Create and Put Your Estate Plan in Place STAT: Here’s How
If you’re looking for a barrel of laughs, you should probably read something else; if you’re looking for practical advice on how to ensure your “affairs” are “in order” before you “croak,” you’re in the right place! And if you’re looking for an opening line using unnecessary quotation marks for silly dramatic effect, you just passed it. Welcome to Part 2 on estate planning!
If you missed my last post (Part 1 on estate planning, of course), you may want to start there. In last week’s post, I reviewed who needs an estate plan, probate, estate/inheritance taxes, and components of an estate plan.
In this post I discuss the role of an executor (not to be confused with “executioner,” which is what some may refer to as “gallows humor”), when you should develop an estate plan, how much it should cost, and what you can do to limit that cost by preparing yourself before meeting with an estate attorney.
I cannot encourage you enough to take care of this now, and to not put off the task of establishing an estate plan. In light of the COVID-19 pandemic, this post is one that is unfortunately quite relevant and timely, particularly for radiologists and all others working in the medical field.
Below is a practical (and current) guide to navigating the various considerations, steps, and legalities in making an estate plan and putting it in place (both expeditiously and thoroughly), along with some personal advice. Ensuring your loved ones will be taken care of and that your wishes are known can offer a peace of mind that only comes with properly planning ahead. Here’s what you should know:
What is an executor?
Whereas a power of attorney names a person to handle matters for you while you are alive, an executor is the person you name in your will to take care of your affairs and handle your estate after you die. Generally speaking, your power of attorney ceases to be effective at the moment of your death. Of course, you can name your power of attorney to also be your executor.
The executor may be your spouse, a trusted friend, an adult child, or another trusted relative. You can also name joint executors, such as your spouse or partner and your attorney. The probate court usually supervises the executor to ensure that she carries out the wishes specified in the will.
One of the most important things your will can do is make sure the wording of your will empowers your executor to pay your bills and take care of any related issues that aren’t specifically outlined in your will.
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Your state may determine who “your” property belongs to
Location, location, location! The passage of assets after death may be affected by the state in which you live, and is therefore important in structuring your will/trust.
If you’re married and live in a community property state, you and your spouse are considered to equally own all marital property. Together, you are basically considered one economic unit. In common law property states, each spouse is a separate entity. They can own property independent of any interest in the other spouse.
In the event of death, a surviving spouse living in a community property law state is considered to own any property owned jointly or by the deceased spouse. Note: whether a state has a common law or community property system, the division of assets in a divorce may also be determined by a prenuptial/postnuptial agreement.
Common law property is a system that most states use to determine ownership of property acquired during marriage. In contrast to the community property system, the common law property system states that property that one member of a married couple acquires belongs solely to that person unless the property is specifically put in the names of both spouses. This becomes important in estate management following a divorce or death of a spouse.
As an example of how a common law property system works, if one partner purchases a boat, house, second home, valuable piece of art, car, etc., and puts only their name on the title, that item belongs exclusively to that person. However, if this partner lived in a state that recognized community property, the item would automatically become the property of both spouses. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
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When should I do it (make an estate plan, that is)?
The simple answer is “before you die.” Since you don’t know if that will be tomorrow or many years from now, every day you are alive and healthy without estate documents in place is a lucky day. If you have dependent children, you MUST have a will and possibly a trust. This is particularly important if you are a single parent because it only takes your death to leave a child parentless. The rest of estate planning isn’t as urgent. But my advice is not to put it off.
Note: this is another bit of “Collins advice learned from experience.” Although I didn’t suffer any hardship from putting off the estate planning process, I realize that I was lucky. If you’ve read many of my other posts you’ve come to learn that I’ve had a lot of luck when it comes to my financial life. I don’t recommend relying on luck for something as important as estate planning.
As I write this, I’m thinking about the many recent articles, Tweets and blog posts I’ve read about and by people who are rushing to get wills and other estate documents in place during the COVID-19 pandemic. A lot of these people are radiologists and other doctors. They’re seeing first hand how a young, healthy person can suffer an untimely death. Many people experience a similar sense of “urgency” to complete the estate planning process when they are diagnosed with a chronic or terminal illness.
Case in point – here’s a recent headline from the Wall Street Journal by an author who said, “this column was in the works weeks ago, before most people realized the world would be upended. Now the novel coronavirus pandemic has unfortunately made it a more urgent topic.”
