The ABCs of Estate Planning

Estate planning is a tricky part of the law. It’s not hard, but lawyers and other professionals have created a different set of terms to describe what they are doing. That make the whole estate planning process sound strange and mysterious. LegaLees has spent decades providing estate planning to clients and making it so anyone can create their own estate plan. Even more important, LegaLees shows you step by step how to understand and use your estate plan. The plan people pay $10,000 for at the lawyer’s office seldom does the family any good. Just having the papers means nothing. The critical part is, how do you use the paperwork while you’re alive?

Insurance agents and financial planners love to call themselves estate planners.  Many of them will offer you “free estate planning forms,” just to get you in the door. They will associate with a lawyer and get some sort of a perk for referring a client to the lawyer. That’s illegal, but it is done all the time. The lawyer who does that is just a “paper mill” who pushes out the paper and collects their fee. They never spend the time to teach you how to use your plan.  If you don’t use your plan, there is no long-term benefit.

Estate planning truly is “buyer beware.” Educate yourself about what you need before you jump into something you will later regret. For instance, a good estate plan requires more than one document. If you only get a will or maybe a trust you are not getting a complete plan. The professional (lawyer or other person) is setting you up for failure. It’s a great setup, because you’re dead and the lawyer will make a killing off your family, while blaming you for not “using” your estate plan properly.

There are basically three stages of your life that need to be considered in a complete estate plan. I like to call them the ABCs of estate planning. Stage A is the first stage of estate planning. Your Stage A estate plan must be designed to help you acquire, grow, and protect your assets while you are alive.  At the second stage, Stage B, your estate must be designed to enable someone to easily manage your assets and health care if and when you become incompetent.  Finally, at the third and final stage, Stage C, your estate must be designed to seamlessly manage property at your death.  Many times unqualified estate planners only manage to make certain Stage C is taken care of, and their plan seldom works for your family, because they don’t understand it and know how to use it.

Most people fail in all three areas of the ABCs.  There is no question that all stages of your life are important.

Most people are just concerned about acquiring the assets, so it is pretty easy to convince them that they should include Stage A in their estate plan.  They don’t worry about the other two parts.  If you don’t include the other two stages, you will lose your wealth for your family.  Think about it. Wouldn’t you rather leave the assets you worked so hard for to your family rather than the hospitals, lawyers, IRS, and other sharks?

LegaLees has helped over a million people with the ABCs of estate planning.  We can help you, but you’ve got to act.  Do it now, not when life meets death.  Read below the introduction section of Chapter 3, “When Life Meets Death,” from Lee’s book, Protecting Your Financial Future:

Chapter 3

When Life Meets Death

Be Prepared

Legal planning for life is just as important as legal planning for death. Planning isn’t something just paranoid or morbid people do. Your plans for living have to interface with the plans you have for your estate at death. At some point, life meets death.

            Jim flew a little airplane. He had a very nice Cessna and loved to fly to Southern California to enjoy the beach life. One trip proved fatal. The plane crashed, and though Jim was badly burned, he was still alive. He had done very well financially, but when the plane hit the ground, it became painfully obvious that he had failed to fulfill a moral obligation he had to his family. He was a great trial lawyer, but he had never learned to use four powerful legal tools: (1) the living revocable trust, (2) the will, (3) the durable power of attorney, and (4) the living will.

            After the plane crash, Jim’s wife and children were in the hospital by his side as much as possible. However, their attentions were not totally focused on his medical care and emotional support. Their attentions were drawn away by the army of lawyers that continually marched in and out of the hospital room.

            These lawyers, Jim’s friends, directed the family activities. The family wasn’t in charge of the activities. Each family member was repeatedly dispatched from the hospital to locate files, deeds, investment papers, insurance policies, journals and other papers needed to put together the developing estate plan for Jim.  Thousands and thousands of dollars in legal fees were expended in a single day. An emergency court order was sought to allow his wife to try to move assets to a living revocable trust. The secretaries at the law firm worked at a fever pitch to produce the paperwork for the court orders and living revocable trust.

            The family was not able to control Jim’s medical care either. Doctors directed his treatment, and they gave the lawyers and the family orders. At one point, Jim’s wife objected to the medical treatment. A conference was held with some of the doctors, the lawyers, and his wife. Part of the discussion centered on the family’s right to direct the doctors and to access medical records. The hospital asked for a durable power of attorney for health care. They wanted a HIPAA (Health Insurance Portability and Accountability Act) Agreement for the release of information. No such papers existed. Jim had never even put the basic foundation in place. Basically, because no written orders existed, the family gave up their efforts to direct the doctors, and the hospital went ahead with their plans.

            The pain Jim was suffering must have been incredible. He really wasn’t “with it” most of the time. He would call for his family often. Sometimes they were there; sometimes they weren’t there because unfinished business had taken precedence.

            Draw yourself back from the scene in his hospital room, and view the scene from a distance. Who is supposed to be in the hospital room the last few hours? What is supposed to happen as life meets death? As Jim slipped into a coma and life left, there was no calm, tender good-bye from his family.

