Estate Planning 101

By far, the most common personal financial planning mistake I see is the complete absence of an estate plan.  Do you have a will prepared?  What about a trust?  Have you written advance medical directives or assigned a medical power of attorney?  Have you identified beneficiaries?  For the average person, the answer is, “No.”

The second most common mistake is similar to the first.  A family will pay thousands of dollars to an attorney to draft an estate plan.  However due to miscommunication, misunderstanding or simple lack of follow through, the plan fails miserably.

A person does not need to be a millionaire to benefit from an estate plan.  Do you own a home, business or other assets?  Do you have children?  Are you going to die someday?  If you answered, “yes” to any of these three questions, you are a candidate for estate planning.  There are several reasons the average person would want an estate plan, namely to:

o Assign powers-of-attorney, which allow your loved ones to protect you during an emergency.
o Inform others which medical procedures are acceptable to you via advance medical directive.
o Protect your family.
o Select the legal guardian of your children if you die prematurely.
o Protect your business if you are self-employed.
o Determine who inherits your property and assets.
o Ensure your money is spent the way you intended after you are gone.
o Donate to your favorite charity.
o Anticipate and correct any potential complications during the transfer of your wealth.
o Avoid common tax mistakes, including unecessary liens.
o Make sure your assets are not intercepted by an adverse party such an ex-spouse.
o Protect your privacy posthumously.
o Avoid unnecessary expenses and delays associated with probate court.
o Make reasonable preparations for your inevitable death, burial and final expenses.

It happens time and time again.  People recognize they have estate planning needs.  Therefore, they pay a local attorney handsomely to set up a Revocable Living Trust.   The happy couple believes their estate plan is now done.  Unfortunately, they could not be more wrong.  The creation of a trust is not the end of the estate plan.  It is only the beginning.  Why?  An empty trust is a lot like an empty fire extinguisher.  It looks cool, but what good will it really do?  The conundrum is simple.  For assets to be legally protected by a trust, the assets must first be transferred to the trust.  This process can be confusing and very time consuming.  A professional with the necessary expertise can and should do this for the client.

There is a glass wall set up by regulators that generally prohibits attorneys from giving investment advice.  Likewise, investment advisors are prohibited from practicing law.  These regulations are intended to protect consumers and rightfully so, but they also leave clients in an odd conundrum.  Who funds the trust?  Most attorneys are unfamiliar with the financial services landscape.  Likewise, most investment advisors do not comprehend estate plans.  A communication breakdown is almost inevitable.

Often the task of funding a trust is therefore left to the clients.  The clients are written given instructions by their attorney.  Everyone smiles and nods.  They sign a few papers and shake hands.  The clients usually go home happy and put their new estate plan on the shelf where it collects dust.  When they die, their heirs are surprised to learn nothing was placed in the trust.  So, it provides almost no benefit.

It is tempting to delay estate planning.  One of my favorite stories involves the owner of the Los Angeles Rams. A full explanation of what transpired is beyond the scope of this article, but I will attempt to summarize.  Carroll Rosenbloom was the majority owner of the Los Angeles Rams.  He had children by his first wife, but eventually divorced.  His second marriage was to a woman name Georgia Frontiere.  It was, coincidentally, her sixth marriage.  For the full story, I refer you to the NFL.  For the purposes of this article, Mr. Rosenbloom died in a swimming accident at age 72.  Sources say he intended to leave the team to his son, Steve.  However, Carroll just never got around to updating his estate plan.  The version of his will that would have left the team to his son was never properly executed.  Therefore, for what many believe to be tax purposes, Rosenbloom allowed his second wife to inherit the team.  He trusted her to “do the right thing.”  Many believe that in his mind, that meant to let his son, Steve, run and eventually inherit the team.  Instead Georgia promptly fired her step-son and assumed control of the team.  To her credit, the Rams won a Super Bowl.  Eventually she also died at the age of 80.  She had children of her own from previous marriages to worry about.  Steve was left out of the equation.  To make a long story short, the Rams were acquired by strangers.  Rosenbloom’s son never legally inherited the team.  To put that in perspective, Forbes valued the Rams at $2.9 billion in 2017.  Not everyone is lucky enough to own an NFL team, but hopefully everyone can profit from this lesson.  For the sake of those you love, do not neglect your estate plan.  Fund it properly.  Review it annually.  Update it as necessary.

Castle Rock Investment Company is a Registered Investment Advisor.  We are not attorneys, do not give legal advice or draft legal documents.  However, our firm can help you pick up where your attorney left off.  We can assist you with the critical task of funding your trust.  Members of our firm have experience and expertise in this area.  In order to enjoy the full legal benefits of the trust, assets must be transferred and retitled appropriately.  We can help.  Please contact us for a free consultation.

Written by Michael Angell, CFP®, EA
Castle Rock Investment Company
303.719.7523
Michael@CastleRockInvesting.Com
Copyright 2017