Estate Planning Goes Digital as Many Families Explore Options:
Wills, life insurance and trusts don’t have to involve a trip to the lawyer!
The current practice of “social distancing” makes it hard to meet with estate lawyers. Although lawyers can generally work from home, and meetings can occur remotely with Skype, FaceTime, or other telecommunications applications that enable video chats between computers, tablets, and mobile devices, it is not as easy to coordinate a meeting of witnesses and notary public for the signing of documents. Aside from a major pandemic there are all manner of other possible catastrophic events that could occur that might make you wish you hadn’t put off estate planning. The future is uncertain. Having estate documents in place means you have one less thing to worry about should you experience one of these events.
Once you have an estate plan, you will need to revisit it when major changes occur in your life (e.g., death of an heir, death or incapacitation of a named power of attorney or executor, marriage, divorce, death of a spouse, significant purchase, or inheritance). Your kids probably won’t need guardians named in a will after they’re adults, but you might still need to name guardians for disabled dependents.
You should also consider preparing a new estate plan if you move to another state. Although most states will uphold the directions of a legally prepared estate document from another state, you are taking some risk to rely on this. This can be particularly important if you move from a common property law state to a community property law state.
How much does it cost?
There is no legal requirement that an attorney assist with setting up a will or other estate documents. Many places sell the needed forms, such as LegalZoom and other online vendors, the use of which can be a very inexpensive way of preparing estate documents (often less than $100). One big danger with “DIY” estate planning is neglecting to include all the necessary documents in addition to a will, as discussed in Part 1. Also, if you go the DIY route, make sure you follow the necessary witness and notary requirements.
The DIY option will be too generic for many practicing radiologists, who will opt to hire a professional. Depending on the complexity of your situation, the cost for employing an estate attorney can be as little as $300 or as high as $3,000 or more.
Hiring an estate attorney will be the best option for radiologists with a lot of assets (especially real estate or other business interests), many beneficiaries (especially if complicated by prior marriage/s), and a lot of dependents (especially if one or more has special needs). While the decisions of what happens to your estate after you die are yours, an attorney can guide you through the process and help you word your will properly so there are no mistakes.
A lawyer may charge a flat fee to prepare a specific set of documents, but most will charge by the hour, and the rates range from $100 per hour to $400 per hour or more. Even when there is a flat rate, there is usually a stipulation that should the number of hours exceed a certain threshold, there would be an hourly charge for the overages. And if you decide to make any changes that require another trip to the lawyer (including phone consultation), expect to pay for that too.
Before I embarked on estate planning for the first time, I asked several people I worked with in Ohio if they could recommend a good attorney. I was surprised when many of them couldn’t because they hadn’t prepared estate documents. I wound up taking the advice of one of the senior university lawyers, which led me to someone at a large law firm downtown that was experienced in estate planning. She did a fine job and charged me $2,992. The documents for my husband and I included wills, health care powers of attorney, OH living will directives, donor registry enrollment forms, declarations of disposition of bodily remains, authorization to disclose protected health information, and durable powers of attorney.
Several years later, my husband and I were again looking for a reputable estate attorney in Wisconsin. Many states will abide by the language in a properly administered estate plan from another state, but it’s generally recommended that you have a plan that was prepared in the state in which you live.
The second time around I talked with five recommended estate attorneys and met with two. The range of costs for a complete set of estate planning documents for my husband and I was quoted as between $3,000 and $20,000! The person I chose was a senior partner in a downtown law firm who had done estate planning for over 20 years. He charged $2,971 for preparing all the same documents my husband and I had before, but in addition, we also got a joint revocable trust.
Although I think I got good service at a fair price, I could have saved some bucks if my husband and I had been better prepared before we went to the attorney’s office, which would have shaved an hour or so off of attorney time.
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What should you know before you meet with the attorney?
It takes mental effort and time to create estate documents. The more complicated your life is (e.g., multiple dependents and other heirs), the more time it takes. This is a major reason why a lot of people don’t get it done. But after you’ve been through the process once, each successive revision is easier.
