You have probably heard of the Scout motto, “Be Prepared.” The motto was devised in 1907 by Robert Baden-Powell, an English soldier who founded Scouting. He was once asked the inevitable follow-up question, “Prepared for what?” His response was “Why, for any old thing.” Are you prepared for any old thing?
Are you prepared so that you can stay in control while you are alive and well? Are you prepared to provide for you and your loved ones in the event of your mental disability? Are you prepared for when you are gone, so that you can give what you have, to whom you want when you want the way you want? Are you prepared to do this all at the lowest overall cost to you and those you love? Maybe you have. But if you are like the majority of Michiganders, you haven’t.
Most of us do not have a crystal ball and can predict what life has in store for us. What if you had a stroke or heart attack? What if you became mentally incapacitated? What if you needed to go in a nursing home? What if you died?
Years ago, I prepared estate plans for a recently married couple, who had both been widowed. They both had assets that they wanted to go to their own children. The only provision for each other was by the husband, who had a much larger estate. He gave a life estate in his large home to his wife, so long as she paid the taxes, insurance, utilities, repairs and maintenance. They opted out of our annual update program, and after about ten years, the husband told the wife he wanted to leave a substantial inheritance to her. They talked about it for more than six months. They thought they had plenty of time to make the change because they were both under 70 and healthy. He died suddenly and unexpectedly. She never received the inheritance he wanted to leave her because he never updated his estate plan. All she received was a big bill, if she wanted to stay in the family home.
We regularly have clients tell us that they have spent years putting off the updating of their estate plans. That is fine and dandy for those that do call us and make it in to update their plans. But what about others who never call their estate planner or never make it in. For example, we had a new client that never made it in to her initial estate planning appointment last week. She passed away two days before her appointment.
Recently, one of our office assistants had a bicycle accident. She said that it was frightening when she was fine one instant, and then in a fraction of a second, she was laid out onto the roadway injured. Although EMS took her to the hospital for treatment, thankfully, her injuries were not life threatening. But it did make her think about how it could have ended much differently, especially if she would have hurt her head or had other more serious injuries. She said that she was comforted knowing that her estate plan was in place so that no matter what happened to her, that her instructions could be followed. The accident also triggered some thoughts about how she wanted to update her estate plan.
Would you agree that you have more options now while you are alive and well, than after you’re dead? Would you also agree that you have more options now when you are alive and well, than after you are mentally disabled? What you may not realize is that you can have lots of options that take effect upon your mental disability and/or upon your death. However, you have to put those options in your plan while you are still alive and well.
For example, would you like the persons you choose to take care of you and your finances in the event you became mentally incapacitated, without probate court involvement? If so, then at a minimum, you should have financial and health care powers of attorney in place. If you are mentally disabled and have no durable financial power of attorney in place, a conservator may need to be appointed by the probate court to make financial decisions on your behalf and to take control of your property, and be supervised by the probate court for the rest of your life. If you are mentally disabled and have no durable power of attorney for health care in place, a guardian may need to be appointed by the probate court to make medical and mental health care decisions for you, and be supervised by the probate court for the rest of your life.
But what about after your death? Do you have a will? Your will generally governs property owned in your sole name at the time of your death and has no transfer or payable on death beneficiary designation. If you have property that is owned jointly with others, or has a transfer or payable on death beneficiary designation, that property bypasses all of the instructions in your will. But for a will to work, it must go through the probate court process.
You may want to consider a trust. A trust is a document that is good both during your lifetime and after your death. A trust is generally not supervised by the probate court unless a party specifically requests the supervision. There are many protections and benefits with trusts that are not available with a will. You can put in lots of options in trusts to take effect during your disability and after your death. Most of our trust clients provide lifetime trusts for spouses and other beneficiaries, which offer a multitude of protections and benefits. Although the trust assets are available for the beneficiaries’ needs, no one else can touch them. With trusts, you can provide privacy, probate avoidance, creditor protection, governmental benefit preservation, education funding, protections for the family real estate, business and pets, and protections for beneficiaries who are minors, young adults, mentally disabled, lazy, financially challenged, addicted, divorcing or re-marrying.
To make your trust work and to have the results that you intend, you must fully fund it. Trust funding is completely and correctly designating your trust and individuals as owners, beneficiaries and insured parties of your assets. Basically, it’s putting your stuff in your trust. The proper funding of your trust is critical in making your estate plan work and having the results you plan. Failure to properly fund your trusts may cause unintended results. These may include probate during your lifetime or after death; distributions not in accordance with your goals and objectives; additional taxes; and additional administrative, legal and other expenses. What is the point of having a trust if you do not put anything in it.
Are all your bank and investment accounts, stocks, bonds, mutual funds and real estate titled in the name of your trust? Do you have your trust named as beneficiary of all of your life insurance policies and retirement assets? Do you have contingent beneficiaries on all of your beneficiary designations, and do they coordinate with your will or trust? If you have real estate and/or vehicles titled in your trust’s name, do the insurance policies name your trust as an additional insured?
You may also want to consider simplifying your financial life. Consolidating your stocks, bonds, mutual funds and investment accounts with one trusted adviser may not only be easier for you, it will be easier for your successors in the event of your mental disability or death.
By taking the time now to do a little planning while you are alive and well, you can stay in control while you are alive and well, provide for you and your loved ones in the event of your mental disability and when you are gone, give what you have, to whom you want when you want the way you want, all at the lowest overall cost to you and those you love.
By Matthew M. Wallace, CPA, JD
Published edited June 24, 2018 in The Times Herald newspaper Port Huron, Michigan as: Don’t wait until it’s too late to arrange your financial future