Why Everyone (Yes, Even You) Should Consider Estate Planning

Benjamin Franklin famously stated, “in this world nothing can be said to be certain, except death and taxes.” While taxes may be unavoidable, proper estate planning can at least help prepare for the inevitability of death and illness. While the prospect of considering these subjects may be uncomfortable, an hour or two spent making decisions today can avoid confusion and conflict in the event that tragedy befalls you and your loved ones.

Estate planning allows us to state specifically whom we want to make decisions for us in the event of incapacity or death and how we want our assets to be used, rather than our loved ones having to guess at what we would have wanted. There is a misconception that estate planning is only for the wealthy who want to control their fortunes from beyond the grave. While one part of estate planning is the documents expressing your post-mortem wishes, those documents are only a portion of the whole process. Estate planning creates your blueprint for taking care of yourself and the ones you love in those hardest of times. By taking the time to work with an attorney to draft your estate plan, you ensure that should the unthinkable happen, your loved ones will be able to look out for your interests, respect your wishes, and in the worst of situations inherit your property with as little trouble as possible.

Two important documents in the estate plan are the Durable Power of Attorney and the Patient Advocate Designation. These two documents allow an individual to appoint others to make decisions for them in the event of sickness or incapacity. This ability is important because it allows a trusted family member or friend to make immediate financial, legal, and medical decisions if you become incapacitated, rather than having to go through a court process.

The Durable Power of Attorney names a person who, upon your incapacity, has the authority to deal with your financial well-being. This means that if you are incapacitated there is a person who can arrange for payment of bills, file insurance claims and lawsuits, and handle other business matters on your behalf.

The Patient Advocate Designation is similar except that it appoints a person to make medical decisions on your behalf. This authority is important because once a person reaches the age of eighteen doctors can, but are not required to, listen to the wishes of a parent or spouse in making medical decisions when a patient is unable to make decisions for themselves. A Patient Advocate Designation ensures that your spouse, parent, partner, or trusted friend has the legal authority to enforce your desires when it comes to medical treatment.

While the Patient Advocate Designation allows your surrogate to enforce your wishes for the medical treatment, a document called the Living Will provides guidance as to those wishes.  Through a Living Will, a person defines the scope of care they wish doctors to employ to sustain their life.

The Will and Trust are documents that serve to enforce your asset distribution wishes after your death. Used together, a Will and Trust create an agreement, which can last many years, that names people to make important decisions and distribute the person’s assets over time and frequently in a more financially beneficial manner. The differences between a Will and  a Trust, as well as how they work together, will be discussed in greater detail in future blogs.

Before you decide that you do not have enough assets to worry about a Will and/or Trust, consider a few important factors.

• If you do not have a Will, State law imposes a default Will on your assets. Who would you rather control the disposition of your estate, you or the State Legislature? 
• Do you own a house? Even a mortgaged home is an asset to pass on to someone or to sell to add to the total value of the estate. 
• Do you have a life insurance benefit or retirement accounts with your employer? While your savings may be limited, any life insurance benefit creates a sudden influx of assets to an estate and you will want to decide how to disburse these funds. 
• Do you have children? This by far is the strongest motivation for having a Will and Trust. Those documents allow you to appoint Guardians you are comfortable with to raise you children and ensure that any assets you can pass along to your children are used to their greatest advantage.

As you can see, there is much more to estate planning than determining who gets your money when you die. Take the time to consider what is best for you and your loved ones, and then make an appointment to speak with an estate-planning attorney. That attorney should take the time to answer all of your questions and explain in more detail the documents discussed in this article. Take their advice to heart, because that attorney is a person you will build a life-long relationship with and when unfortunate circumstances arise, will be there to assist and guide you and your loved ones through those difficult times. 

What Is The Worst That Can Happen?

           People who tell me that they have considered estate planning but never followed through and completed the process always surprise me. The reasons for putting off the planning process are many and varied. Usually the conversation includes a statement such as, "People keep telling me I need to take care of estate planning,  but I keep putting it off. What's the worst that could happen?"

