Bolinger and Hogue, LLP

What is business succession planning?

Business succession planning refers to the practice of using estate planning strategies to increase the chances for the survival of your family business when you retire or die unexpectedly.

How do I know if I need business succession planning?

The following questions will help you decide if you need business succession planning?

If you die unexpectedly, can your family continue to run your business?

If your family cannot run your business, who can?

If you die unexpectedly, will your family have sufficient liquid resources to hire someone to replace you?

If your family cannot run your business without you, you should consider their liquidity needs. If there is no money to hire someone to run the business, perhaps life insurance is needed.

If you die unexpectedly, and have partners, will they pay your family a fair price for your business?

When you are gone, you need a mechanism to make certain that your family is treated fairly by your partners.

How do you protect your family in case of your early death?

The most effective form of protection for your family, or you, if you survive to retirement, is a well prepared buy-sell agreement.

How do you know if your buy-sell agreement is well prepared?

Does your buy-sell agreement provide which events trigger the requirement that the remaining owners purchase the interest of the departing shareholder. These should include at least:

Death
Disability
Incapacity
Bankruptcy
Loss of a professional license
Failure to properly carry out the owner's expected duties
Retirement

Does your buy-sell agreement require the remaining owners to purchase the departing owner's interest when a "triggering" event occurs?

There are two fundamental types of buy-sell agreements -- voluntary agreements and mandatory agreements. A voluntary agreement means that at your death or retirement, your partners will negotiate the purchase of your interest from your estate or you. A mandatory agreement mandates that the remaining owners purchase your interest. The problem with a voluntary agreement is that it is merely an agreement to agree and does not adequately protect you or your family.

Is your buy-sell agreement adequately funded?

Every buy-sell agreement should have provisions for the payment of the price of the departing owner's interest by the remaining owners. The typical methods are:

Installment sale based on the current earnings of the business
A sinking fund whereby a certain amount of funds from the business are invested to provide for a future purchase
Cash from borrowings at the date of purchase
Life insurance

By far the safest method is the use of life insurance. The rest depend upon the financial solvency of the business or the other owners at the time that a purchase is mandated.

How is the price of the departing owner's interest determined?

Perhaps the most sensitive, and equally as important as the funding method, is the method to determine the price of the departing owner's interest. The most frequently used methods are:

By appraisal
Book value
A multiple of annual earnings
Replacement cost of hard assets
As agreed upon annually

Book value, multiple or earnings, whatever "earnings" means, and replacement cost of hard assets are susceptible to manipulation, when you may no longer be around to protect your family, and are therefore risky. Appraisal and as agreed upon annually will generally aid in reducing the potential for conflict when a purchase is mandated.

Will you have enough income when you retire?

As every financial professional will tell you, it is never too early to begin accumulating wealth for retirement. In family businesses, this is especially crucial because younger family members taking over the reins will resent the senior generation if they take an unreasonable amount of money from the business because they didn't plan ahead.

Do you have a management succession plan in place?

Family business owners are notorious for neglecting to have a management succession plan in place. A management succession plan is a realistic determination of who in the family is capable, if anyone is, of taking over the business when the senior generation retires.

Does your succession plan accommodate siblings with different skill levels or interest in the business?

For a succession plan to be successful, it is necessary for the senior generation to account for the differing skill levels, or interest in the business, of siblings. If there is a daughter who is clearly the one to take over, that does not mean the son who is interested in the business is ignored. Planning must be in place to avoid family conflicts that could destroy the business.

Have you considered the impact of estate taxes on your family business?

As the goal of business succession planning is to transfer the family business to the junior generation in a manner that increases the probability of success, estate taxes are a prime consideration.

Do you have an estate planning team familiar with business succession planning?

Business succession planning is a very complex area, it involves accounting, insurance for liquidity, professional investment advice, and the aid of an estate planning attorney.

Are you willing to pay the costs of protecting your business for your family?

As with all things, "you get what you pay for." It is without a doubt that the current costs of a business succession plan are greater than the costs of not planning. However, the current savings are likely minimal when you consider the costs of not planning. What are the costs of not planning? The costs include:

A loss of the family business to estate taxes
A loss of the family business due to a lack of liquidity to tide the business through the period following an unexpected death
A loss of the family business because there is no formalized arrangement to transfer ownership of a decedent's interest to the decedent's heirs
A loss of the family business because no one has been trained to replace the senior generation
A loss of the family business because the retiring owners demand too much from the business to allow the junior generation to earn a reasonable income for their services
A loss of the family business because sibling rivalry was not planned for

Have you planned how to transfer your family business to your heirs?

Imagine, you awake at 65 years of age and decide that you would like to turn over the reins to your children. Your business is worth in excess of $1,000,000. How do you now transfer it to your children? Transferring a family business is a very time sensitive matter. The earlier one starts, the lower the estate and gift tax risks.

Are you willing to make gifts of interests in the family business to your children, or trusts for their benefit, if you can maintain management control?

Unfortunately, many family business owners do not appreciate the fact that they may begin transferring interests in the business when their children are four years old and still maintain absolute control. Estate planning attorneys have devised strategies that enable a parent to give it away, but control it absolutely. This is one of the circumstances where the question of "Are you willing to pay the costs of business succession planning?" comes into play.

Do you know how to give it away, but still maintain control?

Probably not, but your estate planning attorney does. There are various estate planning strategies that allow you to reduce your ultimate taxable estate yet retain control over family business decisions.

How does your estate planning attorney allow you to give it away but maintain control?

That is a part of business succession planning that involves the choice of entity in which to operate the family business.

Do you know what the entity of choice is?

Actually, there are two that are very similar to one another. They are the family limited partnership and the limited liability company. They are the entities of choice because of their superior asset protection characteristics and their income tax flexibility compared to corporations, general partnerships, or sole proprietorships. Which one is best for you depends on a number of factors that your estate planning attorney can help you determine.

Do you know why family limited partnerships or a limited liability companies have superior asset protection characteristics to a corporation?

Assume you own stock in a corporation, you are successfully sued, and the creditor obtains a judgment. The creditor can take your stock and assume control of the corporation. Now assume you own an interest in the entity general partner of a well designed and drafted family limited partnership. You are successfully sued, and the creditor obtains a judgment. Now all the creditor could do to your partnership interest is to receive distributions that you would otherwise have received. The creditor may not vote, act as a general partner, or even look at the partnership's records. A somewhat hollow victory when compared to the loss of your stock.

How would your estate planning attorney use a family limited partnership or limited liability company to enable you to give it away but maintain control?

Your estate planning attorney would prepare an agreement, assume a family limited partnership, and have you transfer your financial and investment real estate into the partnership in return for 1% general partner interests and 99% limited partner interests. You would then begin the process of making gifts of the limited partnership units to your children or trusts for their benefit. But because you retain the 1% general partnership interest through a separate entity, you are in control. You can give it away but maintain control.

Do you have an overall estate plan in place?

All of your estate planning documents must be carefully designed to fit together to create a business succession plan that works. In fact, it is likely that your revocable trust will be the owner of the limited partnership interests that you will own, as well as the ownership interest in the general partner entity. In that manner, you, or your successor trustee, in case of your incapacity, are able to manage the partnership without the necessity of a conservator or guardian.

Do you know how your living trust will be designed to carry out your business succession plan?

Assume your daughter is the one who should run the family business when you are unable to due to an early death or incapacity prior to your retirement. With the general partnership entity interests owned by your living trust, you daughter can be appointed by the terms of the trust as the successor trustee who is to take over as the general partner. In this method, sibling conflicts are reduced so as to protect the business.

Are you willing to give up some control over the business?

It is very important that children who are to succeed to the management of the business be given increasing management authority in proportion to their skill and experience. It not only provides for trained management replacements, it gives them the knowledge that you have respect for them and confidence in their abilities.

Are you and your spouse in agreement as to the ultimate disposition of the family business?

All too often, the spouse who performs most of the management of the family business fails to consider the wishes of the inactive, or less visible, spouse. This may cause the business succession planning efforts to take longer, be more costly, or perhaps even fail. One example is the management spouse schedules a business succession planning meeting with the estate planning attorney and does not invite the less active spouse.

Are you willing to face the reality that you will die or retire at some time?

First generation family business owners are rare and unique breed of entrepreneur. Typically, both spouses have worked long and hard for the family business. They have sacrificed much to grow the family business so as to leave a legacy to their family. However, when it comes time to begin the planning, they are always too busy. It seems they have no sense of mortality and many plan "to die in the saddle."

Are you willing to pay the costs of business succession planning?

Business succession planning may entail more professional costs than the typical business owner is used to paying, other than litigation costs. One reason is that there needs to be a team of professionals working to design and implement a plan for you and your family that will be successful. This is not the time to be "penny wise and pound foolish." A sound business succession plan is an investment that will pay off for you and your heirs for generations to come.

Are you willing to deal with a certain amount of complexity in your business succession planning?

It is without question true that there are tremendous estate and gift tax savings to be had from a more complex business succession plan than a simple one. However, in the final analysis, you must be comfortable with the business succession strategies that you adopt to protect your family. Otherwise, the plan will fail.

Are you willing to accept the advice of professionals?

Owners of family businesses are the bedrock of the American economic system. They employ most of the employees in the country and are responsible for many innovations. Remember, Microsoft was a family owned business. However, entrepreneurs may also be difficult to counsel. They are typically confident and skilled decision makers. Unfortunately, the skills necessary for successful business successioin planning are likely something the owner is unfamiliar with. It takes a leap of faith to accept the advice of others. It is also necessary to protect the family business.

Are you concerned enough to take action?

The skills of your advisors or the importance to your family of business succession planning are meaningless unless you take action. The most important aspect of business succession planning is for the owners to become convinced that they need to take positive steps or have their family business disappear due to a lack of planning. Do not let that happen to your family business.

