Congratulations parents of graduates from high school and college! Time to celebrate and prepare for the next stage of life for your children.  While always children in your eyes, upon reaching the age of 18, all individuals are ADULTS in the eyes of the law, both state and federal, with a slew of rights and privacy protections that did not exist when they were 17 years and 364 days old.

3 Essential Documents:

A Financial Power of Attorney allows your child to appoint someone (just like you) as their attorney in fact to carry out banking transactions, sign tax returns, arrange for insurance pay bills, deal with a landlord, or replace a lost debit card whether the child is incapacitated or simply away at college.  Without this financial power of attorney, parents would not have legal authority to act on their children’s behalf.  The alternatives are incurring personal liability for their children or seeking a guardianship in the Probate Courts.

A Health Care Power of Attorney (Proxy in Massachusetts) allows your child to select an agent to make health care decisions in the event that they are NOT ABLE to make informed decisions about their health care, for instance if they are unconscious or unable to communicate.  The September 21, 2013 Wall Street Journal article Why Your College-Age Children Need an Estate Plan  relates the story of parents unable to secure basic information about their college age children after a car accident left the children in the hospital and unconscious.

A HIPAA Authorization allows your child to list people with whom they want their health care providers to share OTHERWISE PROTECTED information.  Doctors and hospitals have a duty to protect patient privacy regardless of who pays the bills.  Just because your adult child is covered by your insurance.  (which  you are paying for) doesn’t mean you can access their protected heath information, as the parents in the Wall Street Journal article discovered.

Internet forms work just the same as the documents prepared by attorneys, right?

Sometimes yes.  But you take a big chance. A client who was helping an elderly relative using her financial power of attorney sent me a letter from a financial institution which would not recognize the power of attorney unless they received a letter from our office with the following language:

As a practicing attorney in the state of Rhode Island, I certify that the attached Power of Attorney signed by … is a true and accurate copy of the original and is in full force and effect.

We also get calls from clients at banks trying to use the power of attorney and the bank employee tells them the bank cannot accept the document.  Despite the prior drama with the bank, we typically resolve the confusion with a single telephone call and educate the bank employee or their manager..  Parents, please consider a possible gift of these properly drafted and executed estate plan documents.

CAVEAT: these documents are not as cool as a car.

1. Parish Lentz focuses his practice on estate and trust planning and administration, as well as business formation and ongoing representation of corporate clients, including non-profit entities. His estate and trust planning practice includes litigating disputes in state court, including trust reformations and accountings, will contests, and guardianship proceedings. Recognizing the uncertainties and costs of court oversight, Mr. Lentz makes every effort to ensure that estate plans reflect the goals of clients.  http://www.bartongilman.com/our_people/w-parish-lentz

If you have a will—or don’t have a will—your estate must be probated. Probate is a court process where your assets are gathered, bills are paid, and the residue is distributed to your heirs. It can take anywhere from 6-18 months for an average case, partly because Rhode Island has 39 part-time probate judges. For example, Tiverton probate court is in session only one day a month.

Few people can navigate the probate labyrinth without the aid of a lawyer. Most grieving heirs use the lawyer who drafted the deceased’s will, or if there was no will, they use their cousin’s mother-in-law’s neighbor’s lawyer.

So what does probate cost? Let me use numbers from a real case that recently crossed my desk. Joe died leaving an estate of about $130,000 in cash and securities, a stamp collection, and a jewelry collection. He left the jewelry to his niece and the stamps to his nephew (Joe had no children). After the bills were paid, the rest was to go to two charities. A year after his death, the final bill was submitted. His personal bills added up to about $4,700, which was close to the amount in his checking account. But the fees attributed to the probate were:

The probate costs could have been avoided.

• The fee (inventory tax) to probate an estate in RI is equal to 1% of the value of the deceased’s personal property at death up to a maximum of $1,504. Joe’s personal belongings didn’t add up to much except for those collections, which turned out to be pretty valuable. Because there is no gift tax in Rhode Island, he should have given those away before he passed.

• It is hard to imagine what “unforeseen expenses” will arise a year after Joe’s death. Part of the probate process is publication of the personal representative’s name so that creditors know to whom to send the bill. (Cost $76.) Then creditors have 6 months to present their claims. Creditors may petition the court to file after 6 months as long as the estate has not been distributed. This money will eventually be given to the heirs, but probably after the attorney has deducted additional fees.

• The executor here was a professional rather than a friend or family member. Joe’s will says the executor is entitled to “a reasonable fee.” The executor had to hire someone to clean out Joe’s apartment, make sure the niece and nephew got the collections, write 13 checks, and make a couple of court appearances. What do you think is a reasonable fee? If the attorney, who also drafted the will, had suggested that Joe name someone from the church to which he was leaving half the money, I bet the executor’s fee would have been substantially less.

• Included in the attorney’s fee are the court costs, but even if those were $500, the attorney would have had to put in 30-45 hours to justify that fee. (Little secret: paralegals do most of the mundane probate work.) A revocable (also known as a living) trust would have avoided the need for an attorney to open a probate. It might have avoided the need for an attorney altogether.

A revocable, or living, trust can avoid probate. You establish the trust during your lifetime, title your assets into the trust and make it the beneficiary of your life insurance (consult an attorney before you make a revocable trust the beneficiary of your qualified retirement accounts), and at your death, a successor trustee steps in and pays your final bills and taxes and distributes the residue to your heirs. No public list of your assets. No long waits for a court date. No judge’s approval to sell your house or distribute the residue. Most successor trustees can do it without the aid of an attorney, and for a lesser cost.

Yes, a revocable trust costs a bit more to establish than a will—now, but in the long run it costs thousands of dollars less than probate.

Zona Douthit devotes her law practice to estate planning for middle-class families. Visit her website www.zdtrustlaw.com or call 401-305-8094 for more information.