Believe it or not, most people are more reluctant to plan for incapacity than death. More individuals can accept death but not incapacity. They can accept the graveyard but not the nursing home. When I asked one elder male client why he knew he would never go to a nursing home he responded , "because of my .45 caliber pistol I keep in my chest of drawers". Okay, but what if you have a stroke and can't pull the trigger. Incapacity, physical and mental, must be addressed in your documents. Why wouldn't you want to determine where you lived and who would care for you post-stroke or other incapacitating event?
Many clients are confused regarding the use of Durable Powers of Attorney in their Estate Plan. In California we have two separate documents, the Healthcare Power of Attorney, known as the Advanced Healthcare Directive (AHCD). The Financial Power of Attorney is called the Uniform Durable Power of Attorney (UDPA).
Okay, you've got a child who doesn't understand marriage and is twice-divorced; a child who attracts lawsuits like teenage groupies to a rock star; or, a child who flirts with bankruptcy like a "hot" swimsuit model.
Okay, put down the remote and give me 5 minutes. We need to talk about Estate Planning with your home and possibly other real property. Would you like the Court to take away your home; would you prefer to die in a lonely nursing facility and not in your home; would you care that a judge, who you don't even know, decides who gets your home at your death; would you want your children to pay extra, and unnecessary, property taxes on your home as part of their inheritance?
This subject led me to write a book in the late 90s called Avoiding Tax Traps In Your IRA which was endorsed by Kiplinger's Retirement Reports. In my research for the book, I discovered a minefield of tax traps which caused individuals to lose substantial money to taxes and penalties.
Could I save you $112,000? I was sitting in a San Diego Probate Court several months after taking the California Bar and waiting for the results. I was astounded at the fact that a piece of property owned by the Decedent was being assessed statutory probate fees based on its fair market value (f.m.v.) of $1.3 Million. The reason being is that it had mortgages against it of a total of $850,000-- an equity of about $450,000. As I sat there I came to personally realize and exclaim to myself "California doesn't deduct debt in determining statutory probate fees!" No wonder these lawyers were anxious to probate an estate. This particular estate had been in probate about thirteen months. There were some estate tax issues to resolve so the attorneys were also asking for additional exemplary fees which were burdensome on the estate. The heirs sat in dismay as the Court granted request after request for attorney fees, CPA fees, appraisal fees, etc. This was only one of numerous probate accountings being heard by the Court that day. It goes on and on, almost every week of the year. Millions in probate fees being tallied annually. Unbelievable! But why? Why are the dockets filled with probate matters? Oh yeah, of course-- we are dealing with the real world here and the Estate Planning cancer called PROCRASTINATION.
Attention all procrastinators! We need to talk. There is something you have been putting off and don't quite understand. Over the next thirteen weeks, we are going to be talking about Estate Planning. That's right, the subject you've been postponing because it makes you face the reality of life, which includes aging, death and possibly, incapacity. Oh, sorry. It's not a good time? Okay, when will it be a good time? On the way to the hospital in the back of an ambulance? Hooked up to a machine? After that catastrophic stroke?
Would you like everyone you have ever mentioned in your Trust to receive a copy of that document? What about ex-friends, remote family members, or even ex-lovers. What about charities, house help, gardeners, etc? But wait a minute Jack, what if I removed them in a subsequent Amendment, you reply? Yeah, that's right, you did, and presumably they won't be an heir in your estate. However, that will not prevent them from taking a gander at your Trust and all of the Amendments at your death. How is that possible if you removed them from the Trust? It is not only possible but it is required by California law. Additionally, your children will have the opportunity to see how you changed the distribution to them over the years through Amendments. The source of this law is California P.C. Section 16061.7. It requires that when any portion of a Trust becomes irrevocable, all beneficiaries and heirs at law, mentioned in the original document and all Amendments, are entitled to a copy. Additionally, they are given 120 days to contest the Trust, if they wish.
Remember when you arranged that IRA with the financial institution and received a "bunch of papers"? Yeah, one of those "bunch of papers" was a Beneficiary Designation form- now remember? Okay, I'm going to ask you 3 questions which can have devastating results depending on your answers.
Once upon a time, as many bedtime stories began, long term care was not a huge, financial concern. People lived shorter lives, coronary heart disease was more prevalent which ended lives more quickly, Alzheimer's, as we know it, was unknown. As a young boy, I watched my grandfather die in his bed at home in Fordyce, Arkansas after a stroke. There was nothing to be done except wait for the certainty of death as he lay there in and out of consciousness. It was part of life - dying at home without medical care except for the country doctor who made rounds with his little black bag. No miracles in there other than his stethoscope, knee pounder, and some tongue depressors.