What is an Estate and what is Estate Planning?

This section describes what an estate is and what estate planning is, and some general concepts related to those issues.

What is an estate?

Your estate consists of everything you own or over which you control the distribution. In my office, we prefer to use the formal names for some things. The formal legal term for your estate is your "stuff." But it also may be your family and those to whom you want to see benefit from your stuff or your wisdom and experience.

A lot of people think, "I don't need an estate plan because I don't have much." This thinking is seriously flawed. Most people have more than they realize. If you own a tarpaper shack and an Edsel, you have enough in assets to do estate planning. It assumes planning is only for those with a lot of assets. Estate planning is a lot more about planning for the people we love than for the assets we have. It overlooks the "non-material" aspects of planning. If you have a family or loved ones you care about, you should have an estate plan.

The term "estate" consists of all the property a person owns or controls, whether in his or her sole name, held in a partnership, in a joint ownership arrangement, or through a trust, and all other monies that would be generated on the person's death, such as through life insurance. It includes:

Real property and things attached to it (houses, buildings, barns, etc.);

All personal property (including automobiles, bank accounts, stocks and bonds, mutual funds, stock options, cash, furniture, jewelry, art, collectibles, etc.)

All businesses and business interests (sole proprietorships, partnerships, corporations, joint ventures, and the goodwill, inventory, tools and equipment, accounts receivable, and other business property, etc.)

Life insurance and annuity contracts, pension benefits, IRAs, 403(b)s, etc.

All debts and obligations owed to others

All claims you have against others, including possible future claims such as for the pain and suffering from an auto accident or medical malpractice

Powers of appointment (the right to direct who gets someone else's property).

What is estate planning?

Estate planning means different things to different people. Some people think estate planning is just planning what you want to see happen to your stuff. Estate planning is the process of considering alternatives for, thinking through, and setting up legal arrangements to address your specific wishes if something happens to you or those you care about. Good estate planning is more than just a Will. Good estate planning minimizes potential taxes and fees, and sets up contingency planning to make sure your wishes regarding health care treatment are followed, and provides instructions to take care of you and your family upon disability. It provides instructions for your children until they reach the point in life where they no longer depend on your for care and instructions. I think defining estate planning is important. A good definition provides a good way to measure if your estate plan is good or not.

Definition of Estate Planning

The following is a definition I have used for several years. I've never had a client change it, but I always ask if they think there should be changes to it. I believe in working with YOUR definition of estate planning. My definition gives us a place to start. Here it is:

I want to control my property while I am alive;
I want to take care of myself and my loved ones if I become disabled;
I want to give what I have to whom I want, the way I want, and when I want;
I want to minimize professional fees and court costs while effectively administering my affairs; and
I want to save every last tax dollar possible.

On the financial side, a good estate plan coordinates what would happen with your home, your investments, your business, your life insurance, your employee benefits (such as a 401K plan), and other property in case you become disabled or die.

On the personal side, a good estate plan includes instructions for caring for you and your property upon your disability, directions to carry out your wishes regarding health care matters if you ever are unable to give the directions yourself, choosing someone to make those decisions for you, and expressing when you would want them to authorize heroic measures and when you would prefer that they pull the plug.

If my property is in my name, don't I already control it?

Ownership and control are NOT related to each other. You can own something without having control of it, and you can control something without owning it.

Definition of control of property:

I want to do with my property what I want and when I want without interference from outsiders; If I can't make decisions about my property, I want to choose who will make those decisions; I want to determine who will ultimately receive my property; and I want to make sure the property is protected from creditors, spouses (in divorce), and/or the IRS once it passes hands.

I want to do with my property what I want and when I want without interference from outsiders. This sounds simple, but the truth is, if you don't own property the right way, at some point people who you do not want to have managing your property could wind up doing exactly that.

If I can't make decisions about my property, I want to choose who will make decisions. If you were unable to make decisions about your property because of a legal (not just a mental) disability, without careful planning, you cannot choose who would make decisions for you. Third parties are not obligated to honor your choices even if you make those choices, unless you have the right kind of plan to enforce your choices.

I want to determine who ultimately receives my property. If you don't plan carefully, the people who you want your property to go to may not get it, even if you think you have things set up so they will. Only carefully planning with the right tools will guarantee that your property goes where you want it.

I want to make sure the property is protected once it passes hands. Once the property passes to people who you want to have benefit, you, and you alone, can take steps to protect that property and preserve it for the people you want to have benefit. Leaving property outright to someone simply will not guarantee that this will happen.

For most people, the most important element of estate planning is being able to control their property. Actually gaining complete control over property is not so easy however. Simply putting your name on it does not give you complete control. Giving it outright to another person doe not give you complete control. Owning it with another person does not mean the owners collectively have complete control. The kind of control that most people want over their property cannot be achieved without good planning.

Isn't all estate planning about the same?

No! There is a big difference in good and poor estate planning. An estate plan is a lot like a home. Some homes are poorly designed, some are poorly built, some have poor foundations, which will wreck the otherwise good work. Homes have a design, or a master plan. They need a strong foundation. Then they need quality building. It's the same way with an estate plan. Estate plans should also have a master plan. A well designed home works better than a poorly designed home. The same is true with estate plans. Homes are made out of different materials, while estate plans have drafting from good to poor quality. Homes have different foundations, while estate plans are based on different tools. Homes vary in size, while estate plans are designed for different sizes of estates. The architect and builder provide the quality of work in a home, while lawyer provides the quality of work in an estate plan. Homes vary in price depending on location, size, materials, and quality. Estate plans vary in price depending on the market, the size of the estate, the complexity of the situation, the tools used, and the quality. It would be ridiculous to call a real estate agent and ask how much a home costs without providing the agent information like the location, quality, size, etc. It is just as ridiculous to call a lawyer and ask what they charge for an estate plan. (What some people do is call a firm and ask "How much is a will/trust?" Sadly, the answer they get will be pretty useless because there is no context to the question, and thus no context for the answer.) Any firm that can tell you their fees over the phone without knowing a lot about your situation is not going to design a plan to meet your needs; they are going to squeeze you into the plan they have whether you fit or not.

Does it make sense to use an attorney? Is it expensive?

It does makes sense to hire the right kind of attorney. Only an attorney who regularly practices in the fields of wills, trusts, probate, and estate planning is able to provide you with really sound legal advice as you put your estate plan into place. Attorneys are subject to regulation by state bar organizations and have continuing education requirements. When you speak with an attorney, you can get answers to your questions -- including how much it would cost – but you probably won't get meaningful information about this until you make an appointment and go see the lawyer.

Often the expense incurred in retaining an attorney to prepare and help you put an estate plan into place is worth hundreds of times what you and your family would pay with no planning or poor planning. It would also avoid the financial and emotional nightmares that can occur with a poorly drafted (or improper) plan.

As to whether it is expensive, that will depend on what you think expensive means. The cost will vary with a lot of factors. Here's the bottom line: You are talking about your family's well-being. How much is that worth to you?

Should I have an estate plan?

You should have an estate plan if:

You have a family or loved ones you care about;
You are the parent of minor children;
You have property that you care about; or
You want to control your treatment upon disability; or
You care about your health care treatment.

If you do not have minor children, do not have loved ones you care about, do not care about your property, are not worried about how your are treated if you become disabled, and have no concerns about your health care treatment, then you do not need an estate plan. But if you meet any of these categories above, you should have an estate plan.

When should I start my estate plan?

The only time that you can prepare and implement an estate plan is while you are alive and have legal capacity to prepare one. If you are unable to manage your own affairs or suffer from some other disability that affects your legal capacity, your estate plan may be effectively challenged by those who assert that you lacked capacity at the time the documents were created, that you were subjected to fraud, coercion or undue influence during the creation and implementation of your plan. The best time to start an estate plan is now, while you have the capacity to do so.

What sort of instructions should be part of an estate plan?

An estate plan consists of one or more documents that set forth instructions. Some documents are used to control health care decisions, others control your property in case of your incapacity, and still other documents will control the distribution of your property in case of your death.

How can an estate plan prevent a guardianship or conservatorship proceeding?

An estate plan uses several tools that can prevent the court from gaining jurisdiction over your affairs.

A Living Will or Directive to Physicians authorizes someone to determine if artificial life support systems are to be used or withheld. Without this, the family may have to go to court to get the authority to "pull the plug."

A Durable Power of Attorney for Health Care authorizes a person, in whom you have the utmost trust and confidence, to make decisions regarding health care treatment when you are unable to provide informed consent.

A Durable Power of Attorney for Property enables you to authorize a person to act in your place and stead in case of your incapacity; this attorney-in-fact can manage your financial affairs without the need to have intervention by the courts. Many institutions will not accept Powers of Attorney. That means you need to have a back up plan.

A trust holds property; the Trustee manages the trust property according to the terms of the trust. If you become disabled, your successor Trustee continues to manage the trust for your benefit. Trusts have the advantage that third parties can't refuse to deal with a properly serving Trustee. Trusts only work well for this if they broadly define disability, the trust instructions clearly spell out the authority of the Trustee, and the trust owns the assets. I refer to this type of trust as a "comprehensive, fully funded" trust.

Thus, a properly prepared estate plan can enable you to avoid a Guardianship proceeding over your person or your estate. Compared to the cost of a Guardianship proceeding, an estate plan can be very attractive.

What about books on estate planning?

As you begin the process, caveat emptor (let the buyer beware). There is a lot of information out there on the internet and many over-the-counter guides to estate planning available at bookstores. A very few are really good, some are decent, some provide misleading information at best, but most are awful. Having said all of that, there are several good books on estate planning that I could recommend for someone who wants to educate themselves about the process. If you are willing to spend the time to research the issue before going to a good attorney, I highly encourage you to! I love it when truly well-educated (on the subject of estate planning) clients come in. It is faster and easier. But I enjoy educating most of my clients about it because very few are well educated in this area.

