Let's Talk About Estate Planning

 

Although American life expectancy has been increasing, it is still impossible to cheat death.  This means that the probability that your property will have a new owner is 100 per cent.  Here’s where estate planning comes in. 

When I ask people whether they have done any “estate planning,” most raise their eyebrows and look perplexed.  Some want to know whether that means signing a will and a trust. Well, yes it does, and there is more to it.  Certain assets must be transferred to the trustees of the trust.  Beneficiary designations on existing retirement accounts and life insurance policies must be reviewed.  A wide variety of other legal strategies, such as co-ownership agreements among future beneficiaries, can be included in “estate planning.”

A good example not to follow is that of Jimi Hendrix. He could have made it easy for his family by leaving a simple will rather than relying on the default property distribution determined by statute. Litigation between Janie, Jimi's adopted step-sister who he hardly knew, and Leon, his beloved brother, raged on for years after their father's death. In the end, Leon got nothing.

Jimi Hendrix was close to his brother Leon when they were growing up. They sometimes went on tour together. After Jimi died in 1970, their father, Al, got everything by statute. Al created his own will in 1973 and updated it several times, employing complex trusts to maximize tax savings for the $80 million empire of Jimi's legacy. Leon had been a beneficiary until 1997 when he was cut out so that Janie Hendrix, Al's adopted daughter from a second marriage, could have Leon's share. She met Jimi just twice and Jimi died when she was nine years old. Leon sued shortly after Al's 2002 death, claiming that Janie had taken advantage of Al's lack of education, lack of mental capacity and reliance on her. If Jimi had thought about his objectives and prepared a will and trust he might have named Leon as a beneficiary, which would have prevented all this litigation!

An estate planning lawyer can help you to determine your objectives. Next, we discuss and plan the property transfers to achieve those goals. Estate planning objectives may include the desire to provide financial security for certain loved ones and political or charitable causes; and a plan for orderly distribution to one's children. Often people want to restrict the use of the property to be transferred and they usually want to minimize taxes and administrative costs in structuring the transfers.

The first obstacle clients must work with in developing an estate plan is the mixed emotions regarding property transfers upon their death.  Without an estate plan your assets may go to unintended beneficiaries with unnecessary tax and other liabilities upon your death.  Some clients resist the process although even coming to my office is a big step in estate planning which demonstrates a willingness to begin a dialogue.  Many people do estate planning out of obligation, often fueled by a spouse or other interested family member.  Others don’t share this sense of obligation and don’t want to be bothered.  Some clients tackle estate planning head on and report breakthroughs in family communication and a great sense of accomplishment when the documents are finally signed.

The second obstacle is cost, whether the client is affluent or of modest means.  A willingness to pay professional fees often indicates readiness to face the difficult questions of estate planning.  An unwillingness to pay professional fees can significantly limit the amount of planning, custom drafting and professional supervision of the plan implementation.  The result is likely to be preventable family conflict and unnecessary taxes.                                                              

A third obstacle is failure to update and coordinate the estate plan.  Even after investing the time, money and emotion required to prepare an estate plan, some clients do not periodically update their plans.  At the same time, they continue to take actions that affect their estate such as buying life insurance, designating pension beneficiaries, and buying vacation homes outside of California (where California law may not apply).  They may also fail to update their estate plans to reflect changes in life circumstances.  This lack of updating and coordination can result in tax and other disasters for your grieving loved ones.

For maximum benefit, lawyer and client should review the estate plan together at least every three years.  Often, however, clients tell me that they want to talk about estate planning “next month” because they are too busy to think about it “this month.” Next month, of course, has a way of never coming.  But what could be more important this month than planning for what will happen to you and your loved ones upon your death or incapacity?  You cannot take it with you, but you can make generous and deliberate plans to smoothly accommodate those you love when they are most in need.

© 2012 John E. O’Grady

The information contained in this article is general in nature and should not be relied upon for any specific situation. Consult a qualified attorney for any specific legal advice.

 
 
 

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