter what estate planning instrument you use.

5. Probate serves no useful purpose.

That is completely false. Probate provides an orderly forum where a neutral, uninterested party, the judge, can settle disputes between the heirs. If there is a solidly drafted will, the judge can enforce the terms of that will by the power of the court. In short, you have the power of the court enforcing your final wishes for you. That does not happen with a living trust. Also, probate provides a final cutoff to all estate creditors. The probate attorney is required to find all estate creditors and advertise the fact that the estate is in probate. If any of the creditors fail to properly respond, their claim is forever barred. A living trust provides no such final protection against creditors.

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1. www.oscn.net/applications/oscn/DeliverDocument.asp?CiteID=73029

2. www.en.wikipedia.org/wiki/Inter_vivos_trust

2. www.oktax.state.ok.us/oktax/forms/45499.pdf

3. www.okdhs.org/library/policy/oac317/035/05/0041006.htm

WHAT DOES IT COST?

I usually charge around $350.00 for a pair of husband and wife, "mirror image" simple wills.  That price includes a pair of durable powers of attorney and a pair of advanced health care directives.  If a testamentary trust for minor children is required. the minimum will probably be in the $500.00 range for a married couple.  Further, I reserve the right to adjust my fees according to the services required and requested.

All trusts are done on a hourly basis at $150.00 per hour.  If expert tax consultation is required, the amount of that fee will be determined by the tax expert.

All probate is done on an hourly basis at $150.00 per hour.  A $500.00 retainer is required before any court appearances will be entered.