Bay
Financial Newsletter
Planning
for Life Contingencies
Here
are some thoughts about tools that can help you plan for life contingencies
such as disability and incompetency.
THREE (PLUS) THINGS EVERYONE NEEDS FROM AN ESTATE PLAN
There are
three major things w all need from an estate plan. They are security,
security, and security! We
also need two more things, stability and flexibility.
Our plan should take into consideration the management and preservation
of our own assets during our lifetimes as well as the proper disposition
of assets and property at our deaths. So if your present estate plan
assures personal security, a comfortable retirement, and allows for
contingencies that might arise, then the present plan is a good one.
But if it doesn't accomplish all of the above, then more needs to
be done.
WHAT YOU DON'T WANT IS GUARDIANSHIP!
If you do nothing and for any reason at some point can't manage your
own financial affairs, someone may have to be formally appointed to
handle them for you.
The exact nature of guardianship proceedings varies from state to
state and sometimes from county to county. Even the title of the person
or institution chosen to manage someone's affairs - sometimes called
a "guardian," "conservator," or in some cases, "committee" - will
differ depending on the state in which the legal proceeding is instituted.
Guardianship is almost universally a proceeding to be avoided if possible.
The effect of appointing a guardian for a person who is not competent
to handle his or her own affairs is to transfer all legal powers over
the incompetent individual's life to a guardian who is appointed by
a judge who may never have seen either the person or the guardian
before the proceeding.
ALTERNATIVES TO GUARDIANSHIP
There are several estate planning alternatives to guardianship. The
decision as to which option to choose depends on many factors, including
your present financial situation, whether or not you have a relative
or close friend available to lend support, your present physical and
mental condition, and your personal feelings about managing your financial
affairs.
Joint
Ownership of Property. If you have a close relative or a very
good friend in whom you have complete confidence and trust, one alternative
is to place some property/assets in joint names with that individual.
But there are inherent and potentially serious disadvantages to this
option, including the possibility that the other person can take your
property, or that your assets can be subject to the claims of the
other person's divorcing spouse and/or creditors.
Power of Attorney. A second possibility is for you to give
a trusted relative or friend a power of attorney. A power of attorney
can be made as broad or as limited as you desire and can give your
attorney-in-fact rights as varied as the authority to: withdraw money
from your checking account, sell securities, invest in new securities,
access your safe deposit box, sell or rent real estate, initiate or
defend lawsuits on your behalf, file tax returns, make gifts on your
behalf, authorize your admission to a medical, nursing, residential
or similar facility, and nominate someone to act as guardian of your
estate.
REVOCABLE
LIVING TRUST AS A SOLUTION
The planning
option that will typically provide the most security and flexibility
(and is even better when coupled with a durable power of attorney)
is a revocable living trust (RLT).
After you make provisions for yourself during lifetime, that same
revocable living trust is an excellent and flexible vehicle for making
provisions for those persons or institutions you want to benefit following
your death. Although the trust is revocable during your lifetime,
it becomes irrevocable upon your death. This means you can be assured
that your wishes concerning the beneficial interest of others named
in the trust will be carried out accordingly.
ALMOST NO LIMITS TO WHAT A TRUST CAN DO
The purposes for which a trust can be established are limited only
by your needs and imagination as incorporated into the trust document
by your lawyer.
As always, please feel free to call or send an e-mail
to discuss these or other issues of concern.
