Declared the client as she and her husband sat across from me. They just needed a will and some powers of attorney.
What is an estate?
I then asked her and her husband what assets they owned. They owned their home, valued at $200,000 with no mortgage. They had an investment account with a brokerage firm. The wife had a 401(k) with the company that employed her. They had life insurance. In other words, they had an estate. If you own any property, you have an estate.
Did they need to plan their estate?
The purpose of an estate plan is to give what you have to whom you want when you want and not to leave any of your estate to the government or attorneys. Maybe a will and powers of attorney would not be enough.
What about their family?
The husband and wife had a son and a daughter. The daughter had some drug problems which were ongoing. The daughter also had a child, whom her parents (my clients) had adopted. So, they legally had three children, one of them being a minor.
What about the minor child?
I discussed this in an earlier article, What About Your Minor Children? My clients needed to appoint a guardian for their minor child in their wills, and they needed to set up a Trust for their minor child in their wills. We call this Trust in their wills a Contingent Trust. The reason we call it a “Contingent Trust” is that the Trust will only be set up if both husband and wife die before their child reaches a certain age stated in the will. In other words, there is a possibility that the Trust will not be set up. The Contingent Trust (instead of the minor child) will be the named beneficiary on life insurance, 401(k)s, etc.
What about setting up a Special Needs Trust for the daughter?
We decided to set up a special needs trust for the daughter with ongoing drug problems. Instead of the daughter receiving one third of her parents’ estate outright, upon their death, she would receive it in “trust.” The terms of the Trust are restrictive so that she cannot receive any distributions if such distributions would prevent her from qualifying for any government program she would otherwise qualify for.
Did they want to avoid probate?
I then explained probate to them. Probate is the court administration of an estate. The will is the court’s road map for who is named executor and how the assets are to be distributed. The disadvantages of probate are the cost (2% to 4% of gross assets) and the time it takes to complete (9 months to a year). For my clients, with the assets listed above, the cost of probate was estimated at $5,000.
The Estate Plan
For this husband and wife who did not think they needed an estate plan, their final plan included a Revocable Trust (to avoid probate) which upon both of their deaths, provided for one-third outright to their son, one-third to a special needs trust for their daughter and one-third to a trust for their minor child to be held until the minor child reaches the age stated in the trust. Quite a plan for someone who stated that they didn’t need an estate plan!