What about attending an estate planning seminar?

One of the fastest ways to learn about estate planning is to go to a seminar. However, let me warn you about seminars generally. When the speaker has 30 minutes to only two hours, they are going to have to leave important stuff out. Even if the speaker could speak that quickly, the audience would never understand a complete presentation with that much crammed into such a short time. To keep presentations within that time frame, they pick only a few topics and give general information. Don't count on getting a good education on the subject this way, but they can be helpful, especially if you have a good speaker. The rage these days is to couple those seminars with a meal. I think these are great for the audience. Even if the speaker is lousy and the information is awful, you usually get a decent free meal. Some sponsors of these things are good estate planners who care about their clients. Some are not. For the layman, it is very difficult to tell the difference. So beware! My experience with clients who have been to a seminar is that they are not very educated about estate planning, even if they've been to an excellent seminar. They may have some good general thoughts on estate planning, but I don't find it really saves me any time in the interview process. In some cases it even takes longer because I have to dispel the myths they heard.

What about using a do-it-yourself kit? Aren't there a lot of good programs out there today?

Estate planning is one of the most complex areas of the law. If you are planning to do it yourself, be prepared to spend a fair amount of time on this project. You should know that many of the do-it-yourself kits out there are written to make money for the author, not to help you and your family. If you use such a kit and something goes wrong, you have no recourse against the kit drafter, no matter how poor a job they did.

There are several reasons I don't believe in do-it-yourself kits. I've seen many versions of these kits. I have never seen one that truly met any particular family's needs. I've seen many that aren't even valid if they were filled out correctly. Most of them have very poor completion instructions. I have never seen one that of these kits properly and completely filled out by nonprofessionals. I've taken these kits to courts after death and have seen several problems getting them through the courts because crucial language was left out. Most kits are written as general information for any state. However, each state has its own laws and rules. To put out a guide that works well in all 50 states would take several hundred pages just of documents. The documents by themselves still need explaining, which takes several hundred more pages. When you get finished, if you do it right, you have a general form that may not work well in your state and it may not work well for your family. Remember that is your BEST CASE scenario! It only goes downhill from there.

Another problem with the kits has to do with what happens when you need help. What will you get if you call the 800 number on the box it came in? Likely someone from India (who may speak pretty good English) telling you how to install or complete the program. But don't count on any help after the fact. Unfortunately, people in India can't be held liable in your state for practicing law without a license. They may give you wrong information because they don't understand the situation. When you really need help, you will have to turn to an attorney. Both you (or your family) will be stuck with the do-it-yourself kit plan and all its inadequacies.

I call those kits "botch-it-yourself brain surgery kits." This is your family whose future you are playing with. Isn't your family worth more to you than that? I've never had a family tell me that their folks paid us too much to prepare a plan that worked. I've had several families express frustration about how cheap mom or dad was when it came to planning and how they are stuck with the mess.

A do-it-yourself kit is not a good idea. Every situation is different, and no form, all by itself, can account for the individual situations that can arise. Many do-it-yourself kits are not prepared by lawyers, and if they are prepared by lawyers, they are often not prepared by lawyers in the state where you need your plan to work. If you need help, are you going to ask the clerk in the store where you bought the program? How will you know if you filled out the forms correctly? How will you know whether you filled out the right set of forms? Most kits include more than one form. Each form is for a different situation. How much will you save if you do something wrong? If you make an error in filling it out, it could easily cost your family way more than the cost of paying the most expensive lawyer to do the job right. The people who make the do-it-yourself kits make money, but if they make errors that cost your family money, your family will have no recourse against those people. I believe do-it-yourself kits create more questions they offer answers.

What are some typical estate planning documents?

Several of the following documents are typically used as part of the estate planning process:

A Will, sometimes called a Last Will and Testament, to transfer property you hold in your name to the person(s) and/or organization(s) you want to have it. A Will also typically names someone you select to be your Personal Representative (or Executor) to carry out your instructions and names a Guardian if you have minor children. A Will only becomes effective upon your death, and then only after it is admitted to probate.

A Medical Power of Attorney (for Health Care or a Health Care Proxy) appoints a person you designate to make decisions regarding your health care treatment in the event that you are unable to provide informed consent.

A Living Will or Directive to Physicians is an advance directive that gives doctors and hospitals your instructions regarding the nature and extent of the care you want should you suffer permanent incapacity, such as an irreversible coma.

A Durable Power of Attorney for Property appoints a person you designate to act for you and handle financial matters should you be unable or perhaps unavailable to do so.

A Declaration of Guardian appoints your choice of people to be the guardian of your person and the guardian of your estate if you become disabled. This is a crucial document with a will-based plan, and no will-based plan should be considered complete without this.

A HIPAA Authorization authorizes your personal representative (for HIPAA purposes – the Health Insurance Portability and Accountability Act) to obtain medical information, which may be crucial to making medical decisions and paying the medical bills for you.

A Living Trust can be used to hold legal title to and provide a mechanism to manage your property. You can select the person or persons you want -- often even yourself -- as the Trustee(s) to carry out the instructions you want in the Trust and name one or more Successor Trustees to take over if you cannot. Unlike a Will, a Trust usually becomes effective immediately, continues in force during your lifetime even in case of your incapacity, and continues after your death. Most Trusts are revocable which allows the person who creates the Trust to make future changes, modifications and even to terminate it. (If the Trust is irrevocable, changes, modifications and termination are very difficult (and sometime impossible), although such Trusts often carry some tax benefits.) Trusts also help you avoid or minimize the expenses, delays, and publicity of probate.

An Irrevocable Trust can be used for a wide variety of purposes.

A Family Limited Partnership can be used to own and manage your property, in a similar manner to a Trust, but allowing additional tax planning and asset protection techniques to be employed. Family Limited Partnerships are typically used for those who have large estates and thus have a need for specialized estate planning in order to minimize federal and state estate/death/inheritance taxes as well as provide elements of asset protection.

Advanced Directives

An estate plan, whether you use a will or trust based plan, requires other documents to be complete.

What is a Living Will and how is it different from a Will?

A Living Will, also known as a Directive to Physicians, is a separate document from a Will. A Living Will is a "pull the plug" document that expresses your wishes for when to discontinue medical treatment and let nature take its course. For example, you can designate whether you wish to be kept on life prolonging machines if there is no longer any hope that you will recover from an accident or long-term terminal medical condition.

What is a Medical Power of Attorney?

A Medical Power of Attorney designates how you wish to be cared for regarding your medical care and treatment while you are still alive if you are unable to specify those wishes yourself.

The difference between a Will and a Living Will is that the Living Will dictates how you will be cared for while you are still alive and a Will dictates funeral arrangements and how your assets will be divided after you pass away.

What is a Power of Attorney?

Powers of Attorney are governed by the law of agency, a branch of common law concerned with the delegation of power from one person, generally called the principal, to another, called an attorney-at-fact or agent.

When a person becomes incapacitated, the government or the court often steps in and appoints someone to represent and make legal decisions that the person would have to take. One of the ways to avoid government or court intervention, and the appointment of a stranger to act as your guardian, is to use a Power of Attorney. A Power of Attorney is a written document stating that one person gives to another the full power and authority to represent him or her. It must be signed by both the attorney and the principal, witnessed by two people and notarized.

What is a Durable Power of Attorney?

A durable power of attorney is a form of agency. The person who gives the power is the principal, and the person who receives the power is the attorney-in-fact or agent. Durable in this context means that the agent's power will survive the principal's incapacity or disability. As a result, a Durable Power of Attorney can be used as an alternative to guardianship in some states under certain circumstances, provided the principal executed the document before losing capacity. There are two types of Durable Power of Attorney: Financial Durable Power of Attorney and Healthcare Power of Attorney. The difference between the two is the authority granted to the agent, as described below:

The Financial Durable Power of Attorney is also known as a General Durable Power of Attorney. The agent's authority to act for the principal under a Financial Durable Power of Attorney is based on the powers that the principal gives to the agent. Whether broad, general powers or limited, the specific powers given to the agent are completely determined by the principal. Among other things, the principal may delegate to the agent in the Financial Durable Power of Attorney the authority to make deposits and withdrawals from his/her checking account, to file his/her tax returns, and to sell his/her home. However, there are a few powers that the principal may not delegate. For example, the agent cannot prepare a Will, vote, or seek a divorce on the principal's behalf. If the agent has a financial interest in the subject matter of the power of attorney, the power is generally irrevocable. Most senior citizens who execute Durable Powers of Attorney are getting assistance with their day to day personal affairs and their agents do not have an ownership interest in the senior's property which would preclude revocation. In addition, revocation can be by implication, in addition to, destruction of the document or express revocation by the principal.

A Medical Power of Attorney specifically grants authority to the agent to make decisions about and relating to medical treatment. For example, the agent make consent to treatment, refuse to consent to treatment, or withdraw consent to treatment. In addition to these decisions directly about medical treatment, the agent may make all arrangements at any hospital or nursing care facility, employ or discharge care personnel, request, receive, and review any information about the personal affairs or physical or mental health of the principal.

In preparing a Financial or Healthcare Durable Power of Attorney, the principal must sign the document in the presence of two qualified witnesses, and it must be notarized. As laws vary from state to state, it would be in your best interest to consult an Estate Planning attorney in your area if you want more information about Powers of Attorneys.

What options do I have in assigning Power of Attorney?

There are many ways to designate a decision-maker for you with a Power of Attorney document. You can assign a General Power of Attorney that covers all of your financial and personal decisions, or a Limited Power of Attorney that only covers decision-making in areas that you specify. You can make your Power of Attorney Durable, which means that it stays in effect if you become incompetent. Or, a Power of Attorney can be Springing, which means that it becomes effective only when you become incompetent. Springing powers have their own set of problems. One issues is that the Agent may have to prove the disability to the third party, and that might not be that easy to do. Another option is to delegate a Health Care Proxy or Durable Medical Power of Attorney, a person designated to make health care decisions for you.

