Dear Mr. Miller:
I have seen a lot of articles about Trusts that didn’t work. I only have a house, and IRA of $750,000, and securities of $250,000. I’m 45 years old, married with two teenage daughters. How do I know if mine will work and what happens if it doesn’t?
Worried Trust Owner
First, to say you “only” have what you do, is a mistake. The vast majority of people have way less than that. But to answer your question, your best security in knowing that your Trust will work is to use a qualified person to draft your Trust and ancillary documents.
Qualified Person: So what’s a qualified person. The simple answer is to say who it is not. It is not the paralegal down the street or the retired personal injury attorney that you know There is a movement afoot with the State Bar (the ones who regulate the practice of law) to allow non-attorneys to do estate planning. (Of course, non-attorneys already do so, just not legally.) Some people think this is a big mistake; all I’m going to say is that just like you wouldn’t hire a paramedic to perform brain surgery or treat your diabetes, you shouldn’t hire non-attorneys or non-specialists to draft your estate planning documents. It is a very specialized field and the losses if a mistake is made can be tragic.
So let’s go through who is available, legal or not. There are typists, paralegals and attorneys. I discussed their differences here. There are Document Preparation Drafting firms. Essentially, a paralegal working on his/her own who refrains from giving any legal advice (although most do anyway).
Types of Attorneys: So what types of attorneys are there? Just like physicians, attorneys tend to specialize, at least after they are practicing for at least a few years. The attorney who specializes solely in personal injury, probably doesn’t know much more about estate planning than what he/she learned in law school, i.e. very basic. Same for the litigation attorney. What you want is an attorney who specializes in estate planning and/or elder law.
Certified Specialist: So how do you know if the attorney actually knows his or her stuff. After all, anyone can say they specialize in anything they want. That is why the classification “certified specialist” was created. These attorneys are “certified” by a third party organization that they have the requisite knowledge and skill to be called a specialist. I wrote about that here. The vetting process by the organization can be quite substantial (and is in California) or little more than a mere listing service of what the attorney’s interest may be. So you need to determine what the vetting process is before you put your faith in the certification. See my article for the California approach.
Unless your means are very limited, and maybe not even then, I would advise using a certified specialist attorney. That’s what we are and have been for almost 30 years and I am very proud of that fact.
There is one more category of “person” that you can use. That is an online artificial intelligence drafting service. Again, not an attorney. And not appropriate except maybe for those of very limited means.
Necessity to Review Documents Periodically: Have your estate planning documents been reviewed lately? That’s important, too. Maybe just as important as having a qualified individual draft the documents in the first place. Think about it: everything changes all the time. We call it wealth, health, and family. All three of these things are always changing. You are probably wealthier than you were 10 years ago; as you get older, your health begins to decline–although hopefully for you, not at 45. And your kids get older. All of these factors play into the attorneys advice and recommendations. And as these factors change, your documents may need to be updated to deal with these changes.
For example, you may have originally decided that after you and your wife die, your children would get their shares once they hit age 25. You had less money then and that seemed appropriate. But now, say 10 years later, one of your children may be such a spendthrift that she will need someone taking care of her money for her entire life. If so, that needs to be discussed with your attorney to determine exactly how to deal with that issue. In other words, your estate plan needs to be reviewed periodically to make sure it is still up to date with any changes in your situation and any law changes. I generally advise every 2-3 years.
Disasters if Trust Does Not “Work:” What can happen if your Trust doesn’t “work.” Obviously, it depends on the circumstance. If your daughter really is a spendthrift, then she gets her money at age 25 and blows it all by age 26. In your case that’s a loss of $500,000. Can this really happen? Absolutely, and I have seen just such a situation.
But more likely is if you have a stroke and have lost mental competence you are going to want someone, probably your wife, to handle your financial affairs. She probably won’t have a problem with the securities account because it is in the trust and she is probably a co-trustee. But the IRA is different. It is in your name, not hers. If the power of attorney (one of the ancillary documents to the Trust) does not exist (and often I see this) she may have to go to court to obtain authority to make changes in the IRA investments or start withdrawals.
Worse, if you need long, long-term skilled nursing in a facility, this gets expensive. Acute and subacute can cost $10-20,000 a month or more (at $15,000 that is $180,000/year). In order to prevent your entire nest egg from being wiped out, your wife may want to qualify you for Medi-Cal. We feel we can generally qualify anyone for Medi-Cal if we have the correct documents to work with. If yours are less than they need to be (and interestingly, most I see are), your family could be out of luck.
So if you have any doubts about who drafted your Trust or if has been more than a few years since it was drafted, it should be reviewed by a qualified, expert, attorney. Give us a call at 760-436-8832. We offer a free initial appointment. We would be pleased to meet you.