Monday, June 7, 2010

What happens to your estate when you do not have a plan?

     For those of you who do not follow generalized examples, I have created a scenario that could very well happen to any individual out there if he or she does not plan his or her estate.

     To start off, I would like to remind you of the four stages of estate planning:
     Stage One: Alive and Well
     Stage Two: Catastrophic Illness
     Stage Three: Death
     Stage Four: Beyond Death

     To provide you with some background information, Joe and Mary are married with three children and have never been concerned about planning, so they have done nothing about it.

     In effect, during the First Stage of estate planning Joe and Mary have control over their assets without needing permission from anyone; however, if they get sued their assets are exposed. If any of their children get divorced or sued, the assets remain unaffected.

     Eventually, Joe got sick and had to go to a skilled nursing facility, moving the couple into Stage Two. As a result of Joe’s sickness, Mary had no access or control over Joe’s IRA, 401 (K) and personal savings account. She was also told that a lien would be placed on their home if it is not taken out of Joe’s name.

     Now, the family assets remain unprotected and Mary is spending $10,000 per month for Joe’s care. Mary realized she needed help so she went to a Medicaid planning attorney.

     Due to Joe’s illness, the attorney petitioned the probate court to have Joe declared legally incompetent. In effect, Mary was eventually appointed as Joe’s guardian. Before meeting with the attorney Mary had to pay privately for Joe’s care for several months at $8,000.00 to $10,000 a month. In addition, Mary had to pay the attorney for his time, advice, AND the Probate court proceeding on top of court fees! In total, she lost around $70,000 during the entire process.

     Eventually, Joe passed away which put Mary in Stage Three of estate planning. Since the assets were in Mary’s name, there was no probate upon Joe’s death. Mary lived for several years longer than Joe; however, she too passed away. Since the assets were in Mary’s name upon her death, there was a probate hearing preceding her death. The process took OVER a year. Since neither Joe nor Mary had trusts with estate tax provisions, some of Mary’s assets were exposed to estate taxes at a rate of 50%! The taxes MUST be paid within nine months of Mary’s death. Furthermore, Joe and Mary did NOT have life insurance because they did not believe in it.

     Now, Joe and Mary’s three children were left to deal with the sticky situation. How do they pay the estate tax with no liquid assets? With the delays of probate, the children decided that they had to liquidate Mary’s IRA in order to pay estate taxes. When the children took the money out of Mary’s IRA they had to pay income taxes at a rate of 30% (in order to pay the 50% estate tax).

     The end result of the entire process: unnecessary probate attorney fees, court fees, taxes, AND delays.

What’s the moral of the story?

     When it comes to estate planning, it is very important to make sure you are prepared for the future. The process will be made much simpler if it is done before the problem arises; that way, you do not have to worry about how your assets will be protected, who will protect them, and where will they go.

     If you are interested in learning more about estate planning and would like to set an appointment, you may contact Gerald Turner either at 781-239-8900 or

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