What does a financial attorney-in-fact (agent) do?

Many times, people will give an attorney-in-fact broad power over their finances. But you can give your attorney-in-fact as much or as little power as you wish. You may want to give your attorney-in-fact the authority to do some or all of the following:

Use your assets to pay your everyday expenses and those of your family
Buy, sell, maintain, pay taxes on, and mortgage real estate and other property
Collect benefits from Social Security, Medicare, other government programs or civil or military service
Invest your money in stocks, bonds, and mutual funds
Handle transactions with banks and other financial institutions
Buy and sell insurance policies and annuities for you
File and pay your taxes
Operate your small business
Claim property you inherit or are otherwise entitled to
Hire someone to represent you in court, and
Manage your retirement accounts.

Whatever powers you give the attorney-in-fact, the attorney-in-fact must act in your best interests, keep accurate records, keep your property separate from his or hers and avoid conflicts of interest.

For additional information on Powers of Attorney, in the Free Reports section, see Powers of Attorney and Court Orders.

What is Probate

Probate technically means to prove up the will. It has come to mean the court-supervised transfer or management of assets. One of the problems about asking an attorney about probate is that you may think of probate as the latter, and they may think of it as the former. Thus, when they answer the questions you are asking, their answers are far more limited than you intended. This isn't anybody's fault, but it does lead to confusion.

Here's a tip about dealing with attorneys generally. Attorneys tend to be "wordsmiths." To attorneys, words have specific meanings. Others hear a term and use it and attorneys will take that term to have its technical legal meaning. While lawyers get blamed for this, the truth is that they are using the words precisely.

Now let's imagine your friend calls a lawyer wanting to know what the entire administration is going to cost. He calls a lawyer and asks, "What will it cost to probate dad's will?" The technical meaning of the word probate is "to prove up the will." The lawyer answers as precisely and accurately as possible, that it will likely cost $x to probate the will. That includes the preparation of the paperwork to submit the will to the court and one trip to the courthouse to get the will admitted to probate. That cost, at least for many attorneys, is easy to determine in most cases. There are variables such as whether the will is self-proved, written according to Texas law, etc., but assuming (we all know that is a dangerous thing to do!) all of that stuff to be normal, and that the judge will approve the will at the first hearing, the cost to get the will admitted to probate is easy to fix. Most law firms I know have a set fee for this. They only charge more if it gets more complicated.

Your friend however, is not asking about getting the will proved up. He wants to know what the whole process is going to cost. He will be completely misled by the attorney's answer. Your friend has no idea he has used a "term of art" and the lawyer has no idea he is using a term of art but actually means something else entirely. It is clearly a communication problem. Whose fault is it? If you are like most people, you will blame the lawyer, but the lawyer is being as honest and straight forward as he can be. But when the cost is much greater, the lawyer gets blamed. Now let's complicate this miscommunication further. Your friend passes that information along to you that he thinks he knows. Without really knowing what was asked, or what was perceived by the lawyer, you now decide that you can't trust lawyers generally, or at least that lawyer in particular.

If when your friend calls the lawyer, the lawyer starts asking questions like "What do you mean by probate the will?'" Your friend may decide that either the lawyer is an idiot who obviously has no business doing the work, or that the lawyer is unwilling to give a straight answer to a simple question. Without really knowing what was asked, and what was perceived by the lawyer, you now decide that you can't trust lawyers generally, or at least that lawyer in particular. (Hmmm. If you are like me, you are now wondering why anyone would ever want to be a lawyer in the first place. Well, someone has to get blamed for stuff.) For additional information, see the "Death Probate" section of FAQ.

Why is probate necessary?

Probate is necessary when a person owns property in his or her own name and either dies or becomes disabled.

There are two types of probate.

Living probate, called guardianship in Texas, and conservatorship in some states, involves the court-supervised management of assets for a person who becomes disabled and is unable, in the court's opinion, to manage property on their own. Death probate involves the transfer of property upon the death of the one who owns property in his or her own name. Since these two types of probate are very different, I've broken them down into "Death Probate" for death probate and "Guardianship" for living probate.

a. Death Probate

Death probate is the administration of a person's affairs after they are dead, primarily to remove the decedent's name from titled property.

Should I be concerned about probate?

That depends on your situation. Probate is public and court controlled, and it can be time consuming, expensive, and can cause emotional trauma to your family. Does any of that concern you? If so, you should be concerned about probate, but that just means you need to understand it better.

What is the death probate process?

Probate is one of those "twelve-step" programs.

Find the will. If there is no will, skip this step. You might be surprised how often the surviving family members cannot find the will. Often the will makes things so much easier for the family it is better to spend a lot of time looking instead of starting the process without a will.
Bring the case to court. Typically this is "probating the will." If there is no will, someone needs to bring a case to the court to administer the affairs of the deceased (called the decedent). Typically in Texas, the cost up through this step is similar. It's what happens after this that affects the cost so much.
The court examines the will and hears testimony in an open (public) hearing. The court must determine whether the will meets the requirements for a valid will. It will also make note of any challenges brought at that time. If the will appears to meet the requirements and there are no challenges, normally the approves the will and admits the will to probate.
The court approves and appoints the executor or administrator. If there is a will, there is an executor. If there is no will, it is an "intestate" case. Intestate means without a will. There is no executor in an intestate case, instead the court appoints an administrator. The two jobs are nearly identical. The executor or administrator then signs an Oath of Office to accept the position. Unless the bond requirement has been waived by the will or by agreement of the parties, the executor or administrator is required to post a bond to serve. The executor administers the estate according to the terms of the will and the court issues Letters Testamentary to the executor. The administrator administers the estate according to state law and the court issues Letters of Administration to the administrator. Those letters authorize the recipient to begin dealing with assets titled in the name of the decedent.
The executor must notify creditors in writing and give them four months to submit claims against the decedent or the estate. Known or suspected creditors must be given specific written notice. For unknown creditors, a public notice, typically in a local (at least county-wide) newspaper, is sufficient.
The estate must file an Inventory, Appraisement and List of Claims with the court. This is where the executor tells the court, in writing, what assets are in the estate and the approximate value of the estate. The estate must also submit a list of claims that the decedent or the estate has against others. The executor then has a duty to try to collect on those claims. The Inventory, Appraisement and List of Claims is due four months after the will is admitted to probate and the court issues either Letters Testamentary or Letters of Administration.

Up to now, the steps are in chronological order, but after this. the steps depend on the timing of the events involved.

The court must ascertain who the heirs are. This may sound simple, but sometimes the heirs are not easy to find. As strange as it sounds, some families have not heard from a family member in many years. Tracking down those folks, who must be notified, can be time consuming and expensive in and of itself.
The debts of the estate are paid. It is the fiduciary duty of the executor or administrator to pay the just debts of the estate. If there is a dispute about a claim made against the estate, the court will resolve it. In an independent administration, the court is not involved in this.
The final income tax return is due for the decedent. The estate income tax return (Form 1041) is due. An estate income tax will be due for every year the estate stays open. In an independent administration, the court is not involved in this.
The estate tax return (Form 706) is due. There will be an estate tax return due if the estate exceeds the amount exempt from estate tax. Most CPAs and most lawyers do not prepare this complex tax return. It is expensive and there is a lot to it. It goes to the Gift and Estate Tax division at the IRS. This is the crème de la crème of the IRS. The gift and estate tax lawyers review the 706 with a fine tooth comb. I have nothing but respect for this division of the IRS. These are truly the crack troops in the IRS. Some people think they can pull something on this division. I tell them to forget it – these people are smart, they have seen all the tricks, and it pays BIG DIVIDENDS to be up front with them. Every reputable law firm I know takes the approach of being up front and honest with the IRS. It is unethical for an attorney to be dishonest with the IRS. I usually give my clients who are filing a 706 a short lecture on this and that might be why they never ask me to do something that is wrong. (It might also be why some don't hire me.) My colleagues tell me that some people just don't understand why they can't just pull something on the estate tax return. Now that does not mean that we roll over and play dead. I fight very hard for my clients on the 706, but that is not the same thing as lying to the IRS. In an independent administration, the court is not involved in this.
The court resolves disputes among the parties. The court hears will contests (76% of which are successful) as well as other disputes. Some disputes last for years and may involve a whole series of trials and appeals. The probate process, unfortunately, does encourage disputes. Those disputes often tear families apart.
After everything else is complete, the executor or administrator distributes the remaining assets to the beneficiaries or the heirs.

What if the surviving family needs to use some of the assets to live on?

After the probate court approves the Inventory, Appraisement and List of Claims, the court may award a family allowance for the benefit of the survivors for a period of one year. The family allowance can cause your family financial hardship and financially devastating lost business opportunities. In too many cases the family allowance is not enough, and it often is cut off too quickly to finish a complicated probate.

Probate can time consuming.

According to a recent independent study, the average Texas probate estate takes about sixteen months when there are no complications. Not having a valid will aggravates the time problem. There may be long delays if the law requires that distant or long-lost relatives be found before the probate process is complete. Then, your probate estate is not closed until all disputes are resolved and all litigation involving your affairs are finally decided. That could take decades!

Probate can be expensive.

