Thoughts on Estate Planning and Over-Seas FlightsThoughts on Estate Planning and Over-Seas Flights

Imagine that you are preparing to fly an airplane from Los Angeles to Honolulu. You know that airplane engines need to be serviced and overhauled after a certain number of hours of operation and you also know that the plane you are going to fly to Honolulu, over 3,000 miles of open water, has not been serviced recently. Would you choose to ignore the service requirements of the engines of that airplane, knowing that  you have only one chance to get it right and that failure is not a viable option, particularly when that plane must travel non-stop for 3,000 miles? Unless you enjoy living on the edge, you would make sure that your airplane was in perfect operating condition by having the engines serviced at proper intervals, by persons who are specially qualified to ensure the safe operation of the aircraft.

Estate planning is similar to flying an airplane to Hawaii: you have one chance to get it right, because once you die, that estate plan, just like the airplane engines, has but one chance to work properly, and if the plan does not work properly, it is by then usually too late to correct the problems. As attorneys who have been focused on estate planning for many years, the attorneys at Grant Morris Dodds have seen many failed plans, or do-it-yourself plans, which, figuratively speaking, have ended up crashing into the Pacific Ocean somewhere between Los Angeles and Honolulu.

When you engage qualified estate planning attorneys to create and periodically review your estate planning documents, you are entrusting this planning to persons who have helped thousands of people successfully navigate the estate planning skies and who know what it takes to make sure that the plan will achieve your goals.

Estate Planning For Your Home

One area of failed planning often deals with a person’s home or personal residence. For many of us, our home is our source of security. Because many people fear the loss of their home as a result of medical bills, one spouse or the other going into a nursing home, etc., many people often engage in ill-advised transfers, which seem like a good idea at the time, but which, ironically, may in fact be the very cause for the loss of the home.  Often we meet with people who have transferred ownership of their homes to their children. This is usually done to protect against loss of the house as a result of expenses associated with nursing homes. The problem is that by transferring the home into the child’s name, the parent no longer controls the home. As a result, if a parent wants to sell the home to raise some cash, or wishes to improve cash flow through a reverse mortgage, the child, by being the owner, or even by merely being only a joint owner, can effectively prevent the parent from selling the home or obtaining a reverse mortgage. And there can be any number of reasons why the child may feel justified in preventing his parent from obtaining cash from the equity in the home.

Problems with divorce.  An even more tragic result can occur where a home is transferred to a child and then that child is unexpectedly involved in a divorce. Where the home is given directly to the child, no strings attached, the home could end up as an asset of the marital estate between the divorcing child and his soon-to-be ex-spouse. In such cases, the child may not be able to give back the home even if he wanted to. The attorneys at Grant Morris Dodds also see cases where a child ends up declaring bankruptcy, and the home is lost to the child’s creditors.

Filing a homestead.  An excellent way to protect the home is through filing a homestead. The homestead protects the “equity” in your home from the claims of creditors. But a homestead is viable only if the person living in the home is also the owner. Thus, if you transfer your home to a child and continue to live in the home, the homestead you previously filed with the county recorded is no longer good because, although you continue to live in the home, you are no longer the owner and the homestead is void!

Protection from nursing home expenses.  Many times a person will transfer ownership of the home in anticipation of going into a nursing home, hoping that the transfer will save the home from being sold to cover nursing home expenses. Unfortunately, such a transfer will cause the person to be disqualified from obtaining assistance in covering nursing home expenses, and this disqualification can be for as long as five years. The result will be that the child will end up selling the home anyway, in the effort to raise the cash to cover the nursing home expenses, which will not be paid until the disqualification period ends.

There are various planning techniques available to protect the home without the negative results which can come from improperly structured transfers to children and others. So before you transfer your home, get some professional advice from an attorney experienced in elder law.

Protect your home with a living trust.  Living trusts have been fairly popular now for more than thirty years, so most people are familiar with the fact that a living trust can be used to avoid probate. But too often this simple planning tool is not used, usually as a result of a person’s unwillingness to expend the funds necessary to establish the trust. So, not wanting for the home to go through probate, the parent will either transfer ownership of the home to a child outright or will make the child a joint owner on the home, with all of the attendant risks as described already.

Pay On Death (“POD”) Accounts

Individuals who have only liquid assets, such as bank accounts, brokerage accounts, IRA’s, etc., may believe that by making the account a “Pay on Death” account (“POD”) there is no more need to plan. POD accounts are very effective in avoiding probate; however, the POD does not cover the situation where the account owner does not cooperate by dying, but rather lingers on in a state of incapacity. Because the POD is effective only upon death, and not incapacity, the accounts may be frozen until a guardian of the incapacitate person has been appointed.

Guardianship and Powers of Attorney

Guardianship.  For various reasons, seeking a guardianship is not ideal. The fact is, a guardianship is generally proof of ineffective planning. With proper planning, the delays, expenses and efforts associated with guardianship will generally be avoided. In most cases, a guardianship will take six to eight weeks to obtain and will normally cost three to four times what a complete estate plan would have cost, had the plan been implemented properly in advance.

Financial power of attorney.  Although not everyone needs a living trust, everyone should have in place a Durable Power of Attorney for Financial Matters. Such a power of attorney will ensure that in the event of incapacity, there will be someone who can quite easily acquire control over the liquid assets, thus providing the means for such a person to continue to pay bills and manage the investments in the event of a person’s incapacity. In many cases this may eliminate the need for a guardianship. One common misconception is that the power of attorney will extend beyond death, allowing the designated power of attorney holder to distribute the assets following death. In fact, a power of attorney becomes null and void immediately upon death of the person granting the power of attorney. Through proper use of the power of attorney, the will and possibly a trust, all the expenses associated with guardianship and probate may be easily avoided.

Health care power of attorney.  Everyone should also have a Durable Health Care Power of Attorney which designates a person to be able to make health care decisions for the incapacitate person instead of leaving this to a person who would otherwise need to be appointed pursuant to the expensive guardianship proceeding explained above.

People will often say to the estate planning attorney something to this effect: “I don’t care what happens; I will be dead anyway.” But the truth is, much of the estate planning process makes sure that a person has provided properly for himself or herself where he or she might linger on in a state of incapacity. Whether a person cares about what happens to his or her estate when they are gone, everyone is concerned about making sure they are cared for properly during any period of time during which they cannot manage their own affairs. And unless there is a desire to create dissension, confusion and even litigation over one’s estate at death, we all need to have a proper plan in place to make things as easy as possible on our loved ones who continue on after us.

If you would like a free consultation with one of the attorneys at Grant Morris Dodds, call 702-938-2244 to schedule your meeting.

Mark L. Dodds