THE IMPORTANCE OF ESTATE PLANNING
(Part 1 of a 5-part Series)
(3/3/02)

This week I want to revisit the overall topic of estate planning. Most of my columns focus on a particular element or nuance of estate planning. But some times we have to step back and take a broader view or we risk not seeing the forest for the trees.

Most of you want to do the right thing for yourselves and your families. You want to retain control over your own affairs and not worry about a court interfering in the management of your family finances.

In addition, most of you feel you have paid the government more than your fair share of taxes and that what you have worked hard to acquire should pass to your families without additional taxes or expense. Unfortunately, many times your best intentions come to naught because you didn't effectively plan while you had the chance.

So What can I do?

What I'm recommending is usually referred to as Estate Planning. Some folks think this high faluting term only applies to the wealthy. Let me dissuade you from that idea. We all need to plan our estates, regardless of how old we are, how much money we have, and regardless of whether we are single, married, divorced, remarried, or somewhere in the middle.

Most of you whom I talk to or who come to our estate planning seminars, tell me you want to keep control of your assets and to be able to make the decisions on who you give what and what medical care or treatment you receive. This is completely understandable. You have done just fine so far-why would you want to rely on anyone else as you get older?

That's why estate planning is so important. If you don't plan now, you won't get a second chance.

"Basic" Estate Planning

Let's look at the various ways people plan their estates. Each of you is using one of these "plans" even if you don't know it. What you may not realize is that if you make the wrong choice, you could lose control of your estate and allow a court to dictate to your heirs. Using the right plan, however, can let your family retain control and keep your estate free from court intervention.

Losing Control of Your Estate

Many of you have a Will. This can be a very good estate planning document, and for the majority of people may be all they need. One problem with a Will is that it doesn't avoid probate when you die. All Wills, even those which include Trusts within them, need to be admintted to probate before they become effective.

In addition, a Will cannot protect you if you become incapacitated and need someone else to manage matters on your behalf. It also may not provide the level of control you want over your minor children or grandchildren or the property that will pass to them at your death.

What is Probate and why is it Necessary?

In simple terms, Probate is that legal process by which a court makes sure that your Will is legally valid, your debts and taxes are paid, and your property is distributed according to your Will and state law. Since you are no longer alive and able to sign deeds or titles, it the only way for your heirs to receive legal ownership (title) to your property.

Just What Property has to go through Probate?

Again, in the simplest possible terms, everything you own. There are special categories of property (jointly owned property, pay on death accounts, or life insurance policies and retirement plans with valid beneficiary designations) that usually do not have to go through probate, but there can be problems with each of these types of assets.

Why is Probate such a Bugaboo?

First, probate isn't necessarily bad and it can useful in identifying property, debts of the decedent, and making sure the property is distributed to the proper parties. I'm certainly not one of those who proclaim "Give me freedom from probate or give me death" a la Patrick Henry or certain so called "estate planning" presenters around the country.

There are, however, downsides to the probate process that need to be discussed.

1. Probate can be too expensive for the benefit it provides. By the time you add in attorney fees and costs, the Personal Representative's fee, the cost of inventorying the property and obtaining appraised values, and attendance at two hearings, the cost can be prohibitive, especially for a relatively small estate.
2. Probate is time-consuming. It can easily take 9-18 months or even longer to complete, during which time assets may be frozen unless the personal representative posts a bond (an added expense to the estate). If it is clear who receives the property and all heirs agree to waive an inventory and accounting, it may be possible to expedite distribution of the assets. Otherwise, it isn't unusual for the court to direct that nothing be sold or distributed until the inventory is completed and the court has approved the proposed distribution.
3. Wills are a matter of public record. That means anyone who wants can check the records on file with the court clerk and find out everything about your estate-who you named as heirs, what they get, their addresses and relationships, and so on. Why do you think we know so much about Elvis Presley's estate? It was a simple matter for a reporter to go to the records and copy them for all the world to know.

Now the entire world knows that Elvis died with an estate of over $10 Million-yet after taxes and expenses, his daughter Lisa Marie only received $2.8 Million. Elvis' estate shrunk by 73%! Because of poor estate planning.

Next week I'll continue this discussion on estate planning. In the meantime, mark your calendars for the March 5th and 7th, when Gary Brown and I will be presenting an Estate Planning seminar at Autry Vo-Tech. For a minimal fee, you can attend either or both nights and not worry about being pressured to buy an expensive estate plan. All we are selling is information-and cheaply, at that. Contact Autry Vo-Tech at 242 2750, ext. 116 for additional information.

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