According to the same study, the average probate cost in Texas is 3.1% to 7.3% of the gross (not net) value of the estate, including estates that go through independent administration. This is the average; many estates cost much more. The attorney and executor fees alone could cost a significant portion of your estate. In Texas, attorneys do not get a percentage of the estate; instead, attorneys charge a "reasonable" fee. What is reasonable to the attorney and the court may not be reasonable to your family. Back when attorneys had minimum fee schedules dictated by the State Bar Association, the minimum attorney fee for a probate was 3% of the probate estate. The executor may receive up to 5% of your gross probate estate without having to justify its fees. Courts routinely approve significant fees to the attorney and the executor, and they are the first two people paid in probate! Still more of your estate goes to pay for court costs, accountants, appraisals, commissions, and other administrative expenses. Only after everyone else is paid does your family get what is left. There are many cases where probate fees are not significant, but probate still does not put the family first. Why not put your family first in line instead of last?

Probate records are public.

But I don't have anything to hide! Why should I be concerned about publicity in probate? Anyone can read your probate file, which includes your will and an inventory of the assets you own. Do you want just anyone who might be interested in your affairs to see what you own? Crooks, business competitors, and bargain hunters frequently gain strategic information from probate records to prey on grieving families.

During the probate process, the court controls everything.

Your family has no control and is at the mercy of the courts and creditors. Most, if not all, of your assets are frozen and unavailable to your family. If and when your family eventually gains control of the assets, your assets are depleted and not necessarily distributed to whom you want, the way you want, and when you want. In my experience, what clients dislike most about probate is the lack of control. In some cases, fees are too high and some cases take way to long, but normally it is the lack of control that bothers clients the most.

The probate process does offer some advantages. The advantages are not significant, or can be obtained by more efficient means in most cases. However, those advantages must be weighed against the disadvantages. Many people are seeking to avoid probate. Given the uncertainties and disadvantages of probate, the probate process can and should be avoided in almost all cases.

Is probate bad?

That depends on the case. Many people have little trouble in probate, but other cases are very complicated and have a lot of problems. No one can truly tell you what probate will be like in your case. Any estimates are just that – estimates. The truth is, until a person dies, no one can guess what complications might arise concerning their death. Some cases are obvious problem cases. However, I've had several cases that looked simple in the beginning turn into nightmare cases. We just had no way of knowing the problem would arise. If you know an attorney who says, "Your probate will only cost $x," try this. Ask them to put it in writing as a guaranteed maximum fee, on his or her letterhead, and sign it. Then make sure you die before that lawyer dies, retires, or changes firms.

I've heard that probate in Texas is not expensive. If probate isn't expensive, why bother trying to avoid it?

The cost of probate is only one issue. I can say, having practiced probate for several years, that it usually isn't expensive. In fact, it is usually well below the "averages" I see in books that bash probate. But there are cases where it is very expensive. In some cases, the actual cost is not expensive, but the probate is very expensive in relative terms. For example, I did a probate once that the total out of pocket fees to the client were only $1500. That's not really a lot. But the problem is that the total probate estate was about $5000. That means probate cost 30% of the probate estate! The estate was larger, but everything else passed by non-probate means. (Ask for our report on Title to Property to learn how that happens!) While the cost was not large in that case, the family complained about the cost compared to the benefit it provided. I don't blame them, but it was two banks that required the probate in that case, not me.

You said the cost probate is only one issue. What other issues are there?

There are several issues that are more important to most people than the cost. Probate can take a long time. At a minimum, a regular probate will take at least four months in Texas. That doesn't mean four months from the date of death, it means from the date the will is admitted to probate. That could occur as little as 11 days after death, but more likely won't happen for at least three weeks. The four-month clock does not start until notice is given to creditors and potential creditors. That is how long creditors have to make claims once they have notice. If creditors never receive notice and never have a chance to make claims, they can bring claims when they learn about the probate years later.

Many other things can cause probate to get delayed. I've had probates take two years that I thought would go quickly. I have seen clients get really frustrated over time delays. While they tend to blame the lawyers (I guess we are attractive targets), the cases I've seen that took a long time were not because of the lawyers. There may be an exception to that now and then, but in most cases, the things that delay the probate are beyond the lawyer's control.

Should I try to avoid probate?

That depends. Some probate avoidance techniques create other problems that may be worse than probate. Sometimes the involvement by the court can be helpful. For most people, probate does not accomplish anything that could not be accomplished by effective planning that avoids probate. In other words, the alleged advantages of probate can be achieved by other means that are just as effective but without the hassles and disadvantages of probate.

The probate process does offer some advantages. You get to hire a real lawyer (this is very good for lawyers), you get to go to a real courtroom (this is very good for your general life education), and you get to see a real judge (this is good for judges who need to be re-elected – the most people who they are friendly to in their court room, the more likely they are to get those votes)! The other advantages of probate are not significant, or can be obtained by more efficient means in most cases. However, those advantages must be weighed against the disadvantages. Many people are seeking to avoid probate. Given the uncertainties and disadvantages of probate, the probate process can and my experience is that most people want to avoid probate.

What are the advantages of probate?

There are five commonly stated advantages to probate.

Probate helps you obtain clear title to assets. This is true, but there are many ways to pass clear title if you have clear title to the asset originally. Probate itself has nothing to do with clear title and you don't need probate to obtain clear title. It is just one way to get clear title to assets.
Probate helps you get a stepped-up tax basis on assets. It's true that probate assets do generally qualify for the stepped up tax basis. However, you only get a stepped-up basis if the IRS accepts the asset valuation. The IRS is not obligated to use probate court's valuation! If they IRS does accept the probate court's valuation, that's great. But you do not need probate to get the stepped-up tax basis. There are several ways to get it.
Probate carries out the decedent's wishes. This is a misleading claim at best. First, intestacy (dying without a will), will challenges, and property beyond court's control can all prevent the decedent's wishes from being carried out. Second, it assumes that the decedent's wants the family going through probate! There are other ways to carry out the decedent's wishes without going through probate.
The probate court oversees the distribution and management of assets. That is true, but it isn't always an advantage. This is a costly and frustrating way to have "big brother" manage the distribution of assets, and it is not necessary in most cases. It is important in cases where there is a dispute, but in cases where there are no disputes, this oversight is generally unnecessary.
Probate provides a creditor cut-off period. This is generally true, but misleading. Most creditors don't depend on probate to get their debts repaid. Only unsecured creditors have to depend on probate. But in order to cut off those creditors, actual notice to the creditor is required. Now think about that. If you send someone a letter saying, "You have 4 months to get your claims in or your claim will disappear," what are the chances that they WON'T make a claim? Not very good. If notice wasn't required, this might actually be helpful. This is also misleading because claims not actually cut-off -- they just get lower on the priority list! And they are still higher priority than the family. There are other planning tools have a much faster cut-off period and the cut-off is real.

So are there advantages to probate? Yes, but every one of those advantages that apply to most cases can be obtained without going through probate. Only the dispute resolution capability of the court is a real advantage that can't be obtained elsewhere, and even at that, the parties could agree to some other form of resolution without the court's involvement.

b. Guardianship, Conservatorship, or Living Probate

Guardianship (the Texas term) may also be called conservatorship in some states, and is sometimes referred to as living probate. It's purpose is to administer the affairs of someone who is "legally" incompetent.

What if I become disabled?

If you become disabled, a court ordered guardianship proceeding is necessary to appoint someone to take care of you and your financial affairs. When the court appoints someone as the guardian, that person becomes a "ward" of the court. Did you know that you are six times more likely to become disabled than die in any particular year? Guardianship proceedings are expensive, time consuming, and embarrassing. A court ordered guardianship costs approximately 2-4% of your gross estate (not net estate) per year, and the initial cost is much higher than that. These costs deplete your estate assets and reduce what you can give to your family.

I heard that in guardianship, you lose most of your legal rights. Is that true?

It is true that you lose many of your legal rights if you become a ward of the court. During the guardianship proceedings, your property remains under court control. Once a guardian is appointed for you, the guardian must abide by strict court supervision, accounting to the court for every penny spent and every asset management decision. Courts severely restrict what types of investments the guardian may make, and may force the sale of your property. The court may disallow the funding of life insurance policies of the ward. The whole process is inconvenient for your family, and can lead to lost business and financial opportunities. If you recover, you must prove to the court that you are no longer disabled.

Should I be concerned about "living probate?"

When Groucho Marx was in his 80s, his live-in lover, Erin Fleming, petitioned the probate court and had him declared incompetent. She was named the guardian. Then Groucho's nephew contested the guardianship. The case lasted for 3 years. The trial itself lasted 8 months. Groucho's whole life was laid open before the public. The TV cameras rolled, capturing the spectacle on film for the evening news, causing embarrassment for the whole family. We heard about this case because Groucho Marx was a celebrity. However, living probate is actually far more common than death probate. Most probate courts spend far more time hearing living probate cases than death probate cases. One unusual thing about the Groucho Marx case: three days after the suit was settled Groucho died. Where do you think they went? They went right back to the same probate court for his death probate.

I have a fully funded living trust. Doesn't that eliminate guardianship?

Unfortunately, not necessarily. Unless your trust has specific language in it that most living trusts don't have, guardianship could still occur, at least to some extent. Here's an example. A husband and wife had a trust, but were both severely injured in a car accident and were unable to sign any documents, despite being mentally fine. Since they were in the hospital for several months, they could not effectively manage their property. At first they were not concerned because their trust named a successor trustee precisely for this type of situation. Their son, the successor trustee, went to their bank so he could write checks. The bank asked for proof that he was the successor trustee (that was not a problem since it was clear in the document) and that both spouse's were disabled according to the terms of the trust. That proved to be a big problem. The trust did not define disability very well. The bank had no choice but to require that the trustee go to court and prove both spouses are incompetent. Now consider the problems this creates. Going to court might not work since mentally the couple is fine. What happens then? The cost could easily be $10,000 or more per spouse if it would work. This is a case where the people had poor planning in place, but they had no way of knowing it until something came up that demonstrated the significant flaw in their plan. That is actually how most people find out about flaws in their plans.

Should I be concerned about a possible disappearance?

If you travel and were involved in a plane crash, or disappeared hiking or camping, or you met some other fate the resulted in your body not being found, your family may not be able to get to your assets.

