You have done your estate plan. You have a will, financial and health care powers of attorney and maybe even a trust. You know how much it cost to set it up, but did you ever think about the overall costs of your estate plan, both during your lifetime and after you are gone? You may be like many others who only focus on the up-front cost to set up your estate plan.
However, with estate planning, there are costs all along the way. There are not only the up-front costs to draft your estate plan, but there may be the costs of failing to plan. There are costs during your lifetime to update your plan, but there are also the costs of failing to update your plan. There are costs upon your mental disability to allow others to make decisions for you. And there are costs after your death.
Most all of our estate planning clients want to minimize taxes, minimize expenses and minimize hassles, which will maximize the amount going to their loved ones after death. When doing estate planning, you should be looking the overall costs of the plan you choose.
For most plans coming into our office from other planners, the plans are designed so that the biggest fees are going to be paid after your death, when you never see it. Most of these will and trust plans are designed so that your assets will have to go through the probate court process before they can be distributed to your loved ones.
I did a survey not too long ago of probate attorneys in Michigan and across the country. The most quoted probate costs that I found was 5%-10% of the gross probate estate. These quoted costs included not only legal fees, but all probate expenses such as court costs and personal representative fees. By far the largest costs in a typical probate estate are the attorney fees.
The planners that design plans to go through probate when it could be avoided, are often not looking out for your best interest but their own. They are setting up a private attorney annuity that pays out to them after your death during the probate process.
For example, you may have done a trust believing that your trust will keep matters private after your death and avoid probate. That will only happen if your trust is fully-funded. Trust funding is completely and correctly designating your trust and individuals as owners, beneficiaries and insured parties of your assets. Basically, it’s putting your stuff in your trust.
The proper funding of your trust is critical in making your estate plan work and having the results you plan. Failure to properly fund your trusts may cause unintended results. These may include probate during your lifetime or after death; distributions not in accordance with your goals and objectives; additional taxes; and additional administrative, legal and other expenses.
In my thirty-two years in the practice of law and preparing estate plans, I still have not found any trustmaker yet who has been able to completely and correctly fund his or her trust on his or her own, nor have I found any estate planners in St. Clair or Sanilac counties, other than in our office, who fully-fund trusts. Without a fully-funded trust, your loved ones will go through the probate experience after your death, with its associated expenses, in addition to your trust administration expenses.
Since 1999, fully-funded trusts are the only type of trust-based estate plans we do. We have found in our practice that these are the estate plans with the lowest overall costs, which includes, the initial fees to set up the plan, annual update fees, disability costs and the after death administration costs.
We have people calling our office all the time who ask “What does a will cost?” or “What does a trust cost?” If the planner can give you a fee quote over the phone before meeting with you, then most likely they are not an estate planner, but a forms preparer, who just pulls up a form they use for everybody else and slaps your name on it. And they will not be fully-funding your trust, which will be left up to you to do during your lifetime or your loved ones to do after your death through the probate process.
We see in our practice, many situations in which an individual has relied on do-it-yourself joint ownership and beneficiary designations as a will substitute in an attempt to avoid probate. What you may not realize is that joint ownership and beneficiary designations bypass your will and trust. We generally try to discourage this type of planning because it blows up all the time.
For example, sometime ago, we had a client couple who refused to fund some family real estate into their trusts, because it was already jointly held between the husband and son. Now a few years later, after the father died, the son who had done no planning, also passed away. The real estate now needs to be probated before it can be transferred to the son’s widow or his children. Had it been titled in Mom or Dad’s trust, all we would have needed to do was change the instructions in Mom’s or Dad’s trust
We had trust death administration in which our client insisted that a family member in the financial services industry assist with the filling out of the death claim forms, change of beneficiary forms and change of owner forms, because he would do it for free. Our fees ended up being more than if we had prepared all of the documents in the first place because of all of the follow-up and corrections that were necessary.
With another trust death administration, the trustee only met with us every six months, instead of monthly, in order to save on attorney fees. Well, every six months, before we met, we had to spend significant amounts of time reviewing and re-familiarizing ourselves with the files. A trust death administration that could have been completed in less than a year with monthly meetings, took nearly five years. Although we had about the same number of meetings with the trustee had we met monthly, every meeting took longer and each meeting required much more prep time. Our fees were more than double what they could have been with the monthly meetings.
We had another client who was not mentally disabled, but became physically disabled in a nursing home. He needed someone to pay his bills and handle his assets. He did not want to pay a bill-paying service $150-$200 per month to pay his bills because he had friends who would do it for free. Well, his “friends” looted hundreds of thousands of dollars of his assets, destroyed most all his financial records and left him penniless. We ended up applying for Medicaid to pay for his nursing home care. We are still trying to pick up the pieces and continue to discover bills that were not paid.
Do not be penny-wise and pound-foolish when it comes to legal and other professional fees. By paying the professionals appropriately when needed, you can keep yourself in control while you are alive and well, provide for you and your loved ones during your mental disability and give what you have to whom you want when you want the way you want, all at the lowest predictable overall cost to you and those you love.
By Matthew M. Wallace, CPA, JD
Published edited November 18, 2018 in The Times Herald newspaper Port Huron, Michigan as: Estate Planning Legal Fees