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“I won’t care when I’m gone.”  I hear that frequently in my estate planning practice and its true.  But some things might be happening to the people you care about that you might not appreciate.  Here are five critical dangers you and your family face by not having a plan in place.

1. The Judge is In Charge if You Become Incapacitated

The rule is pretty simple, someone has to be in charge of making important financial and medical decisions – and if it isn’t you because you are incapacitated then it has to be someone else.  If you’ve set up a Power of Attorney and an Advance Health Care Directive the people you’ve selected can make those decisions on your behalf.  But if you haven’t taken the time to do so, then the court has to step in. 

The process of setting up someone to make your financial and medical decisions on your behalf is called “conservatorship.”  This is where you get sued by the person volunteering to take on the job of being the conservator to prove that you are incapacitated.  The paperwork and process of obtaining an appointment as a conservator is extensive, and often they’ll need an attorney to help them through the process.  Next, the court will appoint an attorney to represent you, and they’ll appoint an investigator.  All of these things cost money, and guess who is paying for them?  The other big problem is that usually there is a critical time element – decisions need to be made now, but the court system is not set up for speed.  Even “emergency” orders can take days or weeks.

2. You’re Sending Your Family to Court

California’s byzantine probate process is notoriously slow, costly, and public.  If you just have a will, or worse, nothing at all, you’re sending your family to probate court.  The first thing they’ll have to do is prepare a proper probate petition and pay the filing fees (in 2016, the filing fee is $435).  Once all the right paperwork is filed, the court will set a hearing to appoint the executor of your estate.  Assuming no one challenges who the executor is, in about two months your executor should be set to start on his or her job – filling out a detailed inventory of the entire estate, and preparing a detailed accounting of everything that happens.  They’re also notifying all the creditors, and doing a host of other things to meet all the requirements of the probate process.  This takes about four months if everyone stays on top of all the timelines closely.  It’s not unusual for probate cases to take a year or more. 

The cost of going to probate is based on the size of your estate.  California has a sliding scale that works out to roughly 12% of your estate in attorney and executor fees.  For example, an estate with $300,000 in assets will have attorney and executor fees in the amount of $18,000. 

Remember that inventory and accounting that your executor is working on?  All of that treasure trove of financial data, including the order finalizing the distribution of the estate to the beneficiaries, is a matter of public record.  Anyone can look at it.  You know why we can tell you all the details about Elvis Presley’s estate, and other stars’ estates?  It’s because anyone can go down to the courthouse and pull the paperwork. 

3. Probate Avoidance Alternatives Leave You More Exposed to Legal Risk

Recently I had a client who wanted to have her child start helping with the bills.  She was told by her mortgage company that she should add her son on title to the property so he could talk to the mortgage company.  This is horrible advice from someone I can only assume was not paying attention to their own company’s guidelines.  Adding her son to title wouldn’t make him a party to the mortgage, so it wouldn’t really help with the communication issue.  An inexpensive Power of Attorney took care of her problem immediately and didn’t expose her to any additional legal risk.

Adding a child to a bank account or putting them on title is tempting because it seems like an inexpensive and easy way to avoid creating an estate plan, but it has two major problems.  First, you’re exposing yourself to any financial problems your child has, effectively doubling your legal and financial risk.  Second, you’re giving your child a higher tax burden because by giving the property to them now, instead of letting them inherit the property, you are removing the step up in basis that your child would have received.  (See “Understanding Basis & Capital Gains Taxes”).

4. You’re Putting Your Child’s Future at Risk from Themselves

One of the problems we address in our estate plans is what to do when the beneficiary is too young to manage the assets on their own, or they’re disabled.  In both of these cases putting someone in charge of the assets means that the beneficiary – your child, or maybe a grandchild – can receive the benefits an inheritance can provide, without the risk that comes when you hand an eighteen-year-old a stack of cash and tell him or her to make her own way in the world.  For a disabled beneficiary, an inheritance can be more of a burden than a blessing, particularly if they are relying on assistance that depends on them being financially qualified for Medi-Cal.

5. You’re Putting Your Child’s Future at Risk from Others

The big secret in estate planning is that not all trusts are created equal.  Nowhere is this more obvious than when we talk about the long-term benefits a trust can provide for your children.  Traditional trusts distribute everything to the beneficiaries and terminate.  But more advanced planning can give your children long term asset protection by setting up their own separate “Personal Asset Trusts”. 

What is the difference?  Let’s say your child inherited $100,000 cash.  They have it sitting in a bank account while they decide what to do with it.  On their way home from work, they get in an accident and are now facing a major lawsuit.  Everything they own – including that $100,000 they just inherited is at risk of being wiped out in one fell swoop.

If we rewind and give your child her $100,000 cash in her own “Personal Asset Trust” the money is still sitting in the same bank account when the accident happens.  Now, the lawsuit will have an extremely difficult time getting to that $100,000 because it’s protected inside the trust. 

A carefully crafted estate plan can address these five hidden risks and more.