When a private jet full of businessmen from one company did not arrive at its destination, the FAA declared the plane missing and launched a fruitless search. Families of the missing men discovered some serious problems. For example, many family members could not access bank accounts or brokerage accounts to pay expenses. One family discovered that their leaky roof could not be fixed without the signature of the missing spouse being on the contract. They discovered that they could not go to court and have the person declared incompetent because that person could not be examined for competency by the court. They also discovered that they could not have that person declared dead for seven years. The family was stuck and the damage caused by the leaky roof caused tens of thousands of dollars in damage before the family was able to put together the cash to get the problem fixed. It turned out that the plane went down in a lake, leaving no visible crash site. The plane was found months later by a fisherman whose fishing line got snagged on the downed plane. All of the businessmen were in the plane. Until it was found, life insurance could not pay off because the life insurance companies wanted death certificates to pay claims. Their income stopped.

The situation for the families was bad enough with a missing family member, but the resulting legal and financial problems that were inadequately planned for made the situation even worse.

I don't travel on my job, and disappearance is so rare, isn't that type of planning unnecessary for most people?

Most people think it is rare. If you look at how many people disappear, while the number is large, it is only a small percentage of people. But it is quite common. One recent event brought this point home with thousands of Americans. On September 11, 2001, terrorist attacks that resulted in four large airliners either going down or crashing into buildings caused thousands of people to just disappear. Many of those killed were never be found. Some bodies found may be unidentifiable, despite modern technology, and thus while there will be a body, it can't be identified as a specific victim whose family may need help. In the coming years, the stories of the victims families will come out more, but it is already known among some in the estate planning community. Sadly, we have learned that none of us are safe, and that disappearance is not something most families are prepared for legally.

Are guardians paid?

Typically a guardianship allows the guardian to be paid for his or her services. The guardian is also entitled to attorney fees to seek legal advice. In addition, the court will require a guardian to purchase a type of insurance policy known as a surety bond to protect the guardianship estate. The costs and expenses of a guardianship are paid from the property of the person.

How long does a guardianship last?

Jurisdiction of the court in a guardianship (called a guardianship in some states) continues while the incapacity exists but ends at death. The guardian has to make periodic reports to the court and petition the court for additional authority under certain circumstances.

My close relative is losing it and doing bizarre things. What can I do?

If a person has truly lost mental competence, and is unable to exercise rational control over his or her property, the courts may appoint a guardian in a guardianship proceeding.

Just because someone is acting a bit eccentric is not likely to be sufficient to justify the appointment of a guardian. The courts are likely to respect a person's wishes to control his or her own affairs unless convinced that the person really needs to be protected against him or herself.

A very careful determination of mental capacity must be made, and this typically involves at least one physician, often a psychiatrist, and a lawyer familiar with elder law matters.

What is a guardian?

A guardian is a person who is designated to make legal, financial, and health care decisions for you if you become incapacitated or incompetent and can no longer make these decisions for yourself. A guardian can be any competent person, including a spouse, a friend, a relative, a non-profit agency, or a public or private corporation. If a person is considered incompetent and a relative, agency, or corporation cannot be found or considered as a guardian, then a public agent guardian will be appointed.

In some states, guardianship is known as custodianship, conservatorship, or curatorship. In each case the guardian may be called a custodian, conservator, or curator. The person whom the guardian is appointed to is called the ward.

Guardians can be appointed to:

Decide on the ward's living arrangements;
Assure that good health care is provided to the ward
Approve needed medical, legal, dental, or other services for the ward;
Take care of the ward's personal belongings;
Take legal protective action on behalf of the ward;
Handle the ward's financial affairs; and/or
Maintain the ward's personal records.

What types of guardians are appointed for a ward's care?

There are two types of guardians appointed for a ward's care:

Guardian of the Person. The guardian may provide for medical care services and determine the place and kind of residential setting best suited for the ward. The guardian must also present a detailed plan of the ward's care to the court every year for review.

Guardian of the Property. The guardian takes an inventory of the ward's property, invests it prudently, uses it for the ward's support, and accounts for the ward's property by providing detailed annual reports with the court. The guardian must also obtain court approval for certain financial transactions.

In most cases a single guardian is appointed to handle all responsibilities of both the ward's property and health care.

You may appoint a guardian of the person, the property or both for limited time periods and for limited purposes. Generally, this is the case only for individuals who request a guardian while they are still competent. Normally, guardianship is the last resort for people who are incompetent and can no longer do things for themselves. In these cases, guardianship remains in effect for the rest of the ward's life.

Should I be concerned about guardianship?

Yes! Guardianship is time consuming, expensive, public, and court controlled. In addition, guardianship causes emotional trauma to your family. The guardianship process actually encourages disputes that could tear your family apart. Those disputes could be over the management of your assets, or who should be providing for your care, or over how your care is provided.

Guardianship is time consuming.

Guardianship requires annual accountings and hearing before the court. It continues until death or until the ward proves they are no long disabled.

Guardianship can be expensive.

The initial expense runs several thousand dollars (low five figures is a conservative estimate), but there are annual expenses too. Typically 2-4% per year of the probate estate is the cost to keep a guardianship open. Over time, that adds up to a lot of money.

Guardianship records are public.

Anyone can read your guardianship file, which includes the asset list. The possibilities for mischief seem endless. Do you want just anyone who might be interested in your affairs to see what you own? Crooks, business competitors, and bargain hunters can gain strategic information from guardianship records to prey on grieving families.

During the guardianship process, the court controls everything.

Your family has no control and is at the mercy of the courts and creditors. Most, if not all, of your assets are frozen and unavailable to your family except for your care. The court can dictate what types of assets can be invested in, though most courts will allow your assets to continue in their current investments most of the time. However, if any adjustments must be made, the law requires investment to be in government backed securities (like CD, T bills, government bonds, etc.). Those are not the types of assets that generate the best return on your money.

Joint Ownership with the Right of Survivorship

Joint ownership with the right of survivorship is sometimes called the "poor man's estate plan," but in reality, it is just a poor estate plan.

Doesn't owning property jointly with the right of survivorship eliminate problems?

Many people own property in joint tenancy (with the right of survivorship). Joint tenancy, sometimes called a poor man's will, has its problems and is not what it appears. There are several disadvantages. Neither your will nor your trust instructions control property you own in joint tenancy. You cannot plan how to distribute joint tenancy property because when you die, joint tenancy rules determine the disposition of your property. You cannot do proper estate planning with joint tenancy, and you cannot leave any instructions for the use of joint tenancy property. You can't save every tax possible with joint tenancy. Joint tenancy can actually destroy any tax planning in your will.

What about joint tenancy property I own with my spouse?

There are several problems with owning joint tenancy property with your spouse. Many couples own joint tenancy property to avoid probate. However, joint tenancy only postpones probate until the second death. If you and your spouse own joint tenancy property, you may accidentally disinherit your children. Owning joint tenancy property with your spouse could increase your income taxes and estate taxes.

What about joint tenancy property I own with my children?

Owning joint tenancy property with your children can be disastrous. You may incur gift tax liability on those assets. If the gift tax liability is not discovered until after your death, your children could face back taxes, interest, and penalties. If you own joint tenancy property with a child, any of your child's creditors can attach your assets! If you own joint tenancy property with one child, your other children are disinherited upon your death. This could cause hard feelings between your children.

What about joint tenancy property I own with others?

Tragically, you could disinherit your own family. Owning joint tenancy property with someone outside your family could cause your family to pay estate taxes on property they no longer have an interest in! Your joint tenancy property is subject to the creditors of all the other joint owners and you could lose it all. Also, if another joint tenant becomes disabled, you must contend with the probate court during their guardianship proceedings. Joint tenancy -- with anyone -- has negative consequences that you should avoid.

Joint tenancy does not meet the definition of proper estate planning. You can't control property while you are alive. Another joint tenant's disability, or their creditors, can interfere with your ownership rights. If you are disabled, the court, not your family, controls your joint tenancy property. When you die, you cannot control who receives your property, when they receive it, or how they receive it. Your joint tenancy property won't avoid probate, though it may postpone it. Instead of reducing your taxes, joint tenancy increases your taxes! Joint tenancy is not a good estate-planning tool.

Won't owning property jointly with the right of survivorship avoid probate?

No, but it may postpone probate on one person's death. However, this is one of those techniques where the cure (to probate) is actually worse than the disease. Owning property jointly with the right of survivorship can create a lot of problems, even for married couples. There is usually a better way to hold property. For additional information, get the Family Estate Planning Report or the Estate Planning Secrets of the Rich report from the Free Reports section of this website.

Life Insurance and Estate Planning

Life insurance can be a valuable estate planning tool, but it must be properly structured to provide for your family.

Is life insurance tax-free?

In most cases, life insurance proceeds are INCOME tax free, but most of the time, there is estate tax on life insurance. Even worse, in some cases the life insurance was purchased to pay estate taxes. Thus, one is paying estate taxes on the money used to pay estate taxes. Such planning does not make sense. It amounts to a significant waste of life insurance premiums.

So is life insurance bad?

Not at all. In fact, life insurance can be one of the most valuable estate planning tools. What is most important is that you identify the needs for life insurance and plan for its effective use as part of the estate planning process.

How much life insurance do I need?

That depends. As part of our estate planning design (done after the complimentary consultation), we can help you determine how much life insurance is appropriate for your situation. Most people need more life insurance than they think they do. I don't sell life insurance, but I understand how it works, when it is appropriate, and can give you a good general idea of how much you need for your situation.

For additional information, in the Free Reports section, see Family Estate Planning Report and Estate Planning Secrets of the Rich.

