By Steve Okamoto; Chairman, National Planned Giving Committee
There are two important conversations that must occur as people get to the time in their lives when things need to be put in order. These sometimes uncomfortable, painful and embarrassing talks need to be had to ease difficult decisions that will have to be made by those you leave behind. You have a definite idea about to whom and how your estate will be distributed after your death. However, if certain discussions are not had and actions taken, then those distributions could be made by someone who is not part of your life. That “someone” doesn’t know the value, both intrinsic and sentimental, of the precious items you spent a lifetime collecting.
The first conversation that should occur is with your attorney or other financial advisors. If you use an attorney, it is advised to meet with one who specializes in Probate and Trust work. Why is that important? That specialty deals primarily with writing wills and trusts, and an attorney in this field should be up to date on the latest in tax laws and benefits of the various decisions you could make.
Your initial conversation usually should center on whether you should leave your assets via a will or a trust. Many factors go into that most important decision.
A will is much less costly to create, but it is usually more expensive to administer after your death. A simple will could cost as little as $100, but the law allows the person who probates your will as much as $30,000 in fees. And probating a will is NOT a private transaction. Your estate that is probated is published in the paper, and anyone who feels they have a legitimate claim could come forth and contest the will. The purpose of the will is to find all the assets, then distribute them to the heirs according to the provisions in the will, regardless of the situation of the heirs at the time. A will is not a very flexible document.
A trust, on the other hand, is more expensive to create, around $2,000 or more, but there are very few costs associated in administering the trust upon your death. When a trust is created, all important and pertinent assets (home, cars and bank accounts) are retitled in the name of the trust. You remain the trustee of all of the assets during your lifetime and the trust in its entirety, with all the assets that are included within the legal entity passing smoothly to your heirs upon your death. A trust administration is a very private transaction, so it is unlikely that someone could come and contest the trust provisions. A trust is also a much more flexible document than a will. For instance, if a special needs child needs extra care, the trustee has the power to make some changes to the distribution.
The second conversation you should have is with your family, especially adult children who are likely to receive assets in a will or become trustees of a trust. You may feel uncomfortable divulging the full extent of your assets, but it would be a good idea to let them know that there is a potential for a distribution of the estate at your death. This concept is important because studies have shown that when your children know that they are likely to inherit their parents’ estate sometime in the future, they are better prepared to deal with sudden wealth in comparison to heirs suddenly receiving a substantial sum and not being prepared for the windfall.
No one looks forward to uncomfortable conversations, but these conversations can make a significant difference to what happens to the assets you have spent a lifetime accumulating and to the peace of mind of your family during difficult times. You owe it to yourself and them to have the courage to plan ahead.
One last conversation. Please speak to your local funeral director. I know this sounds a bit morbid, but I guarantee it will make everyone’s life less of a headache after you pass. It’s important that your funeral director and family know in advance of your last wishes. This conversation will avoid a lot of turmoil as to how you want your service conducted, where to bury you and whether you want cremation or not. Please think about it.
For more information, please send an email to email@example.com. Steve Okamoto is chairman of the National Planned Giving Committee.