So you’ve probably been told that estate planning is important and you should have a Will or a Trust. You’re just not sure why.
Well, in this article, I am going to share three reasons estate planning is so important. Mainly, the reasons have to do with expensive court procedures you can avoid with estate planning. These court proceedings can be very expensive for your family if you don’t plan properly.
Estate Planning is a Way to Help Protect and Provide For your Family
In today’s world, more and more people are working towards creating a legacy for their loved ones, rather than leaving it to chance, and this is where an estate plan comes into play.
A comprehensive estate plan allows you to ensure your family will be okay if you’re no longer around. However, many people avoid the estate planning process because they don’t understand how it works and feel overwhelmed. Unfortunately, procrastinating can lead to expensive court proceedings and problems for your family in the future
Did You Know You Already Have an Estate Plan?
You probably don’t realize this, but you already have an estate plan.
Your state calls the plan the Laws of Intestate Succession, and it’s a plan where your state has decided how your property will pass to your family and relatives.
If you don’t have an estate plan, your family may have to go through the probate process, where a judge will apply the current intestate law to determine who gets what. It will surprise you how expensive the process can be. Sometimes, it could cost a family five figures or more,
Estate planning is important because, with proper estate planning, you can eliminate or minimize the need for expensive court proceedings.
The court proceedings I am referring to are:
- Probate
- Conservatorships
- Guardianships
PROBATE
Probate is a court supervised process where a judge assigns a person known as the administrator, usually a family member, to manage the property of a person who died without their an estate plan. Sometimes, the Court assigns a financial professional as the administrator, which will make probate more expensive.
Sometimes, probate is required if a person left a Will, but to keep things simple, I am assuming there is no estate plan.
During probate, a judge will look at the Laws of Intestate Succession and decide who will inherit the property. The administrator will pay all the debts and expenses first and then the family gets what’s left.
Probate is a complicated process, and for most families, the process has many disadvantages.
Probate is Public
This means the case is available for review through the court’s database for the public to search.
Social security numbers and other confidential information is not shared, but that still leaves a lot of private information you wouldn’t want available to the public.
You Don’t Get to Choose Your Administrator
One of the first things a judge will do is name a representative to take charge of your property. Unfortunately, this person might not be who you would have chosen.
If there is a family dispute over who should manage the property, the judge may appoint a Private Fiduciary, a financial professional who manages property. The fees to pay for the private fiduciary will only add to the cost of probate.
Probate is Expensive
Probate costs include attorney fees, court fees, and third-party fees, such as real estate appraisers.
The estimated probate costs are approximately 3% to 5% of the value of all the property in the estate.
Probate Takes a Long Time
Probate cases in California have taken up to a year or more to complete. The process could be longer in more complicated cases.
Twelve months is a long time to have your property tied up in court, especially for a surviving spouse or child who has lost a family member’s financial support.
CONSERVATORSHIPS
In a conservatorship, a judge appoints a representative to help manage the personal and/or financial affairs of a person who has become incapacitated.
A conservatorship may also be required for a special needs child once they become an adult. In this post, I am only referring to conservatorships for adults who become incapacitated because of age, illness, or accident.
A conservatorship is a real possibility for many adults because people are living longer, and cases of dementia and Alzheimer’s are on the rise.
This means that more people will need the help of family members or friends to manage their affairs in their later years.
A conservatorship is expensive because the court supervises the process as long as the person remains incapacitated. This could be a lifetime.
This means the court will send out investigators regularly to check on the person. It could also mean multiple visits to the court.
Although court supervision protects the incapacitated adult, it’s usually the incapacitated adult’s money that pays for the expenses.
Proper estate planning can help avoid the need and expense of a conservatorship. Depending on your situation, you can create a trust and power of attorney to name the person who will handle your affairs should you ever become incapacitated.
In this way, you take control and name to help you make medical and financial decisions.
A judge will always check if the incapacitated person created an estate plan, and so a conservatorship is a last-resort solution.
By not planning, you are risking the time and expense of a conservatorship. In addition, money you likely will need to pay for healthcare or nursing care will pay for attorney and court fees.
You also risk that a court may appoint a person representative that you wouldn’t have chosen. By creating an estate plan, you decide, and you leave nothing to chance.
GUARDIANSHIPS
A guardianship is like a conservatorship, with the major difference being that a court appoints a person to take care of a minor child.
A guardianship is required when parents pass away, and a family member wants to take charge of a minor child. There are two types of guardianships:
● Guardianship of the person
● Guardian of the estate
Guardianship of the Person
In the first type, a guardian has the legal right and responsibility to care for the child and their personal affairs.
In a guardianship of the estate, the guardian has the legal right and responsibility to manage the child’s money.
An estate plan will help you avoid many things that can go wrong in guardianships:
Someone You Didn’t Choose May Raise Your Minor Children
A judge will appoint a guardian and decide who will raise your children. Multiple family members may apply to your children’s guardian, and a judge will choose the person who looks best on paper. But, unfortunately, that person might not be the person you would want raising your children.
Your Child’s Inheritance Pays for the Expensive Court Proceedings
Without proper planning, you might unknowingly leave money to your child that will bring them legal issues.
For example, suppose you name your child as the outright beneficiary of your retirement plan, pension, or life insurance policy. A guardian of the estate will need to be appointed to manage the child’s money until they are adults. A proper estate plan can help you avoid this.
Guardianship of the Estate
If a guardianship of the estate is required, your child will not have immediate access to the money because the process can take several months. It’s also expensive, and your child’s money will ultimately pay the legal expenses.
Your Child May Receive Their Inheritance Before they can Handle Money Responsibly
A guardianship only lasts until the child turns 18. If you leave a large inheritance, your child will receive it outright at 18, and few young adults are mature enough to handle money at 18.
A Good Estate Plan Can Minimize the Need for Expensive Legal Proceedings
If you’ve been thinking of creating an estate plan, you can learn more by downloading my estate planning eBook, where I break down all the benefits and make the process easy to understand. You can also request a copy of my estate planning checklist, where I share what to look for when hiring a good estate-planning attorney.