Monday, November 13, 2017

What's the Worst that Can Happen 2.0

"I need to take care of estate planning, but I keep putting it off. 
What's the worst that could happen?"

Estate planning is a mystery for many people, and they do not know where to start to unravel the mystery.  They are not sure what information they need to begin the estate planning process or what questions to ask. People have a vague understanding of what a Will is, and they have heard the terms Living Trust, Patient Advocate Designation or Power of Attorney, but do not understand what those documents do. They get the impression that having an estate plan is a good thing, but never truly understand how that plan can protect them and their loved ones. When those people speak with us, or other attorneys, and begin to learn more about the estate planning process, they are frequently relieved to discover that the process is neither as costly nor as time-consuming as they initially believed. But as they learn the benefits of an estate plan they also become curious about the consequences of not having a plan. Over the next two blogs we will review the consequences of failing to have an estate plan.  We can then move on to discuss the benefits of estate planning and specific strategies for various situations.
First, the good news, it is impossible to die without an estate plan. An estate plan, at its core, is a set of directions regarding the distribution of a person's assets at their death. The Probate Court is the government body responsible for ensuring that a person's directions are carried out. The most common tool for articulating these directions to the Court is a Will. The Will tells the Court who the deceased wants to distribute assets to and who should be responsible for making those distributions (the "Personal Representative" or PR for short). 
When a person dies without a Will, the Probate Court defaults to Michigan's intestacy (legal speak for “dying without a Will”) laws which imposes a distribution plan on that person's assets. This default plan can be sufficient for some people, but in many cases the intestacy laws create unfavorable results because there is no flexibility to distribute other than to “family” members in relatively equal proportions. 
The Probate process, when using the intestacy laws, is lengthy, public and cumbersome because the Probate Court must act as a decision maker and supervisor throughout the whole process. The Probate Court has the responsibility for approving a Personal Representative and then supervising the PR as he or she navigates the process of locating all of the deceased's property, handling claims from creditors, determining who is entitled to distributions, and finally making distributions. Throughout this time there will be multiple hearings, filings, and Orders needed to finally resolve the process and allow the appointed PR to make distributions. 
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 8 to 16 months depending on the efficiency of the PR and the Probate Court. 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.
When a person dies with a Will, the Probate Court is still involved in the transfer of asset but unlike an intestacy situation, the Court has clear instructions from the contents of the Will as to whom the deceased wants to serve as the PR and to whom assets are to be distributed. Additionally, through the Will, the deceased can request an informal probate of the estate, which dramatically simplifies the process. The informal probate process limits the number of hearings and filings needed in the event of an uncontested estate. While the Probate Court is still involved in the administration of the estate, the involvement is limited to a more supervisory capacity thus limiting the costs in time and money for the PR and the estate. 
This is only a brief synopsis of the differences between dying with or without a Will, one that does not even begin to address the problems that can arise if everything does not move smoothly. Additionally we have not discussed yet some of the other documents that may make up an estate plan which can simplify the administration and distribution process to eliminate the involvement of the Probate Court completely. Further, today’s post only addresses events after a person dies, estate planning also includes preparing documents, such as Durable Powers of Attorney and Patient Advocate Designations that simplify decision-making in the event that a person becomes incapacitated and cannot make decisions for himself or herself, 
 With all this in mind, it is important to remember that the "worst that could happen" will have very little effect on a person who fails to plan because they will be gone. The cost in time, money, as well as the stress and problems, will all fall on the shoulders of their loved ones, who are already dealing with a loss. The worst that could happen to them is potentially devastating but with some relatively simple planning it is possible to greatly decrease the issues and problems loved ones will need to address. 
Matt and Al

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