My Dad always told me a story about a farmer who was growing old and needed some help on his farm. He placed an ad in the local paper and was pleasantly surprised with a number of the applicant. Wanting to get a better feel, he called a few in to interview. Several of the applicants were impressive but one young man in particular stood out. However, the final question of the interview intrigued the farmer. He asked each applicant why he should be hired. This particular young man gave a very unusual answer. He simply replied, ” well sir, I can sleep when the wind blows.” The farmer despite his unusual answer decided to hire the young man and for several weeks he worked out very well. However, one night a storm blew in and the farmer was extremely angry to find that when he tried to wake the young man to help get the cattle and other animals in out of the storm, he simply rolled over and went back to sleep. The farmer tried a second time to wake the young man explaining that if the animals were left out they would not survive. But the young man continued to sleep. Fully intending to fire the young man the very next day, the farmer pulled his coat on tight and struggled out into the fierce storm to gather the livestock on his own. But to his surprise and amazement, he found the cattle in the barn with the manger full of hay and the barn door shut tight against the wind, the chickens in their coop, watered and fed, and all of the other animals safe, sound and well taken care of. Then he knew what the young man meant when he said, “I can sleep when the wind blows.”
How prepared are you and your family members to deal with the inevitable consequences of death and/or disability? Studies have indicated that one in every two people over the age of 65 will spend some time in a nursing home or long-term care type facility. I am no statistician, but if you and your spouse are both aged 65 or over, that looks like some pretty sure odds. So what can you do to prepare?
The first step to a logical plan is to take an inventory of what and who you have. Take some time to make a list (best in writing) of the assets that you hold and/or control and to also list at least an approximate value and any debt against the asset. I typically start with real property holdings such as a home, rental, commercial or recreational properties and don’t forget your timeshares or limited use properties. Also include any significant personal property such as cars, boats, paintings or other property which can be physically moved. Next I generally look at stocks, bonds, mutual funds and retirement or investment accounts such as IRA’s and 401(k)’s. Next account for any life insurance contracts or policies you may have, and any annuity type of contracts. Finally I look at bank accounts, cash and precious metals. This list, while not comprehensive, should give you a pretty good start on making a complete list of your assets.
Next I move to the important people in my life. Do you have children, friends or charitable institutions who you would like to benefit from any of the assets that you might have accumulated during your lifetime? This is often the most complicated part of the planning process. I have found that people simply do not want to think about being gone, and therefore, they don’t. However, whether you think about it or not, it will certainly happen sooner or later and it is best to be prepared.
A very common misconception that I run across frequently is the notion that if people put together a Last Will and Testament (a “Will”) that their assets will somehow automatically be distributed according to their desires upon their death. People do not realize that even with having a Will the law requires a court to enforce and to oversee the distribution of assets according to the terms of a Will. This process is called probate and is basically a lawsuit that you file against yourself to have the judge determine the validity of your Will and then to oversee the distribution of your assets. The real kicker is that you (your estate) get to pay for the whole process and if there are no assets left over after attorney’s fees and costs, then your heirs receive nothing. The worst part of a probate is the time that it takes to complete. Meanwhile all of the heirs simply wait.
This is the reason that the use of trusts for estate planning purposes has become so popular. It may cost more to set up a trust on the front end, but it certainly simplifies the process once you are either dead or incapacitated. A trust is basically a contract through which you instruct a trustee how and when to distribute your assets and to whom. The idea of a trust is to provide you with a way to pass along assets without court involvement. A trust also allows someone to manage your assets for your benefit when and if you become incapacitated.
The standard response that I get to suggestion of a trust is “we do not have enough money to justify a trust.” However, those who have relatively small estates are the very ones who benefit the most from the use of a trust. The use of a trust allows the individual to work with an attorney to create a plan including a trust while controlling those costs directly. Once you have passed on it is very difficult to negotiate fees for a probate because at that point you are pretty much stuck, or I should say, your heirs are pretty much stuck.
Like the saying goes, “failing to plan is planning to fail.” I strongly recommend that my clients take the time as soon as possible to get their planning done and have it reviewed at least every couple of years. Free consultations are generally available by any estate planning professional or attorney who works in this area of the law. I also find that some wait until it is too late. Once a person is incapacitated for any reason then many of the planning options otherwise available to us are gone. It is always better and easier to have the appropriate wills, trusts, or powers of attorney prepared and executed while there is no question of incapacity.
Barry E. Clarkson is the founding member of the law firm Clarkson & Associates, LLC, and has practiced in the areas of Estate Planning, Liability Protection and Real Property Law for 17 years.