You can plan ahead, gathering information and making a lot of decisions prior to meeting with an attorney, saving her time and you money. In most cases, the less time the attorney is on the clock, the less you get charged. Why pay an attorney while you’re deciding who should be guardians for your children, or who should be your power of attorney? The following are decisions you can make and information you can put on paper to take with you to the meeting with the attorney:
- Make a list of all your assets (IRAs, 401(k)s, 403(b)s, 457s, HSAs, taxable brokerage accounts, checking accounts, savings accounts, CDs, insurance policies, homes/other real estate, valuable personal property (such as jewelry, artwork, automobiles, etc.) and named beneficiaries.
- Decide to whom you wish to distribute your estate (after paying funeral and last illness expenses, any taxes owed, and distribution of tangible personal property as directed by separate letter). This may include relatives and other people as well as charities (e.g., National Public Radio, Bicycle Federation of Wisconsin, your favorite public library, radiology organizations, alma maters). Decide how much you wish to leave to each entity.
- Decide who you want to act as executor to represent your estate after death. This is often a spouse, but you need at least one and preferably two back-ups (which could be a relative, lawyer, or bank). If you don’t have a back-up, the court will make decisions on your estate’s behalf.
- Decide who you wish to be your power of attorney for health care and two back-ups. You should discuss your wishes with your chosen health care power of attorney so that she will be able to carry out her duties according to your wishes and with your best interest in mind.
- Decide who you wish to be your durable power of attorney for financial matters (this may not be the same person as your power of attorney for health care – many people do not have the skill sets needed to do both) and preferably two back-ups. It’s very important that you choose someone who shares your financial philosophy and will act in your best interest as they will have access to your accounts and can make decisions that will effect your life after you recover from a temporary period of incapacitation.
- Decide what kind of treatment you want should you become legally incompetent to give directions regarding the use of life-sustaining medical procedures or feeding tubes. These instructions will apply if you have an incurable injury or illness that is terminal or has left you in a persistent vegetative state. They will also apply if you have an end-stage condition caused by injury, disease or illness that has resulted in severe and permanent deterioration making you incapacitated or completely physically dependent and unlikely to return to a state of mental capacity and relatively independent physical capacity.
- Develop a list of items of personal property, their locations, and who you wish to gift the items to. This “separate writing” allows you to make gifts of your tangible personal property without amending your will as long as your will authorizes the use of a separate writing. Note: real property, property used in a trade or business, money, and intangible property such as stocks and bonds cannot be disposed of by a separate writing.
- Decide what you want done with your remains after death (e.g., cremation or burial), and arrangements you want for a viewing, funeral ceremony, memorial service, graveside service/other last rite, and donation of your body. If you have a family plot or other chosen location you should document the address. You should also identify a representative to carry out these wishes.
- Talk to the people listed above and get their agreement to perform the functions described prior to naming them in estate documents.
If all of that seems like a tedious amount of work, know that it doesn’t become less tedious while you’re sitting in a lawyer’s office, talking to the lawyer on the phone, or emailing the lawyer, while the clock is ticking.
To-do list
Even after you’ve dealt with all the formal legalities and have an estate plan in place (yay you!), you might consider preparing a document of final information/instructions:
- A list of credit cards that need to be cancelled (and businesses that automatically charge each card each month)
- Details of bank accounts and businesses that auto-deduct from each account each month
- Where investments are held, and how they can be accessed (i.e., logons and passwords)
- Beneficiaries on retirement plans, who to contact to make a claim, and a suggestion to consult a tax advisor about minimizing taxes
- Information about pension survivor benefits
- Details of life insurance policies and contact information
- Location of estate documents (if in a safe deposit box, where to find the key)
- Details of any outstanding loans to family members (if this sum should be deducted from their share of the estate)
- List of subscriptions and memberships to cancel
This list is just an example of items. You will probably have additional instructions to leave behind.
Congratulations for getting through all of both parts 1 and 2 on estate planning. If you already have an estate plan, pat yourself on the back, but only after you’ve reviewed it to make sure it doesn’t require additions, deletions, or other changes. Once that’s done, you should definitely give yourself a thumbs-up. If you don’t have an estate plan, I urge you to get one in place sooner rather than later. It’s one of those things that tends to spend a lot of time on one’s “to-do” list. For some, that leads to an unfortunate situation where they find themselves in need of a plan without having one. It’s best to be prepared. You’ll feel so good after you get it done. You can do it!!!