ABCs of Estate Planning should include Four Documents

The best estate plan should include four basic estate documents.   All four of these documents should be designed to help with Stage A of your life.  Two of those estate planning documents are for use in Stage B while you are alive; the other two estate documents are used in Stage C, after you die.  This article will concentrate on which four estate planning documents are needed for your estate plan.

Estate Document One – Make A Will

An estate plan usually begins when you make a will.   There are many different types of wills.   A testamentary will is one that you’ve have probably heard of most.  It is the standard will most people think of when they hear the word will.  A testamentary will is the will that passes your property when you die.  It names your guardians and states your desires. The “standard will” or “testamentary will” is the will your grandparents had.  It disposed of their estate. It is the will the lawyers promote, because when you pass property to your heirs through a will, it will go through the probate. That’s a guaranteed income for the lawyers.

Probate is the process where your family goes to court so the judge can read your will and determine what it says. The probate process can be very expensive, about 10% of the estate in many cases. While it is true that states have tried to streamline the probate process, unfortunately, many  lawyers still use the probate process  to “take financial advantage” of the heirs.  I am sure you would be stunned to learn that many make a lot of money off probate.   Remember, the testamentary will takes effect when you die, but you must draw it (or make it) while you are living.

Another will you should be aware of is the pour-over will. A pour-over will is designed to work with a trust.  It is not the same as the standard testamentary will.  It doesn’t distribute your property to your heirs.  It simply “pours” all your property over into the living revocable trust to be distributed according to the terms of the trust.

The will forms your estate planning foundation.  Even if you have a living trust on your estate planning checklist, you will need a will. The will you get with a living revocable trust will be called a “pour-over will.”  (PS, you should have a living trust on your estate planning checklist, so you’ll need a pour-over will too.)

Estate Document Two – Set Up a Revocable Living Trust

Almost every estate plan should include a revocable living trust.  The trust will manage your property while you are alive and then distribute your property after your death.  The major advantage of the living revocable trust is that it avoids probate, provided it is used “correctly.”

To use your revocable living trust correctly, you must get used to the idea that you are no longer an individual or a couple.  You are operating as a trust.  This may seem a bit dramatic, but too many people never come to understand this concept.  You’re wasting your money on a trust if you fail to understand this.

It takes some additional education to operate a living revocable trust correctly.  Your attorney might teach you, but you might have to ask him, and it might be expensive. Remember, no matter how good the document is and how much you paid the attorney, if your trust is not funded correctly and continuously “used” it will go through probate.

Lee’s father-in-law paid big money for a living trust many years ago, over $12,500 in today’s dollars.  Several years after it was written, Lee took a look at his trust and had to tell him his trust wouldn’t help him. There was still more work to do. Since that time, we have seen many other trusts that would fail to protect anyone from probate.  One of the reasons that Lee wrote his book Protecting Your Financial Future was to help educate the public on how to use their trusts.

Only about 10% of the people who get a living revocable trust ever figure out how to use their trust.  So why doesn’t your attorney teach you how to use your living revocable trust when he is doing your estate plan?  It simple, they get the big bucks for writing the trust, and when you die, they get the probate, because the trust fails.  They profit twice.

Estate Document Three – Durable Power of Attorney

No estate plan should be without a durable power of attorney.  This is a document that you need while you are still living, but incapacitated.  The durable power of attorney allows a family member to stand in and take over all your financial affairs when you can’t handle them for yourself.  When you go down, the first thing a hospital, rest home, or long term care facility will ask for is your durable power of attorney.  It is the critical document to be used between the time you “go down” and later die.

You have a better chance of needing a durable power of attorney tomorrow than you do needing a will – a better chance by almost a factor of ten.  Yet many estate plans “overlook” this document.   Once you put a durable power of attorney in place, your family can take over your affairs without having to go to court and get a court order declaring you incompetent.  That’s a big deal when your family is helping you deal with major health issues!

Estate Document Four – Living Will

Your estate plan documents also need to include a third type of will.  Not a testamentary will, nor a pour over will, but a living will.  A living will is your directive to the medical profession, so doctors know what to do with you when you are critically ill – plug you in or unplug you.

Living wills are easy to get.  Your favorite hospital will give you one for free!  Just get it and use it.

These are the four basic elements that every estate planning checklist should include.  There are usually more elements than this that need to be addressed, and lots more paperwork, but if you start with these, you will be ahead of the pack.

Don’t let the thought of making an estate plan weigh on your mind.  Consciously or subconsciously, you worry about it.  Lawyers don’t make a lot of guarantees, but Lee will make you an unconditional guarantee. If you follow the advice given in his book Protecting Your Financial Future, (and also listen to the information in my Free DVD, How to Use the Law to Make Money and Protect Your Assets), and if you do the estate planning for death that he will walk you through, he will guarantee it will be worth every effort you make and every dime you spend. This will give you great peace of mind. Sure, the money is important and leaving your children with a better life is what you want, but just to relieve the subconscious worry will be worth everything you do.