When you decide to have your estate plan prepared, it can be a stressful experience. You have to make decisions about what you want to happen to you if you became mentally disabled. You have to make difficult end-of-life decisions such as when to pull the plug. And then you have to face your own reality and decide what you want to happen to your property or “stuff” after you are gone. As a result, many people put off preparing their estate plan.
You may have only simple wills. As a result upon your mental disability, your family has to file with probate court for guardianship to make your personal decisions and for conservatorship to pay bills and take care of your stuff. You may have a power of attorney for health care that was prepared when you were going into the hospital for surgery, but do not have a financial power of attorney or a will. This again results in a conservatorship for your stuff upon your mental disability and the probate of your assets after you are gone. Since you have no will, your stuff will be immediately distributed to your heirs pursuant to Michigan statute, instead of giving what you have to whom you want when you want the way you want. If you have a trust, often times all of your assets are not titled or “funded” into your trust. This results in the probate of all of your unfunded assets just so they can go into your trust.
When looking at a proposed estate plans, most people focus only upon the initial cost of the documents. Most people do not consider the cost the implementation of their estate plan upon mental disability or upon the administration of their plan after their death. It can cost thousands of dollars in legal fees for the appointment of a guardian and/or conservator or for probate of your estate.
At a minimum, you should have a will, a financial power of attorney and a power of attorney for health care. Do not have your will prepared without also preparing both financial and healthcare powers of attorney. Conversely, do not have one power of attorney prepared without your will and the other power of attorney. Most people benefit from having a trust. If you have a trust, make sure all of your assets are funded into your trust.
When having your estate plan prepared, get adequate counselling from your estate planner regarding income, estate and gift taxation of individuals, estates and trusts in order to minimize the tax bite during your lifetime and also upon your death. Also, seek sufficient counselling in asset protection planning and the Medicaid application process, so you do not limit your options if you need long-term care.
There are some estate planners who even name themselves as personal representatives of your estate and/or trustees of your trust. The initial cost of these trust based estate plans may seem attractive, but keep in mind the old Fram oil filter commercial, “You can pay me now, or you can pay me a lot more later!” Often times with these types of plans, all of your assets are not funded into your trust and your estate must be probated at additional costs. These estate planners usually take fees for acting as your personal representative and trustee. The fees often times are “value billed” based upon the amount of assets or income of the estate or trust or billed at normal hourly billing rates which could be in excess of $200 per hour for doing mundane tasks such as going through the house or personal property. These personal representatives and trustees of course are entitled to hire attorneys who are usually their own law firm. Most of the time the fees are not questioned by your family, who are ending up with manna from heaven which is basically free money from your estate and/or trust.
If your plan has one person getting five fees, a drafting fee, a personal representative fee, a personal representative attorney fee, a trustee fee and a trustee attorney fee, make certain that your documents place limits on these fees. Also make sure that this person’s malpractice insurance covers investment and financial management activities; many legal malpractice insurance policies exclude these activities from coverages. In addition, if you want your trusted tax preparer and financial advisors to continue after your disability or death, name them specifically. If not, your new personal representative or trustee may hire his or her buddies to handle taxes and investments, for additional fees.
By: Matthew M. Wallace CPA, JD
Published edited September 28, 2008 in The Times Herald newspaper, Port Huron, Michigan as: Be aware of administrative costs