Estate Tax Planning

The estate tax is the highest tax most people will ever pay. While few estates have to pay estate tax, it does hit some families really hard. The tax law is almost always subject to change, but if you believe Congress will fix the estate tax problem, keep in mind that the estate tax has been repealed three times, but has come back each time. Wisdom dictates at least considering estate tax planning.

I don't have an estate that is large enough for estate taxes. Why should I be concerned about estate taxes?

There are several reasons. Consider that in most cases, your estate will continue to grow. It really is wise to build tax planning into your estate plan if you are married for several reasons. First, there are several non-tax uses of what is typically considered "tax" planning. An A/B plan, in addition to saving taxes, can protect children from previous marriages from being left out completely when one spouse dies. It can also protect the surviving spouse from fighting with the step-children who survive the deceased spouse. It may help the surviving spouse qualify for Medicaid without bankrupting the entire estate. Second, it is possible that the estate will grow to the taxable level after the first spouse has died. Waiting until after the first spouse dies to do tax planning deprives the family of the benefit of one spouse's exemption equivalent. Effective use of the exemption equivalents requires planning while both spouses are alive and healthy. Third, there are ways that an estate can grow to the taxable level that people don't typically think about. One way is that there could be a wrongful death suit if one spouse dies due to an accident or medical malpractice. That settlement could easily push the estate above the taxable level. Fourth, Congress has changed the tax law so many times, it is possible that the law could change, to the family's detriment, after one spouse dies. Traditionally, increases in the estate tax exemption have not kept pace with inflation. Fifth, estate tax planning while both spouses are alive can avoid unpleasant estate tax surprises that do come up that might require the payment of estate tax after the first spouse dies.

How can I reduce my Estate Tax upon my death?

Federal Estate Taxes are only charged against Estates with assets exceeding $1 million in value (2002 and 2003). If you think your Estate will exceed $1 million at the time of your death (or $2 million if you are married), the following general tips can be used to reduce death (estate) taxes by lowering the value of your Estate at the time of your death. This amount which is exempt from Federal Estate Tax increases to 1.5 million in 2004 and 2005 (3 million if you are married); 2 million in 2006 through 2008 (4 million if you are married); 3.5 million in 2009 (7 million if you are married) and then in 2010 there is no federal estate tax. However in 2011 the Federal Estate Tax is returned to the 2002 level.

What services do you provide?

We provide a full range of estate planning services. We offer superior documentation written in plain, simple English. Our clients have no difficulty reading and understanding our documents. That is extremely important when they have to use those documents.

How do you charge for your services?

For estate planning, we charge by the project, not by the hour. We use several factors to determine the fee in a particular case. While our fees vary greatly from client to client, our fees are reasonable for the work we do. We do not try to be the cheapest law firm. We try to provide the highest quality estate plan for you and your family. To paraphrase the commercial, "We would rather justify our fee than have to defend the quality of our work."

Do you offer a free initial consultation?

Yes, in most cases. We charge when our clients know exactly what they are paying for and agree to the charges. With our approach, the client decides if they like us and want us to represent them. We decide whether we want to represent that particular client and take that particular case. Our initial consultation provides everyone the opportunity to know what work needs to be completed and how much it will cost before anyone is obligated to go forward.

Do we need to provide you any information before the initial meeting?

Yes. We are like medical specialists; we cannot really help you until we see the lab results. The information we need is like the lab work. It is a waste of everyone's time to meet unless we have everything we need up front. What we ask you to do in most cases is bring to the meeting the information we need to plan effectively.

What information do you need before the initial meeting?

We can send you our Personal Information Form (or pull it down from this website). In complex cases, it helps if we obtain detailed information before we meet.

What do you do with the information before initial meeting?

We review and analyze the information. Having the information analyzed gives us the opportunity to spot possible problem areas and identify potential solutions. In a taxable estate, the analysis is important. If we see the information for the first time when you come in, we may not think of potential solutions that could save you money. Often, we find that written financial information, no matter how detailed, does not always give us a clear financial picture. We do not always understand the written information, but by having it before the meeting, we have a chance to spot areas of uncertainty.

What should we expect during the initial meeting?

During the initial meeting, we want to accomplish four things. First, we want to understand your financial situation well enough to effectively plan for you and your family. Second, we want to understand your family situation well enough to effectively plan for you and your family. During the financial and family review, we may address trouble areas. Third, we help you determine your estate planning goals and objectives. Estate planning is really about meeting your goals and objectives. As we determine your goals and objectives, we design a plan that meets your goals and objectives. Fourth, we determine the documentation required to meet your estate planning goals and objectives.

When we accomplish those four things, we will quote you our fee for drafting your estate plan. We will not quote a fee until we know what your case requires. It is unfair to you for us to quote you a fee that could drastically change based on the facts of your case. It is unfair to us to be obligated to perform work at a certain fee without knowing what your case requires.

We prefer to work with your other professional advisors. Together, we all decide what your particular set of estate goals and objectives are and what will work best for you. Therefore, we welcome you to bring your financial planner, insurance agent, stockbroker, CPA, and trust officer to the initial meeting. That way, everyone who is working for you participates in the plan design, and they know what planning is being done for you and why. With everyone working together, your plan will be better.

All of that sounds complicated; how long does the initial meeting take?

That really depends on your circumstances. These are not exact times, but here are some estimates: For a single person with no children with a non-taxable estate, it takes about 2 1/2 hours to design the estate plan. Add about 30 minutes for a married couple, and about 30 minutes for each child. If any children are minors, add at least another 30 minutes. The younger the youngest child is, the longer this part of the planning takes because we have to do more planning for younger children. If the estate is taxable, add another 30 minutes. These are only guesses. People who come from large families take much longer because there are more people to consider who might have an impact on the planning. People who have complex financial situations (most people's finances are really more complicated than they imagine) take longer. People who have children from outside their current marriage take longer. If both have children from outside their current marriage, that takes longer still. If they have "yours, mine, and ours" children, it takes even more time.

Why does it take so long?

Contrary to what you may have heard, estate planning is complex and difficult. Less than 1% of the population has the right kind of estate plan that meets their needs at any given time. The reason is simple. Preparing an estate plan that meets your goals and objectives requires planning that adequately considers your situation. Few attorneys know how properly design and draft estate plans. It is one of the most complex areas of the law. Few attorneys will take the time to truly understand your situation before they start drafting documents. The normal result is a poorly designed and drafted estate plan that does not do what the client wants. Then, even if your documents were very good when they were done, too often they are not maintained.

Estate planning does not have to be this way. We find that by taking the proper amount of time to plan, we do the complex and difficult work that we are trained to do. Our clients provide information, answer questions, and benefit from our work.

Most people think planning their estate is about planning for their death. Nothing could be further from the truth. Estate planning is about taking care of you and your loved ones first. It is about planning for your assets only after you take care of the people who are important to you. We focus on planning for the people because people are more important than money. While it does take some time to do the job right, our clients generally enjoy the meeting. Why shouldn't they? After all, they are planning for the most important people in their lives. Most of our clients truly enjoy the time spent planning their estates. When it is over, most of them readily admit there was a lot more to it than they thought, and they are glad it is taken care of properly. We take a lot of time because we do the job right the first time. It always amazes us how many people do not have time to do it right the first time, but they have time to either re-do it, or fix the mess created because they did not do it right. If they do not do the job right, fixing the mess created takes a lot more time and it is forced on them. Proper estate planning avoids these problems.

What happens at the end of that meeting?

When we quote a fee, it is not an estimate. It is our exact fee for drafting the legal documents required to meet your estate planning goals and objectives. What happens next is completely up to you. You may decide to hire us or you may choose not to hire us. If you hire us, we all sign a legal services agreement for the work to be done. Then, you pay us a retainer. We go to work drafting your plan and you pay us upon completion, usually about two weeks after the initial meeting. If you decide not to hire us, you owe us nothing and we hope we can part friends. We do not use a high pressure approach. We believe that the choice of an attorney is an important one and you should not be pressured to hire any attorney, not even us.

How long will it take to complete our estate planning documents?

Usually it takes about two to four weeks (two weeks in most cases). We can work faster if we need to, and some cases take a little longer.

If we decide not to hire you, haven't we wasted a lot of our time and your time?

Not really. We recognize that your time is just as valuable to you as our time is to us. We do not want to waste your time. In the sense that much time was spent and no actual documents were prepared for you, the time is gone and cannot be recovered. However, it is not wasted. You still have collected all of the information you need to find a law firm to prepare your estate plan. You heard our planning ideas and we shared our expertise with you regarding your situation. We showed you some problem areas that you need to address. If you do not like our plan, at least you know one way you do not want to do it. Some time is lost, but it is not wasted. The truth is you gained a lot even if you did not hire us.

Our time is another matter. Of course we hate to spend a lot of time for someone and get nothing for it. Who wouldn't? But what are the choices? We love what we do and we love helping people. We believe that clients should not have to hire us without knowing what we are going to do for them. However, until we have taken the time to plan properly, we do not even know how we can help a client. We have not found another way to provide clients the opportunity to see our design work and give us the chance to show them what we can do without risking losing our time. Therefore, we accept that risk willingly.

How can you afford that risk?

The truth is that we cannot afford it. However, since 95% of those who come to see us do hire us to prepare their estate plan, we do not view initial meetings as high risk. We know that to earn a client, the plan design and our fee must satisfy the client. People will not hire us if they are not confident in our abilities. We sincerely believe that if people want the job done right, and they give us the opportunity to show them what we can do, we are not taking much risk.

If we decide to hire you, how will we know we are getting quality work?

Without training, most people would not know what to look for in an estate plan. However, we do not think it is difficult to recognize high quality when you see it. Our clients who have compared our work with the work of other firms have no difficulty seeing the superior quality of planning and drafting that we offer. Our work has been scrutinized by and passed the muster of the IRS, creditors, courts, and numerous other law firms. One of our plans has NEVER failed because of lack of quality in drafting or design.

