(The Dallas Examiner) – Advance care planning – it’s a sensitive topic many families might feel uncomfortable discussing, but one that experts have said is necessary. Without preparing and discussing end of life issues, family estate planning and the will, loved ones and siblings usually end up in court to fight for family assets.
Estate planning could get complicated, especially if the parents remarried and have children from previous and current marriages.
Rex L. Hogue, JD, founding partner at Haiman and Hogue PLLC, discussed ways to make the process as smooth and efficient as possible during Blended Families: A Brady Bunch Nightmare and its Effects on Care, Estates, Guardianship and Probate, presented by the North Central Texas Area Agency on Aging.
He used the example of the Brady Bunch family and their estate planning since they are a blended family with children from both the husband and wife’s side.
“We wrote this program because we have so many people coming into our offices that are blended families and do not realize the consequences that can arise if you have no planning or if you have poor planning, but then he’s going to show you if you have good planning what can happen,” said Sheila Williamson of Haiman and Hogue.
On the sitcom, Mike is 44 and Carol is 43. They married three years ago and have a prenuptial agreement. Mike’s boys are ages 17, 14 and 11. Carol’s daughters are 15, 12 and 9.
“Right now, they have no plans for their estate as a blended family,” Hogue said. “When we start planning for families, I always try to learn about the family before I learn about the assets because that kind of puts the assets in context. They have a joint home checking and savings and they’ve got household goods. Mike has a 401k from work, and they’ve got two cars and they’ve got life insurance on each of them, but they’ve got the beneficiaries are either the spouse or their own kids. Mike has an IRA he no longer contributes to after the marriage, and Carol has an IRA she no longer contributes to and then they got a prenuptial agreement.”
Hogue said the attorneys advised each of them to stop contributing to the existing IRA and open new ones and keep them as separate property.
“Right now, they have no planning so what if one of them becomes incapacitated?” Hogue questioned. “Well, they’re looking at a guardianship. And what happens if one of them dies? That’s going to mean probate. The home would then be owned half by the surviving spouse and half with the kids. And given that the kids are minors, that’s going to create problems. That home will be under a guardianship for the kids for years. And the life insurance paid to the kids will also be under a guardianship. But the community property will go half to the surviving spouse, half to the decedent kids and the survivor does not owe the decedent kids anything past the age of 18. And one third of separate property would go to the surviving spouse.”
The three dragons
Hogue then informed the audience what happens if they have no plan.
“Well, we’ve got an 800 number that you can call, and this is what their plan would look like: 1-800-you-blew-it,” Hogue said. “Carol’s already seen that with her own family. Now, from an estate planning standpoint, I tell people there are three dragons we plan for.”
He stated the first are the administrative dragons such as the power of attorney failures, which frequently fail. Then there is guardianship and probate and then medical documents making medical decisions and then the last group of dragons is what we call the predator dragons.
“I want you to notice that that dragon just kind of came flying out of the sky when we talk to people, and they tell us about lawsuits they’ve been in,” he said. “I frequently hear that this lawsuit came out of nowhere. Folks, there’s no such thing as a lawsuit that comes out of nowhere. Lawsuits occur when a triggering event meets risk, that’s where lawsuits come from and if you know what your risks are then you’ll know where lawsuits can come from.”
Hogue then discussed the administrative dragons that deal with medical issues.
“I’m going to start on with incapacity, and there’s two aspects of incapacity,” he stated. “The first is medical issues. We have six key medical documents that we use. The HIPAA patient authorization authorizes someone to gather medical information, and it works in conjunction with the durable special medical power of attorney. Now having a medical power of attorney but no HIPAA authorization may force your medical agent to make decisions about you without the adequate medical information they need to make an intelligent decision.”
“Then we have a document we’ve developed called personal and health care instructions. And it’s not a legal document, but we use it to help people figure out if this is what I would want if I were in this situation or that situation. And it’s really our response to the Terry Shaivo situation from a number of years ago. We send it to physicians, and that is also known as a living will. Then the anatomical gift form, and there’s two things on the anatomical gift and everybody should sign this form. One is whether they want to make anatomical gifts, and no is a perfectly acceptable answer. The other is whether you would be willing to undergo an autopsy that’s not required by law, and again no is an acceptable answer.”
Hogue said the other side of incapacity is what he calls the financial or legal side, and most people think of a power of attorney, but that’s a document where the principal gives an agent a power of attorney. It’s really an invitation to third parties to let the agent act on their behalf.
“Now a lot of people are surprised to learn that powers of attorney frequently fail. I don’t have time to really explain today why they fail but I’ve been doing this for over 30 years, and I can promise they fail a lot with a lot of different institutions,” he stated. “Now, if the power of attorney doesn’t work, there are two plan Bs.”
The first is a guardianship sometimes called conservatorship.
In some states there is the court supervised management of assets for somebody who is legally incompetent; some people call it living probate. The other possibility is a living trust which can replace the power of attorney, and it provides a necessary substitute signature. Guardianship and probate are caused by the same problem while they’re very different procedures. The basic underlying issue is the same: the problem is a person is unable to sign necessary documents to manage or transfer assets.
Guardianship and probate solve that problem by having a judge authorize a substitute signature.
“Frequently, they are the only solution to the problem,” he said. “My question is, are they the best solutions to the problem? Guardianship, I tell people, it’s one of those 12-step programs that nobody really wants to be involved in, and the minimum cost is between $9,500 and $30,000 a year now. That’s not the cost for one of the attorneys, but there’s at least two attorneys involved and there’s a lot of steps that take place. It’s expensive, and it can take months for the annual cost. I’ve been told can be as little as $2,500 but it’s usually going to be more than that, and it seems like a constant stream of surprises. It goes on for as long as the ward is alive, and it’s disastrous for otherwise good estate business and asset protection planning.”
The alternative is a trust, which is similar, but if the person becomes incapacitated the rules are very different. The assets are then managed by the trust. In that sense, the trust replaces the power of attorney. An institution can refuse to deal with the agent, but they cannot refuse to deal with the trustee because the trustee holds legal title to the assets. It can avoid guardianship and provide incapacity instructions.
The second expense is probate, and the next one is creditors; those can also sometimes be avoided by good planning.
Passing assets
“There are four ways that assets pass. And by the way, there are only four ways so think of this. Like when you go to the grocery store, at least in the old days, when they would scan every item in your cart. Only we’re going to pretend like they’re going to put those items in one of four bags,” Hogue said. “The very first thing we looked at in administration was that assets owned jointly with the right of survivorship. If so, it passes directly to one or more individual survivors. And if it doesn’t pass by right of survivorship, we ask if it passes by beneficiary designation like life insurance annuities, retirement plans or a transfer on death. I refer to this as plan by the box. I call it that because there’s a box on a form that says if something happened to you where do you want the assets to go, and whatever you put in that box will dictate the rules.”
Hogue stated that intestate succession is the will the state legislature has written for citizens in case they haven’t written a will, or the will isn’t valid for some reason.
He also stated the best time to make a will is when their child turns 18 years old because they would be considered adults and no longer under mom and dad’s control.
“Sadly, we don’t have a bunch of 18-year-olds lined up in our office to discuss a will with their parents, but families need to prepare as early as possible,” Hogue concluded.