Estate Planning Basics: Wills, Trusts and Power of Attorney

Roughly half of Americans don't have an estate plan in place, and Roccy DeFrancesco estimates only about 30% have a will. In this episode Roccy, an attorney who has worked in this area for about 30 years, walks through the documents everyone needs, the pitfalls he sees most often, and three issues he thinks belong in every estate plan: living longer than you expect, guaranteed retirement income and long-term care. Start with your beneficiary designations. Life insurance, annuities, retirement accounts, pensions and bank accounts pass to whoever is named on the account, not to whoever is named in your will. Roccy points to the Supreme Court's Kennedy case, where a pension's beneficiary designation controlled over what the family expected. If you've had a divorce, a death in the family or another big life change in the last few years, check every one. The core documents: A will. Die without one ("intestate") and your state decides who gets your money. If you have minor children, Roccy says a will is essential because it names their guardian. He tells the story of family friends killed in a crash whose children survived, and whose grandparents spent tens of thousands of dollars fighting over custody because there was no will. A will alone does not avoid probate. A legal (financial) power of attorney. If you're incapacitated, nobody can legally pay your bills, access your accounts or sell stocks in a crash on your behalf, even if they have your passwords. A medical power of attorney. Names who makes medical decisions for you, including end-of-life choices. Without these powers, your family may have to hire an attorney and go to court, and in an emergency there's no time for that. A revocable living trust. Avoids probate, which Roccy says costs time and money (he says it can approach 10% of the estate in Illinois) and puts your assets on the public record. The trust only works if your assets are actually retitled into it. Anything left outside will still be probated. Why Roccy doesn't like outright distributions to heirs. Many trusts, especially online forms, pay out to children in chunks at certain ages. Roccy prefers keeping the money in trust longer, with "health and welfare" provisions that still cover housing, bills, school and a business plan, to protect it from three things: divorce (inherited money usually ends up in a joint account), addiction (often starting with pain medication after an injury) and gambling. On online legal services: In Roccy's opinion, LegalZoom and similar form companies produce cookie-cutter documents, often skip retitling your assets, and leave your heirs no recourse if something is wrong. He notes he no longer drafts documents himself. His rough price ranges for wills, trusts and powers of attorney: about $2,000 in a small city like St. Joseph, Michigan, about $3,500 in Kalamazoo, and about $5,000 in Detroit or Chicago. Planning for a long life. Roccy argues joint life expectancy is badly overlooked, and that without a pension, most of your retirement income now has to come from your own savings. His example: a 55-year-old retiring at 65 runs out of money at 87 even with steady returns. Put 46% of retirement assets into a guaranteed income annuity and the assets last to 90, with more than $50,000 a year of guaranteed income after that. Add one 30% market drop the year before retirement and the original plan runs out nine years early; even with a 30% rebound the next year, it runs out at 82, because a 30% loss needs a 43% gain to recover. Roccy says today's income riders are the best he's seen in 30 years, with roll-up rates near 10% for up to 10 years and payout rates as high as 6.5% or more at 65. He also says Ken Fisher, while a great marketer, does consumers a disservice with his anti-annuity message, and repeats his view that fee-only advisors are his least favorite in the industry. Long-term care. Citing Genworth, Roccy puts 2025 nursing home costs at about $114,000 a year for a semi-private room and nearly $130,000 for a private room, projected to roughly $180,000 and $200,000 by 2040. He says about 68% of people 65 and older will be unable to perform two of the six activities of daily living at some point. He's not a fan of traditional long-term care policies because of large premium increases, and prefers asset-based ("combo") life insurance policies, some of which offer a 100% return of premium. He also mentions one policy on the market with an unlimited benefit, which matters most for dementia. Resources mentioned: Read 5 Pillar Asset Protection free, Roccy's book, which has a full chapter on estate planning. It's also in print on Amazon. Roccy's 19-page white paper on asset-based long-term care policies and his guaranteed income for life white paper, both mentioned as links "at the bottom of this video." Email [email protected] for copies, a referral to an estate planning attorney in his network, or details on the unlimited-benefit long-term care policy. Disclosure: Roccy co-founded an insurance marketing organization and earns compensation on life insurance and annuity sales, including the income annuities and asset-based long-term care policies discussed here. He wrote 5 Pillar Asset Protection and earns on print sales, and his firm works with attorneys who prepare estate planning documents. His views on LegalZoom and other online form companies, Ken Fisher, fee-only advisors and traditional long-term care insurance are his own opinions; none of them has responded. Probate costs, attorney fees and product rates vary by state, provider and date. Nothing here is legal, tax or investment advice. Questions, or a topic you want covered? Reach out.