The Hidden Costs of Not Having a Basic Estate Plan: 3 Examples

By , November 3, 2011

Estate Planning file tabPeople in unique situations, like family business owners, parents of children with special needs, and people with substantial net worth are often very proactive about enlisting attorneys to craft a comprehensive estate plan. Most others understand the benefit of such planning – stating how your property would be divided up with specificity, appointing decisionmakers for any future incapacity, naming alternate guardians of minor children – but are hesitant to contact an attorney to set their affairs in order. This is entirely understandable. People rarely find themselves excited to consult an attorney in general, and even less so when the purpose is to contemplate your own mortality. The prospect of death or incapacity may seem unlikely for your age, making it easy to put off, and spending money on a backup plan may not seem like the best use of limited resources in a tight economy. Notions of costs in the thousands rather than hundreds or the belief that an expensive “living trust” is needed to avoid probate doesn’t help much either.

But for all of the practical difficulties people know are possible with a lack of planning, few are aware that there can be significant financial consequences of improper planning, even for those modest means. In most cases, even basic estate planning will offset significantly higher hidden costs in the future. After the break, three extremely common examples of these costs.

The Probate Bond

Anyone who acts as the executor or administrator of an estate is required to furnish a probate bond, which is a guarantee from an insurance company that the beneficiaries will be reimbursed if that person runs off with assets of the estate. While it gets little fanfare, one of the more important provisions of most wills is the clause waiving that bond, which is very common when the trustee is a family member or close friend of the decedent. The reason that waiver is important is because the bond is charged against the estate, and can be quite expensive. By way of example, a probate bond for a $200,000 estate currently costs upwards of $650, which is more than I’d charge for a basic estate plan (will, durable power of attorney, health care proxy, and living will). If you have a nice house in the suburbs, you can double that figure.


Insurance-Related Costs

Attorneys are not generally in the business of selling insurance, but those of us in estate planning think about it and talk about it quite a lot. If you are one of the breadwinners of a household, it’s important to know how much term life insurance you should have, and whether disability insurance is warranted. For people in certain age and net-worth ranges, long-term care insurance can help to preserve the wealth you’ve accrued for future generations, or to give away property without being disqualified from Medicaid at a later date; for others it may largely be a waste of money. If you own a business and hope that your kids will take it over someday, you may need whole life insurance to ensure possible estate taxes can get paid without eating into the business operations. In turn, many people don’t realize that life insurance, while income tax-free to the recipients, does count towards the owner’s federal estate tax calculations, but a common form of planning can readily avoid this issue.

Insurance agents are valuable assets to clients and attorneys alike, and alone they can offer you policy ideas to meet your goals. However, an estate planning attorney can help set those goals against the backdrop of an evolving tax and Medicaid landscape, and can make insurance goals an important part of the discussion.


Managing Incapacity

As people continue to live longer and longer, it becomes increasingly likely that, at some point, most people will require assistance in managing their affairs and living needs. For some people, it’s may be as simple as mobility issues preventing you from getting to the bank, and allowing a child to handle transactions for you. For others, it may require full institutional care. Even in the lightest of circumstances, a durable power of attorney and healthcare planning is warranted, and will not get any cheaper as time goes on. If an individual suffers from any dementia or disability that would prevent them from signing these documents with an attorney, your family would be required to apply for a conservatorship with the Probate Court is required. At a minimum, this requires a filing fee and the appointment of an attorney for you; if the applicant hires an attorney to help with the application, they will incur further expenses themselves. In either case, if you live a long and happy life, no money is saved by pushing back incapacity planning.


In conclusion, estate planning is not merely a wise practical investment, but a wise financial one as well.  The drafting of a few simple, affordable documents, as well as the far reaching discussions and decisions you make with your attorney as part of the planning process, can play a valuable role in preserving your assets for later use and future generations.  This is true even if you have limited assets and no reason to be concerned about estate taxes.  Please feel free to contact me or a local estate planning attorney in your area for more information.

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