This is a continuation of our Estate Planning Series posted the 4th Wednesday of the month. Below are portions of an interview with Elder Law Attorney, John Kenney located in Poulsbo, WA.
A WORD OF CAUTION! Estate planning and the laws around this subject are unique to the state in which you live. Because most of the people I serve are here in Washington State, I focused on the issues in Washington State. Obviously if you are reading this outside of Washington State, you should consult with an expert estate planning attorney in your area.
The opinions and information voiced in this material are not intended to provide specific advice or recommendations for any individual. Please consult a licensed estate planning attorney BEFORE taking any action.
JASON: I have heard of people listing more than one executor on their wills to carry out their wishes. Is that a good idea?
JOHN: No. I try to counsel them out of it when they list joint executors or all three of their children as co-executors. I tell them of a horror story I once had with a client—an elderly woman who had emphysema. When she came to see me, she was probably going to die within a couple of years. She put down both of her children as co-executors. Up to that point, I had not had any personal experience with such cases, but the professors in law school always cautioned us about this kind of situation.
My client assured me that her children got along fine and were great friends. Within a couple of days of her death, both of her children called me and each one said the other was a drug addict and had been stealing from their mom for years and should not serve as an executor, but of course, the one speaking to me claimed to be capable and wanted to do it alone.
I was mom’s attorney, so I withdrew from representing either of them. They then individually hired their own attorneys, and I was told by the attorneys that they spent about $10,000 sorting out who would be the personal representative. Sadly, that woman’s estate was probably only worth about $60,000, so they drained about one-sixth of what they would have inherited just fighting over who would be personal representative. The personal representative only carries out a mechanical function. The person cannot give more money to him or herself. It was very unfortunate, but the lesson I learned is it can be problematic to have two executors because they always have to agree on everything. People are not always going to agree despite your thinking that they will do what is best.
JASON: When should people consider getting a revocable living trust and why would they want that in addition to having the basic documents?
JOHN: A lot of people think that having a revocable living trust is just for the wealthy, and to a certain extent, that is true.
I do it for a lot of my higher net worth clients, but there is another reason that has nothing to do with your level of wealth: to avoid probate.
Probate is not a terrible process, but certain people want to avoid it entirely either because of the privacy issues, the time it takes, or the cost.
They may want to have the settlement of their estate be private, so with the revocable living trust, nothing is published in the newspaper. All the documents are kept with your attorney and family members. Nothing is given out, so the privacy factor is an important part of it.
Again, the probate process can take six to nine months on average, sometimes five years or longer. With a revocable trust, we can usually wrap up distributing property within thirty to forty-five days, unless there is real estate that has to be sold, which is dependent on the real estate market and not the laws.
The legal and attorney’s fees for the distribution and wrapping up of the revocable living trust is usually going to be under $1,000, and probate, on average, in Kitsap County is about $3,000 to $5,000, so the cost savings that people can realize may be important to them.
On the other hand, a basic will is just that—very basic. It is not designed off-the-shelf to do a lot of things. Many of my clients have adult children who are married, and they don’t just want their trustee or their executor to write a check to an adult child and say, “Here’s your share.” They want to protect that inheritance for their children from a child’s potential divorce. When a parent sets up a trust and continues that trust for the benefit of a child or multiple children, that trust is in most cases exempt from divorce. It is also usually exempt from those children’s creditors if they get into bad debt situations; it is exempt from creditors whom they may not know about; for instance, if they run somebody over in their car. It is also exempt from bankruptcy court, so if they file bankruptcy as a result of bad creditor problems, that trust is exempt.
Likewise, using a revocable living trust can provide protection if you are concerned about your spouse remarrying someone who might take the money from that spouse. The spouse can be provided for and receive money from the trust, and the trust can specify that the spouse cannot change it or give it away to the new spouse.
I had a situation where I worked on a case about two years ago. In fact, it is still ongoing. An individual who was a dentist and had $3-4 million had been married for thirty or more years when his wife passed away. He had four adult children at the time. He remarried a few years after his wife’s death. The joke among the four adult children was that his new wife was a mail order bride because she had just shown up from Eastern Europe one day and they were married.
This second marriage lasted five or six years before he died. After his death, his second wife revealed that he had created a new will after they were married and the new will disinherited all four of his adult children and left all of his wealth to her and her children. They are now suing her on the only grounds they have—that he was incapacitated, because he had Alzheimer’s, when he executed the second will.
The children do not have much of a chance to overturn the will. If their mom or dad had created a will or a revocable living trust that had protected the children’s inheritance, then none of this would have been an issue. But of course, he fell in love with his new mail order bride and her children whom she imported from Eastern Europe, so his first wife’s children were left with nothing when there was plenty to go around.
Finally, as I mentioned earlier, if you have property out-of-state including a bank or investment account or time-shares, you are usually required to go through probate in that other state. The costs can add up quickly if you take the cost of probate in Washington at $3,000-$5,000 and you add the other states’ probate costs because you have an investment account in California, and a winter place down in Arizona—pretty soon you are looking at $15,000-$20,000 worth of legal fees. A lot of my clients who have winter places down in Southern California or Arizona set up a revocable trust to avoid probate in those states.
These are the high level, very general benefits of using a revocable living trust, and it definitely has some advantages over a basic will, but it is not for everyone. Someone with a very modest net worth, who does not care about avoiding probate and does not have property in multiple states, is probably just fine with a regular basic will.
JASON: I know some people put off getting these estate documents done because they are intimidated by lawyers and because they hear horror stories of costs ranging from $200-$500 per hour. Can you give our readers a range of what they could expect if a single person comes in, and he or she just wants the bare bones basic estate documents he or she should have? I know everybody’s situation is going to be different, but just give us the big picture idea of what might be expected.
JOHN: I don’t know if your audience geographically is all here in Kitsap County, but basically in Kitsap County, for any capable and competent estate planning attorney, a basic will package, and I say the word “package” because it includes all the powers of attorney we talked about, the living will, as well as a HIPAA authorization, should range anywhere from $600-$1,000 total when there are no complexities in the individual’s situation. For a married couple, it would be double that amount. If you go over to King County, the fee is probably going to be $900-$1,500 for the same basic will package just because those attorneys are paid a lot more and the firms charge a lot more over there. These figures are just a general range and will vary for each situation.
JASON: So it could be as little as $600 and up to maybe $5,000 if somebody has a very complex trust or has several different trusts that need to be created?
JOHN: Yes, and if you go to a revocable living trust, you can generally add at least $1,000 onto that base fee of the basic will package. Oftentimes, as you mentioned, someone may have multiple trusts, which will cost more, and I haven’t even mentioned life insurance trusts. A life insurance trust, commonly called an ILIT for the acronym representing irrevocable life insurance trust, is often used to help avoid estate taxes on life insurance policies.
Estate taxes are the taxes the State of Washington and the federal government can charge an individual after that person is dead. Often, people don’t realize that the life insurance proceeds come into play under the estate tax as well. They may have $300,000 or $400,000 net worth, but also have $1-2 million in life insurance policies. It is very important when we talk to clients to evaluate what they have as far as their current net worth, as well as their life insurance because a life insurance trust can avoid all estate taxes for that life insurance policy.
Luce, Lineberry & Kenney PS
Attorneys at Law
John Kenney, LLM
17791 Fjord Dr NE Suite 154
Poulsbo, WA 98370-8482