Have you ever come across a deal that you really wanted to jump on, and for whatever reason, didn’t or felt like you couldn’t at the time? And later, you looked back, and realized that you should have made the leap?
Bill Gates, at age 23, offered a majority share for his fledgling tech company, Microsoft, to Ross Perot, the President of Electronic Data Systems, for between $50 to $60 million. Perot turned him down, thinking the price was too high. Years later he told The Seattle Times, “I consider it one of the biggest business mistakes I’ve ever made.”
Estate planning has a window of opportunity, and after it closes, certain costs come into play.
Cost of Incapacity
One of my clients came to me after their spouse slipped in the shower and hit his head, severely injuring himself. He was unable to anything, and unfortunately, they hadn’t done any prior planning, so he had no Durable Power of Attorney or Advance Health Care Directive in place.
Because of his new situation, major financial decisions needed to be made that required his signature, meaning that my client had to seek a conservatorship.
Another example is a young man who was in a severe auto accident. He was over age 26, so he was off of his parent’s insurance, and happened to be in between jobs, so didn’t have his own coverage either. His concerned father wanted to provide coverage, but needed the legal authority act on his son’s behalf.
A conservatorship is the court process to determine whether a person has the capacity to manage their legal, financial or health care decisions. There are different levels of conservatorships, and the process is designed to protect the person who is going to be under the conservatorship. As you can imagine, that process takes time.
It isn’t unusual for a conservatorship case to cost $3,000 or more.
Cost of Probate
Probate fees in California are based on the gross value of your estate, calculated as follows:
- 4% of the first $100,000 of the gross value of the probate estate.
- 3% of the next $100,000.
- 2% of the next $800,000.
- 1% of the next $9 million.
- .5% of the next $15 million.
That fee is effectively doubled because the executor gets the same amount. There are other fees of course that go along with the attorney fee calculation, court costs, appraiser costs, etc.
Probate is a very lucrative business.
Cost of Litigation
A lack of a plan or a poor plan can lead to the heirs fighting in court. Long hidden tensions can spring to the surface and essentially lead to the heirs spending the next decade or more in and out of court, with the final beneficiaries being the attorneys representing the litigants.
Cost of Guardianship
Let’s say your estate mainly consists of life insurance for your young family. If something were to happen to you and your spouse, who manages the money? You could give it outright to someone you trust. You could set up a UTMA account with a custodian for your child. You could set up a trust and empower the person you trust to manage the money for your child(ren). But if you instead named your minor children directly, the state will take over managing the money for your children (and incidentally helping themselves to the interest). The alternative is to petition for a guardianship, where the court will now supervise the guardians' use of the funds until your child turns age 18 when as a legal adult they are now able to manage the money themselves.
The typical cost to have an attorney set up a guardianship is $2,500 to $3,000. And then there are the annual filings with the court, and the occasional petition to the court for permission to use the money in a particular way.
The Cost of Taxes
For high-net worth individuals, estate taxes are a significant expense, coming in at 40% of the estate or more. Even if your estate isn’t over the $5 million-dollar mark, consider the impact of capital gains, managing basis, and other tax implications of the way you hold your asset, and the way your beneficiary receives their inheritance.
When you create an estate plan with your voice, you can create your vision for the future. You can create a plan that provides asset protection for your children or beneficiaries from creditors, divorcing spouses, and lawsuits. You can provide asset protection for your spouse, and decide what happens if your spouse remarries. You can provide for disabled or young beneficiaries. You can decide what conditions your children have to meet before taking over managing their inheritance. You can do all of these things, and more when you take the plunge and create your estate plan.