Speaker: Maritess Bott
Maritess:
Yeah, that’s a great question. There are plenty of reasons—certainly not all-inclusive of everything you need to know in order to open or start an estate plan—but some of these are the most common ones. We’ll go through the top five.
Number one: we want you to be able to designate the people who will manage your affairs, either medically or financially, in the event of a disability or upon your death. Upon a disability, people often assume that their spouse, daughter, friend, cousin, or someone else will be able to do it. But if you don’t designate it directly, what tends to happen is that the judge will make the decision on who that person is going to be. And it’s not somebody you know, because the judge doesn’t know you. They could choose someone completely ill-equipped to be that person.
Especially when we have people acting on your behalf during a disability, one of the things I’m glad was in the news was the Britney Spears fiasco. Everybody knows what happened with Britney Spears—she was on the news because someone was managing her affairs, primarily her father. They took care of everything, and she had no say. That’s what happens in the life of a guardianship or conservatorship. Someone is chosen, they write all the checks, they give you an allowance, and they make the decisions for you. You don’t want that to happen.
If you have a stroke, a coma, or are disabled in some way—whether from dementia or Alzheimer’s—and are unable to make decisions, then the person you choose should be financially savvy enough to pay the bills, decide which nursing home to place you in, and handle those types of matters. On the medical side, someone should know your medical conditions, be able to talk to doctors, figure out where you should live, what operations or treatments you should have, and make informed choices. You should control who makes those decisions.
Upon death, you also don’t want people fighting. Choose the person who will be the executor or trustee. Make it someone who has some financial background or at least is financially savvy, but who can also handle the stress that comes when feuding family members start asking, “Why did I get this?” or “Why didn’t I get that?” That person should have the temperament to stay calm and provide guidance, to say, “This is what you’re getting,” and understand that some of it will be challenged. It’s really important to control your destiny by choosing the people who will make decisions for you.
Second, a big reason people do estate planning is to avoid probate. I’ve talked a lot in our videos and podcasts about probate—it’s the court process that happens in Illinois when you have at least $100,000 of assets in your name. Then we have to go to court on your family’s behalf, open an estate, and publish notice that “John Doe is dead” so that claims can be filed against the estate. It’s a public forum where anyone can file a claim.
It’s expensive—as you can imagine, $5,000 to $10,000 is not unusual for probate. The timeframe is about six months minimum, and it often takes a year and a half to two years on average in our office. Your family has to wait that long to get the money and settle everything. It’s also public record, which is important because I’ve had family members get phone calls immediately after opening an estate saying, “Hey, your loved one owed us money,” or “I want to buy your house for a cheap price.” Because it’s public, people can take advantage of your loved ones. And if it’s a grieving surviving spouse, they may start writing checks assuming those debts are real—but often, they’re not. There are many scammers out there.
So, what’s the best way to avoid probate? Create a trust. That way, you can leave your money for your family members, beneficiaries, or charities immediately, privately, and efficiently. That’s very important.
Number three: you want your family members to receive their inheritance in a protected way. I say it’s like a gift, but a wrapped gift. What does that mean? You can decide today whether your child, your brother, or whoever you’re giving this money to receives the funds in a trust. That way, if at the time they receive the inheritance they’re going through a divorce, bankruptcy, or lawsuit—any situation where someone is coming after them—that money isn’t taken away.
I’m giving my children a wrapped gift. They can use what’s inside, but the wrapper stays around it for as long as they need it. You can keep it in trust for a long time and maintain those protections. That’s super important, especially, say, if your daughter is married and you think she has a great marriage. You don’t think they’ll ever get divorced—but you don’t know what’s behind closed doors. You say, “I’m giving everything to my daughter—100%. Here’s your money.” No wrapper around that gift. But maybe she was already planning on getting a divorce, and now she has to uncomfortably discuss that inheritance. Her husband might say, “Aren’t you going to put that in our joint account? That’s our money; we’ll spend it on our
House and our vacations and whatever this is family money, and she’s looking at it like, well, my mom gave it to me, so it’s my money. And if I file for divorce, it should just be mine. So just think of that uncomfortable conversation that she has to have with her spouse. That’s hard. However, if you would have just created the trust and said, daughter, you’re getting this money, but it’s in a trust for you in your name, that conversation doesn’t even have to happen with the spouse, whether they’re getting divorced or not. She could just say, mom left it to me in this wrapper, in this trust. I keep it in there, I spend it as needed, but if we were to get a divorce—not that she would say this—then it’s mine, right? It’s not part of the divorce settlement. That is huge, huge, huge. Fifty-two to fifty-three percent of marriages end in divorce, so let’s face it, that’s a high probability. You want to make sure your family members are protected.
