Congratulations, You Already Have an Estate Plan! (But You Don’t Want It)
Estate plans are a critical component of any financial plan. They allow you to make decisions regarding how certain assets are distributed after you are on your way to the next life - God’s the judge on that one. If you don’t have an estate plan, the State of your residence (i.e., California, New York, Texas, Hawaii, Oklahoma, etc.) gets to make that decision for you in public, and after your estate has paid a lot of extra expenses. Hence my subject line: you already have a default estate plan, but you just don’t want it.
Now you may be thinking, that sounds like something I’d want to avoid. And you would be right, but you’d be surprised by the number of people that didn’t have an estate plan when they died. Here are just a few of the famous people you would know that sadly did just that: Pablo Picasso, Sonny Bono, Aretha Franklin, Prince (the artist formally known as), Tony Hsieh the founder of Zappos, and the actor Chadwick Boseman (he played Black Panther in the Marvel Studios film). Maybe you can’t entirely fault those that died suddenly, such as Sonny Bono and The Artist Formerly Known as Prince, but Aretha Franklin and Chadwick Boseman both had longer term illnesses and still didn’t have an estate plan.
You might be wondering, why does one even need an estate plan? Let me explain. When I open a retirement account for clients, we are required to name a beneficiary (someone that would inherit the account upon the owners passing). Bank accounts can also have beneficiaries assigned as well; however, certain assets such as houses, cars, jewelry, etc. do not have a way to assign a beneficiary. That is where an estate plan comes in. It not only allows you to name who gets to receive what, but also when and under certain conditions. Without one, the State of your residence will make that decision for you because that’s the default estate plan, which isn’t great, but at least it’s better than the State assuming ownership.
You might reason - but I’m already dead, who gives a rip, let my family sort things out when I’m gone. That’s a great strategy if you want your family’s last memory of you to be one of stress, expense, and struggle. Hopefully they’ll have only positive remembrances after you are gone. Recently I heard an Estate Planning Attorney describe the challenges of not having an estate plan here in California. She gave these three reasons:
1. It takes a long time without one - The courts are backlogged. It can take 9 months before you can schedule a hearing just to get an initial hearing.
2. It’s expensive - Without a trust, your family would need to pay a $465 filing fee to open proceedings. They are then required to run a notice in the newspaper in the city where the person lived. The most recent costs associated with that is $1200. It will cost another $465 to close proceedings with the court, and that would take an additional 9 months before a final hearing. All of this does not include the hourly fees charged by the lawyer to go through the whole process of probate, which could be thousands and thousands of dollars.
3. It’s public - Because it’s in the courts, all your information is public. With an estate plan it can be handled privately.
Finally, let me state for the record that I am not a lawyer, nor do I play one on TV. But, as a Certified Financial Planner I am keenly aware of the necessity of an estate plan. While a lawyer, or even paralegal, can draw up an estate plan, I wanted to provide reasons why you should have one. Hopefully I have been able to convey why estate plans are a critical component of any comprehensive financial plan. In future blogs I’ll be detailing the various aspects of an estate plan (wills, health care directives, trusts, etc.), why you want to review beneficiaries, and sad stories of when people didn’t have them.
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