           Now, I understand that people find estate planning a difficult subject to consider. The concept does not always lend itself to a simple explanation. Perhaps it is because people feel uncomfortable contemplating their own mortality, or they perceive the cost of visiting an attorney is too high. However, no matter what their reason they always seem to find comfort in the belief that the worst-case scenario is not actually so bad. What then are the consequences of failing to have an estate plan?

           First, the good news, it is impossible to die without an estate plan. When a person dies without leaving a Will, Michigan's intestacy statute imposes a distribution plan on that person's assets, no matter what that person would have preferred. However, before Michigan law can dictate who inherits the deceased individual's assets, the estate must pass through the Probate Court. It is in the Probate Court where the consequences of failing to have an estate plan begin to appear.

           When a person dies, whether they have a Will or not, their estate must pass through the Probate process. The Probate Court supervises the legal transfer of a deceased person’s property to that person's eventual heirs. Without a Will, someone must petition the Probate Court for appointment as Personal Representative (the person who will administer the probate process of distributing assets). The Court must hold a hearing to determine whom it will appoint as the Personal Representative. Before this hearing can occur, the court gives notice to all interested parties, including the surviving spouse, all potential heirs, and creditors. At the hearing, anyone who wants the position of Personal Representative petitions the Court, then a Probate Judge will appoint the Personal Representative.

           The Personal Representative’s position is more complicated than simply distributing the estate's assets. The Personal Representative must first complete a series statutorily required tasks. These include providing notice of the death to all known creditors and attempting to provide notice any unknown creditors by placing an announcement in the local legal news. The Personal Representative also must complete a full accounting of the estate's assets to file with the Court. Once the Personal Representative has completed all of these tasks, the statutory waiting period has lapsed, and the Probate Court gives its approval, then the Personal Representative may begin to distribute the estate assets to the heirs pursuant to the guidelines established by the Michigan statute.

           For distribution, the Personal Representative must refer to the state intestacy statutes to determine who receives assets this is where family members are often most surprised. Under the Michigan intestacy statute, the surviving spouse will only receive a portion of the assets if the deceased is survived by a parent or child, with the remainder being split amongst the deceased's other heirs. As you can see, the failure to plan results in the surviving spouse receiving only part of the estate, which is often substantially less than expected. In addition, if a share of the estate goes to a minor child the Probate Court is required set up a conservatorship until the child turns 18 to perform yearly accountings of those assets to guard against misuse. In addition, at age 18, the child is entitled to their full share and has total control to what could be large sums of money.

           In a best-case scenario, where all of the heirs are adults, creditors are known, and there are no substantial conflicts among heirs, probate may be completed within 6 to 8 months. If there are any issues with the estate, the probate process can be ongoing for several years. During that time, each visit to the court will have both a financial and time cost for the estate. In a simple uncontested Probate Court costs are likely to add up to 3 to 5% of the estate's assets. The longer the probate process drags, on the greater the amount of assets consumed by court fees and expenses.

           With proper estate planning, the probate process becomes substantially easier and less expensive. When a person dies with a Will, the Court has clear instructions as to whom the deceased trusts to serve as the Personal Representative of the estate and to whom the estate's assets are to be distributed. Additionally, through the Will, the deceased can request an informal probate of the estate, which dramatically simplifies the process. If the deceased has established a Trust in addition to a Will, the probate process becomes even simpler, as a properly funded Trust allows the vast majority of a person's assets to pass to heirs without going through probate. Even if there are assets to go through probate, having a Will provides instructions, and limits the Court's involvement and reduces the cost of probate.

           This is only a brief synopsis of the problems created when a person dies without estate planning. If a person becomes incapacitated and cannot make decisions for himself or herself, the Probate Court. must decide who has the authority to make decisions for the incapacitated person. This is another unnecessary distraction when your loved ones are concerned about your well-being.

           The reality is that the "worst that could happen" will have very little effect on you if you fail to plan. The cost in time, money, as well as the stress and problems will all fall on the shoulders of your loved ones, who are already dealing with the tragedy of your loss. The estate planning process will cost you a relatively small amount of time and expense, compared to the cost and time expended by your loved ones with the probate process.

Matt Ferrara