Let me open by quickly sharing a favorite joke: “What’s the difference between ignorance and indifference? I don’t know and I don’t care.”
If you have thus far avoided creating an estate plan, ignorance and indifference may be two big reasons why.
For example, a friend of mine graciously volunteered to answer some questions of mine about his/her personal estate planning situation. I’ve included most of our discussion below with names and particulars excluded. Nothing is exaggerated – this is pretty much a true transcript of our actual conversation.
You may be shocked at the answers or they may ring true for you as well. Either way, the following exchange will hopefully show you how relatively easy it is analyze your own situation and the importance of active decision-making, even if you think you are already doing everything right.
You’ll find my friend’s answers in bold and italics, and my questions and comments in the font you are presently reading. The breakdown into the separate sections are merely an aesthetic choice made by the author.
- How old are you? 41.
- Are you married? Yes.
- Do you have any kids? Yes, a 3-year-old and a 1-year-old.
- Do you have an estate plan? No.
- Why not? Because I have no idea what to do.
- OK. Do you have a will? No.
- Why not? We haven’t gotten around to it.
- Do you have life insurance? Yes, through work.
- Do you know how much you have? Yes, it’s a multiple of my annual salary.
- What happens if you leave your job? I don’t know – I assume I’ll lose the insurance.
- Who is the beneficiary of your life insurance? My spouse.
- Who is the beneficiary if your wife doesn’t survive you? My sibling.
- Does your spouse have any life insurance? No.
- Do you own any real estate? Yes, our primary residence.
- Do you have any equity in your home? No – in fact, our mortgage exceeds the value of our home.
- Who owns the house? Both my spouse and I own it, but I am the only one listed on the mortgage.
- Do you own it as tenants by the entirety or with survivorship rights? I don’t know what any of that means. I just know we own it together.
- Who gets the house if you both die? I’m not really sure.
Retirement Plan and Other Assets
- Do you have a retirement plan? Yes.
- Who is the beneficiary of that? My spouse. My sibling is the beneficiary if my spouse doesn’t survive me.
- Do you have any other assets? No, not much besides our cars, furniture, and a little bit in mutual funds.
- Who gets that stuff if you pass away first? I think my spouse and kids get it, but I don’t know for sure.
- What if your spouse goes first? I hope I get it, but I’m not sure.
- If something happens to both of you, who gets the kids? I don’t know – we haven’t planned for this.
- Why not? We haven’t gotten around to it – we don’t think about it on a regular basis.
- If your spouse goes first, what happens to the kids on a daily basis? Daycare, I guess.
- What if the kids are sick? I think I have enough leave or I’d hire a babysitter.
- OK, so if your spouse dies first and then you die, your sibling will get your retirement plan and the proceeds of your life insurance plan. Your house has negative equity, and we don’t know who gets it if you and your wife pass away, although it, and the mortgage, most likely go to your kids. Therefore, your kids will probably be saddled with the house and the mortgage, whereas your sister would have all of your assets. How will your kids be taken care of financially? Well, I can’t leave anything to the kids, can I? Hopefully my sister will provide for them.
- Does she live in your state? No.
- Does any of this concern you? Now it does.
- Note: Please be assured that while this final question certainly appears “salesy” and self-serving, I knew in advance that my friend does not live in any state where I am licensed to do business, and that I cannot implement his plan personally.
–End of Interview (but not the post)–
Perhaps my friend inadvertently “didn’t know” and “didn’t care”. But then again, the person is a loving spouse and parent who dotes on the entire family, including siblings and parents. I truly mean no disrespect to my friend or to anyone similarly situated. In fact, since over half of the adults in our country do not have at least a will, do my friend’s answers really seem all that uncommon?
Why isn’t my friend and tens of millions of other adults not adequately educated or prepared in these matters? That’s a question for another time.
Instead, the goal of sharing this conversation is to show how relatively easy it is to spot gaps or concerns in your own situation. For instance, if you answer the questions that I asked my friend for yourself, do you find any problems?
Fortunately, after this brief five-minute conversation, my friend’s mind changed and that will (hopefully) spur action. Maybe a quick analysis of your own situation can do the same for you as well.
- Dear Lammy: Stuck in a Middle Class Rut Thanks to Returning Death Tax? (thespencerlawgroup.com)
- Preparing A “Death Dossier” (estatelaw.hullandhull.com)
- When to Update Your Estate Plan (massestatelawyer.com)