So that is number three. Number four, how about if you could reward and encourage your family members and put some visions in there for those kinds of rewards? What does that mean? I think that estate planning should be your value system—what you believe about money, what you believe that family should be able to use the money for—and your beliefs and values should be incorporated into your estate plan. We talk about that in the initial consultation as well as in multiple conversations. What does that mean? You could put incentives. Sometimes, if the kids are young, you certainly could put incentives about this money only being given to you in different staggered distributions based on age, or based on if you finish college or complete some type of trade school—something that allows them to have an education so they can be ambitious enough to contribute to society. Education is important too—great, you can put that in.
If the kids are already older, perhaps you just want to say you only get this money if you have a job, because perhaps one of your children isn’t so keen on getting a job, and maybe they’re just mooching off you all their lives. I have clients who’ve been just dishing out money to people in their families, and they say they’ll pay it back, but they never do. So here you’re going to give them a big lump sum—perhaps you give it to them, but in installments every year—so they can at least try to have some ambition to get a job and do something for themselves. A trust is really important; it gives you an opportunity to support your children, but in a way that helps inspire them productively and fosters a sense of self-worth so they can move on and have a good life. I think that’s what many parents and family members want for their beneficiaries.
Next, this last one is important. You need an estate plan, especially if you have a Brady Bunch-style family—and we’ve all probably heard of The Brady Bunch. Maybe not the younger set, but it’s a blended family. It often happens—we get married, divorced, and then meet a new person who has children of their own. Perhaps you even have a child together. There are so many ways to create a family dynamic now; it’s not just the nuclear family anymore. Several issues come up with blended families. One is remarriage—and where does this money go upon the first death?
I always talk to clients in blended families about what happens to the money upon either spouse’s death. Do you feel it should go one hundred percent to the other person, or should it go to the children from a previous marriage first, or be a combination of the two? I see that combination more often. Clients tell me, “I love my husband, I love my wife, and I want to take care of them.” Great. Then let’s do this—if you want to leave an initial gift upon the first death to your kids from a previous marriage, I think that’s great. Why? Because then there’s no “Oh, Mom or Dad didn’t remember me, and now it’s all going to the other side of the family, and I won’t get anything.” If that’s your wish, fine—I’ll draft it that way. But if your wish is to not disinherit the children from your previous marriage, make sure you write that in so we give them something right off the bat.
The surviving spouse—especially if there’s a big age gap—can live their life without wondering, “Am I getting anything? When is she dying? How come I’m not getting anything from Dad’s estate?” This is the biggest source of contention when it comes to estate plans in blended families. You’ll even hear about it in celebrity cases. I just did a podcast on Larry King. Celebrities notoriously have multiple spouses and children from each marriage. So how do we give everyone their fair share? Everyone makes their life choices, but those choices come with consequences when you die, especially if it’s a family you want to keep happy and together without conflict.
So I highly recommend that if you have a blended family, come and see me. Let’s look at what needs to be done, how to accomplish your goals, and keep everyone’s emotions at bay. That way, everyone feels remembered and cared for. Everything can be thought through carefully from the start. I also always say, let’s review it every three to five years, because your life will change, and you might have different circumstances later. It’s never a static or permanent thing—until, obviously, your death—but while you’re living, you can always update it. So come and see us for that.
Again, I’ll quickly recap the five reasons to do an estate plan. First, you want to choose the people who will manage your assets in the event of disability or death. Second, you want to avoid probate—you don’t want your family going through a court process. Someone once told me that probate is like a family filing a lawsuit against itself. It’s a perfect description. Third, you want to protect your family members—the people who will receive your assets—from divorce, lawsuits, and creditors by giving it to them in a wrapped gift. Fourth, you want to provide values and incentives for your family members—put things in there that reflect what’s important to you, so the money represents more than just money. Last but not least, remember the Brady Bunch family example. If you have a blended family, come and see us. We’d be happy to offer a consultation with a $500 fee and talk about all these issues.
Once again, I’m Maritess Bott of Bott and Associates. We really appreciate you listening to or watching our podcast. Please call or email us, and we’ll be happy to chat with you about these topics. Thanks, and have a great day.
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