In our last article, Incapacity, John Walker shared his personal experience of his parents needing to procure legal documents. The truth is, no matter your background or experience, it can feel overwhelming and complicated to explore the next steps. So how can we shift from uncomfortable and instead feel educated and at peace? We thought to pen these articles about simple estate and probate planning. It is critical that we draw a line here and say that all families are unique. This article isn’t intended to replace a series of deep discussions required to forge these plans, or even to be exhaustive in nature.
Our goal is to educate you on the very basics and show that the process can be detail rich, but it doesn’t have to be complicated and/or expensive. We also suggest seeking an appropriate party to create the documents needed for your situation. Having the right person or people in your corner is imperative. If you don’t have those people, we can help you find them.
Many owners of wealth have a very sharp understanding of the nature of wealth and its requisite taxation. Dividends, interest income, capital gains, 1040, K1, and the various tax schedules are familiar in many cases. Alternately, the systems that govern passing and incapacity seem much more mysterious. We think that as human beings we naturally shy away from thinking about the end of our stories. Especially if that end may contain us being institutionalized or causing a war in the family amongst heirs. Another factor is that costly professionals may be needed who don’t always speak the same language as we do. So as usual in life, the sum of complexity, expense, and lack of perceived value leads to procrastination. We urge you to look to your favorite matron of the family, and you will likely hear a phrase that sounds similar to Benjamin Franklin’s quote, “An ounce of prevention is worth more than a pound of cure.” Handling these matters while you are lucid is usually far less expensive and intrusive than after a medical event occurs. The absolute value of not attending to your end of life and incapacity leads down three very ugly roads.
So, how do you avoid the above? The first step is deep thinking about what your warmest wishes and deepest motivations are.
These are incredibly personal questions and there are no universal truths. Once you have pondered the more philosophical topics, you will move on to the more mechanical processes of recording your final instructions.
As stated above, probate is the judicially overseen process of estate dispersion. It requires state filings and generally the support of an attorney. It can often be slow, public, and rife with costs. For many families this is the biggest financial hurdle. Thankfully dealing with probate can be fairly simple and can involve as few as five simple processes. The main goal is to provide your assets a way to pass out of your estate that doesn’t require court oversight.
An important side note, all states have intestacy laws. These laws govern folks who do not have the steps above covered. In that case, the courts will often use degrees of blood relation to process estates. There is no consideration given to what intentions or wishes you, as the decedent, may have had. With the exception of certain circumstances, the Will should serve as a catchall to prevent intestacy rules from applying to any of your family assets.
The last and most important part of preparing for a legacy should be family communication. Far too few owners of wealth effectively communicate the state of financial affairs or the mechanisms of wealth transfer. Both giver and receiver of inheritances cope with change from differing vantage points. Parents must face the fact that their children are different and that they need to be treated fairly but perhaps not exactly equally. The rising generation addresses the fact they will lose their parents and will be charged to steward some share of the family wealth. If handled poorly, old family wounds are inevitably torn open and old sibling rivalries can re-emerge. Despite the risks of discord, we think it best to start slowly, and reveal the plans in phases rather than to push a sudden shock onto the family at death. It is our opinion that these conversations need to be well prepared for and highly structured. Engaging a professional to host these family meetings can ease tensions and sometimes prevent the atmosphere from becoming destructive. The goal here is to glue the family together around this transition as opposed to ripping it apart over feelings of perceived inequality. Over the course of a few well-planned family meetings, high emotions can give way to reason and the goals of the current owners of family wealth can be executed with the love and care they should be.
The process by which we accept our inevitable incapacitation and ultimate end is one that requires deep thought and discussion. We all have an internal echo chamber where ideas and feelings reverberate. Having a thinking partner to help clarify your thoughts and organize feelings can be a powerful tool. Setting up the legacy and incapacity toolbox doesn’t have to be arduous. Organization and appropriate pauses for review and critical thinking are the keys to success. If you are unsure or uneasy about the mechanics or the family planning involved in death and incapacity, please let us know and we will happily engage you in a discussion.