Will you be around if we need help in the future?

We are planning to be. If something happens that prevents us from supporting you in the future, we are members of WealthCounsel, a national organization of estate planning attorneys. There are over 600 members and someone can pick up where we left off if that is necessary. We provide our clients with the WealthCounsel phone number so they can find someone else if necessary. I also have designated attorneys who would take over cases for me if something happened to me. Those attorneys are familiar with the type of planning I do and could service my clients. In that sense, we have a lot better chance of providing you future service than most firms, and as good a chance of providing you future service as any firm.

Is there anything else we need to know before we start this process?

Yes. Do not become discouraged. Realize that you will get through this like you get through anything else complicated. You just have to spend some time working at it. Once you spend that time, you and your professional team can produce a plan that fits you and your family situation perfectly. You only have to plan properly once in your life. After that, you just have to maintain it like you do a car. It needs gas and oil, and sometimes a tune-up, but it provides you transportation as long as you take care of it. Your estate plan will last much longer than any vehicle if you start with the right plan. We wish you the best and sincerely ask you to consider giving us a chance to help you. Isn't your family worth the time and effort of good planning?

Cost of Planning

Everyone is concerned about cost. When it comes to estate planning, let me give you two quotes that say it better than I could. John Ruskin, over a century ago, told one of his cost conscience customers that

"[it's] unwise to pay too much, but it's worse to pay too little. When you pay too much you lose a little money – that is all. But, when you pay too little, you stand to lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot – it can't be done.

If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that, you will have enough to pay for something better."

~John Ruskin(1819-1900)

"Two weeks of solid work on his estate may be worth more to an executive than his financial gains of the past ten to fifteen years."

~Joseph D. Coughlan, "Executive Blindspot", Price Waterhouse Review, Autumn 1966, pages 38-39.

How much does a will cost?

I get phone calls asking that question a lot. That sounds like such a simple question, but it really is not. It depends on what is included in the will. A will is not a commodity – not all wills are alike. Ultimately, like everything else, you are going to get what you pay for. One of the things that makes comparing fees, especially over the phone or over the internet, challenging, is not knowing what exactly is included. Does the fee quotation include all parts of the planning or just a will. A will by itself is not a complete estate plan, not matter how comprehensive and thorough it is. Typically wills can cost from $150 and up, with complete will plans costing from a few hundred to more than $10,000 depending on what is included. Some law firms quote fees to answer the question you ask and some quote fees to cover all the documentation. Before the answer could possibly mean anything, you have to know what is included. Most high quality law firms will not answer the question of cost over the phone because they haven't interviewed you and don't know what you need. Thus, if you call a firm and are actually given a specific fee quotation, that may be your first clue that you are not dealing with a reputable and knowledgeable firm.

I'm concerned about the cost of an estate plan. I just don't feel like I can afford to spend a lot of money on my estate plan.

Basic planning that covers the most essential needs for a married couple can cost as little as $325, but once you understand all of the issues, you will realize that probably won't take care of all of the major needs. It just takes care of the most essential needs. Basic planning that covers the major needs of a family is likely going to run from $1500 to $9500 for a single person and $2000 to $10,000+ for a married couple, depending on family situation, complexity of the case, the options selected, etc. Watch out for firms consistently on the low end of this scale. They typically are going to squeeze you in to whatever forms they have, whether or not those forms actually work for you. Ideally, you want a firm that will interview you thoroughly to determine your needs, then custom draft the plan to fit your needs.

If cost is the most important issue to you, you are very likely to implement planning that will fall far short of what you intend!

Estate planning is not the time to be cost driven – it is the time to be benefits driven. This is your family your are talking about. How much are they worth to you? More benefits do mean more cost, but you don't have to spend a fortune. You are better off implementing something inexpensive and basic as soon as possible, then upgrading your plan when you can afford more rather than doing nothing. In the long run, to get the job done right, getting something basic in place until you can afford more will cost you more money, but having no planning could cost your family a lot more than having no plan. No matter how you slice it up, a good estate plan will return far more to you and your family than most other investments. The less you spend, the lower your return, and at some point, it gets very expensive for your family for you to not spend the money.

There is a cost to planning, but there is a much higher cost to not planning.

How much would it cost your family for you to not have a plan in place if you became disabled or died? How much would it cost you if your spouse became disabled or died with your current plan in place? If you leave minor children orphaned, and you don't have a will, your children become wards of the state until a court can appoint an appropriate permanent guardian. That could take up to two years. Good estate planning will reduce the cost of what happens upon disability or death far more than the cost of the planning. Also, you may not be able to afford the best estate plan, but there may be lower cost alternatives that would get you most of what you want, or at least get you the most important things. Even good minimal planning will more than pay for itself. Also remember, it is not a question of whether you will need an estate plan, it is a question of when. At some point, everyone will either die or become disabled. Don't leave your family in a jam when expected events occur at unexpected times.

What you really want to know

You really want to know is what the plan will do for you and your family. Then you can compare the price, but until you know what you want, the "How much does it cost?" question does not make much sense. If you wanted to buy a house, how helpful would it be to call several real estate agents and ask them about the price of their latest house listing? One might say $150,000, another might say $750,000, and the third might say $25,000. Do you have enough information to make a decision now? Of course not. The numbers mean nothing to you because you don't know what type of property it is. My experience is that most people who pay for planning that does not work either started with this question, or they said, "I know I need a simple will" and asked a lawyer to do a simple will for them. In other words, the people had no real idea of what they wanted , or their entire decision was based on cost. We can help you with this. Email info@rexhogue.com for a copy of our latest Personal Information Form under the complimentary consultation section of this website.

Final Arrangements

I commonly get questions about this. Though funeral planning is not my area of expertise, some funeral directors have kindly provided the following information to me about funerals. There are questions about how funeral plans fit into estate planning documents too.

What is a final arrangements document?

It is a way to express your death and burial preferences in writing. What you choose to include in your final arrangements document is a personal matter. A typical final arrangements document may include:

The name of the mortuary or funeral home that will handle burial or cremation
How your remains will be transported to the cemetery/memorial park and gravesite
Whether or not you want to be embalmed
Details of any ceremony you want before the burial or cremation
Who your pallbearers will be (if you want any)
Type of casket or container in which your remains will be buried or cremated, including whether you want it present at any after-death ceremony
Details of any marker you want to show where your remains are buried or interred
Where your remains will be buried, stored or scattered
Details of any ceremony you want to accompany your burial, interment, or scattering.

Can I include my final arrangement preferences in my Will?

A will is not a good place to express your death and burial preferences because it probably won't be located and read until several weeks after you die. The Will should be reserved to dictate how you distribute your assets. It is best to prepare a separate final arrangements document before you die. Preplanning some of your final arrangements not only can spare your survivors the difficulty of making these decisions while they are grieving, but it can save a great deal of money.

For many people, death goods and services cost more than anything they bought during their lives except homes and cars. Wise comparison shopping in advance can help ensure that costs will be controlled or kept to a minimum.

What happens if I don't prepare a final arrangement document?

If you die without leaving written instructions about your death and burial preferences by preparing a final arrangements document, state law will determine who will have the right to decide how your remains will be handled. In most states, the following people (in this order) have the right to decide and the responsibility of paying for the reasonable costs of disposing of the remains:

Spouse
Child or children
Parent or parents
The next of kin, or
A court-appointed public administrator

Disputes may arise if two or more people share responsibility for final arrangement decisions, such as whether the body of a parent should be buried or cremated. These disputes can be avoided if you are willing to do some planning and express your wishes in writing.

How can I prepay for my final arrangements?

Shopping around and prepaying for the most suitable and affordable funeral goods and services is a wise idea. By preplanning, your survivors can be spared from having to make these decisions while they are grieving. You can also spare your loved ones from the financial burden of having to entirely pay for your funeral arrangements -- which can be quite costly. The following are typical ways to prepay for final arrangements.

Have a licensed funeral director at your local funeral home or mortuary establish a regulated Trust fund. If you choose this method, be sure you go to a funeral home that you expect will stay in business at the time of your need. There are times when funeral homes have gone out of business and the consumer finds him/herself without funds and without recourse. Also, be sure that you can transfer or withdraw funds without incurring a large financial penalty. While there are laws that regulate prepayment plans, it's best to be careful because there are cases of Trust fund abuse and theft by funeral homes and mortuaries which could be quite devastating to your survivors.

Purchase a life insurance policy that approximately equals the projected value of your funeral. One option is to go to your bank or savings institution to set up a Totten Trust or Payable Upon Death (P.O.D) account earmarked for your final arrangement expenses. Most financial institutions will set one up for a small fee. Unlike money applied to traditional funeral prepayment plans, these funds are easily transferred or withdrawn, and you have complete control over the money while you are alive.

What services can I expect to receive from a mortuary or funeral home?

Most mortuaries or funeral homes are equipped to handle many of the details related to disposing of a person's remains. These include:

Collecting the body from the place of death
Storing the body until it is buried or cremated
Making burial arrangements with a cemetery or memorial park
Conducting ceremonies related to the burial
Preparing the body for burial, and
Arranging to have the body transported for burial

The costs of these services vary, depending on which mortuary or funeral home you choose. It is essential that you shop around if cost is an important part of your decision. Ask for the General Price List whenever you visit a funeral home or mortuary. The General Price List must, by law, contain identifying information, itemized prices for the various goods and services that each funeral home/mortuary sells, and other important disclosures. The General Price List enables consumers like you to comparison shop and to purchase, on an itemized basis, only the goods and services you want. By law, if you request to see the General Price List, the funeral home/mortuary MUST, by law, comply.

Advanced Directives

Business Planning

Cost of Planning

Estate Planning

Estate Tax Planning

Final Arrangements

Joint Ownership with the Right of survivorship

Life Insurance and Estate Planning

Power of Attorney

Probate

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