There’s a fundamental disconnect at the heart of most estate planning scenarios that likely explains why so many people who should have a plan don’t: the person whose responsibility it is to plan his or her estate is the one person guaranteed not to materially benefit from it. Most of us don’t want think of ourselves as being motivated by selfishness like that, but it strikes me as probably the best explanation as to why so many people who are so good at planning other parts of their lives and taking care of other responsibilities fail to take care of this one, despite its importance.
The disconnect illustrated
This disconnect is well illustrated by a letter in Slate’s Dear Prudence column today. The letter comes from the daughter of a man who has built an extremely successful, but extremely disorganized, real estate empire. Successfully building and maintaining that kind of business takes an exceptional amount of savvy and initiative. And yet, according to this man’s daughter, he refuses to put forth any effort towards creating a plan that will enable someone else to carry on his hard-earned business after he is gone or bring it to an orderly conclusion. Not only does it sound as though tracking down the paperwork that will be needed to determine who owns what after he dies will be difficult, maybe impossible, but the various people involved with having to do it might not get along with one another. Locating all of his various assets and then getting them distributed is going to be — I think I can say this without qualification — so expensive, so time consuming, and so stressful for his loved ones that any warm feelings they have for him after he is gone will likely be at least partially replaced by the resentment and anger they are going to develop as a result of the mess (one that likely could be avoided) with which he is going to leave them.
Making the connection
[pullquote]I find it cruel, irresponsible, and selfish for my dad not to create an estate plan.[/pullquote]
If you have people who are financially dependent on you, of if you have more than about $50,000 in assets, you need to put thought into how those dependents are going to be taken care of and how those assets are going to be distributed. If you’re having trouble finding the motivation to make this a priority, here are a few things to consider:
- While good estate planning might not be cheap, the amount of time and money that you spend will be a fraction of what your loved ones will spend if you die without a plan. The family described in the Dear Prudence column, for instance, has a high probability of ending up in litigation with each other, which would likely drain the estate of at least tens, if not hundreds, of thousands of dollars to resolve. As expensive as trying to sort out his affairs might be for him, it wouldn’t come close to what it will cost this father’s family members to do it for him. Trying to save money on your estate by not planning it is sort of like trying to save money on your house by not maintaining it. You’ll have more money in your bank account for awhile, but eventually, whatever you saved will be more than compensated for by the emergency that your attempt at thriftiness will inevitably create.
- Even without factoring in the costs that you will save your loved ones by creating a plan, planning your estate might not be as expensive as you think. For people who are married to their first spouse, don’t have kids with anyone else, and aren’t self-employed, it’s usually a pretty straightforward process. And while having a more complicated family or business structure will increase the expense of creating a plan, it also makes it more urgent that you have one. In other words, rather than discouraging you from getting a plan in place, potential (cost increasing) complications are a strong indication that you need one.
- You might be tempted to think that, because your situation is simpler than the one described in the Dear Prudence column, there won’t be much that needs to be done. You’re probably wrong about that. Even for the most straightforward estates, there are usually tax returns that need to be filed, real estate that needs to be re-titled or sold, personal property that needs to be disposed of, insurance policies that need to either be terminated or collected upon, bank accounts that need to be closed, funeral arrangements that need to be made, creditors that need to be notified, and, if you have minor children, guardians that need to be appointed. If you fail to put a plan in place, the person responsible for getting all of these tasks taken care of is likely to be the person who was closest to you and who is most devastated by your passing. These are not easy responsibilities to take on for somebody else at the best of times, let alone at times of great emotional turmoil. You — and probably only you — can greatly simplify that time for whoever has to bring your affairs to a close by thinking through what will need to be done beforehand.
For family members
What if you’re in the position of the daughter in “Prudie’s” letter? You’re the one suspecting that a huge mess is is being created, and you’re the one who is going to be responsible for cleaning it up. In her response, “Prudie” recommends to the daughter that she get actively involved in her father’s estate planning process by, for instance, recommending an attorney and driving her dad to the appointments. That might be what she has to do, but a word of caution here. If you stand to benefit from the estate that you are helping to get organized, your involvement in that process could be a problem if another of your the estate’s heirs feels as though he or she has been shortchanged.
For example, if your dad decides to leave your loser brother less money than he leaves to you, or to cut him out of the will entirely, your brother might have a very strong argument for having that will thrown out if he can show that you — the person who benefited most from the plan that got put in place — were instrumental in its creation. Even if the decision to cut your brother out really was entirely your parent’s, just the appearance of being the one who pulled the strings can cause you problems.
If you become aware that your parent is planning to do something unusual, like cut out a spouse or leave unequal bequests to you and your siblings, be careful about putting too many of your own fingerprints on the process. For example, maybe narrow down the list of attorneys for your dad to choose from, but make sure the final decision on who to hire is his. Drive your mom to her attorney appointments if you must, but wait in the lobby once you get there. In other words, do the least you have to do to get a plan put in place. The more actively you involve yourself, the more you increase the chance of one day becoming involved in the types of problems that the plan was meant to help everyone avoid. Hopefully, the attorney that your parent chooses will be astute enough to realize where potential landmines like this are located, and will take appropriate steps to get around them.
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