A Most Excellent Estate Planning Adventure
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A Most Excellent Estate Planning Adventure

Estate planning isn’t at the top of most party conversation topic lists, but maybe it should be. It is actually a topic that gets easier to think about when you feel free to let discussions spin a little. And a friend who is a financial planner says it’s best to start these conversations by opening a bottle of your favorite adult beverage. There are some trends I’ve noticed when I talk with clients in different generations.

Baby Boomers need to engage in WHEN planning. It isn’t a question of if they’re going to need a plan, it’s a question of when they’ll need the plan. They’ve seen planning become important to their parents. They know the truth of the statistic that say one out of every four adults will suffer a period of incapacity. They surprise themselves by agreeing wholeheartedly with the US Navy, which has followed the engineering concept of “keep it simple, stupid” since the 1970s. Smartly, they focus on these topics:

  • Make sure your health care directives are current. I always think of a particular client whose first health care directive (done when she was 45) firmly said, “Keep me out of pain, but do not use any extraordinary measures to keep me alive.” Her thinking has changed over the years, and her most current directive is a bit more realistic. It directs her health care agent to keep her alive long enough for doctors to assess the situation and long enough for her agent to make an educated guess about how things are likely to go. She’s had the very difficult conversation with her agent about withdrawing nutrition and hydration, and she’s put her thoughts onto paper, not as instructions to her doctors but as a reminder to her agent.
  • Choose your agents carefully. There are a few jobs you have to assign when you create your plan. You need to pick someone who will manage your finances if you become unable to do so (your agent under your power of attorney). You need to pick someone to make health care decisions for you if you can’t make them (your health care agent). You need to decide who will be best at carrying out your instructions about how your assets should be used after your death (your executor if you use a will or your successor trustee if you use a trust).

    There are three factors in picking these people. First, you need someone who has the time to fulfill the job. Keep in mind that you are definitely giving these people jobs that will be time consuming. Second, you need someone who has the right temperament for each the job. One person may be good with financial decisions like investments but horrible with emotional decisions like deciding about medical treatment. Pick the right person for the job. Finally, you need someone who is geographically appropriate. It might be just fine to pick someone who lives a thousand miles away to pay your bills, but the person who is going to make health care decisions should be close enough to get to a medical facility without hopping on a plane.

  • They realize that when it comes to leaving assets for family members, “equal” isn’t the goal. “Fair” is. Most states’ default rules say your assets go equally to your kids, but the default rules weren’t written for you. They were written by a legislative committee who didn’t know you or your family. I have two sons, and I have never made decisions based on whether I’m treating them equally. They have different interests, and I have always encouraged each of them to pursue his strengths and avoid his weaknesses. Why wouldn’t I do that in my estate plan? Why would I ignore their personalities when I’m preparing my final documents? You shouldn’t. Your documents should continue your parental habits.

Generation Xers are often still thinking about WHAT IF. What if one of my kids creates the next huge tech success but my other one is a great high school teacher? What if one of them marries a superstar but another one ends up divorced? Heck, what if I get divorced? Their plans tend to focus on controlling the controllables:

  • Identifying the right guardians to raise their kids if they die while the kids are young. Planning discussions often grind to a halt because parents can’t agree on this topic. But here’s the secret – you don’t have to agree with the other parent because, the truth is, whichever parent lives longest gets the last word on this. If I think my brother would do a good job, but my spouse completely disagrees, THAT’S OK. It is much better to get some instruction on paper than to leave my kids at risk that a judge will try to decide without any guidance from me. Control this risk! At all costs!
  • Keep costs down. Most people redo their estate planning documents 3 or 4 times. You will pay for attorney time along the way, but planning costs are miniscule compared to the cost of not planning. I live in California, where it may cost you a few thousands of dollars to get a plan prepared by an attorney. But compare that to the costs of using the state’s default estate plan, which imposes statutory fees for probate. If I own a $500,000 house, it’ll cost $26,000 to transfer title through the default system. Half of that goes the individual you’ve named to carry out your instructions, and half goes to the attorney who leads the court process. Not planning can be very expensive.

For Millennials, planning is usually about making sure the right people can step up to help when the time comes. Once you’re married, your spouse has priority in making decisions for you. Until then, your parents are first in line, but, often, parents may not really be the first choice. The fact that you’re not yet married doesn’t mean you’re not allowed to give instructions.

To give those instructions, you need to create and sign a durable power of attorney for assets and a health care directive. In these documents, you can identify the people you want to manage your finances and make health care decisions for you. You may still pick your parents, but you may want to give a friend or a sibling a place in the process. And just in case the app you’re developing is the next big tech success, you may want a will in place so your hard work provides benefit to the people and groups you would pick. The default rules I mentioned above will direct all your assets to your parents. That may not be what you want, but if you haven’t given any instructions, that’s what will happen.

Estate plans evolve, but they are important at every stage of life. Make sure you’ve been responsible in giving instructions. Those instructions may change, but that’s OK – documents are easy to revise.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Mark Powell is certified as a specialist in Estate Planning, Trust and Probate Law by the California State Bar. He is a Fellow of the American College of Trust and Estate Counsel, and an Adjunct Professor of Law at Chapman University's Fowler School of Law. Mark has written extensively in a variety of media and has been named by Worth Magazine as one of the Top 100 Attorneys in the estate planning field. He has also been rated as an AV Preeminent Lawyer by Martindale Hubbell.
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