Season 1, Episode 10
The Caregiver Trending podcast features discussions on caregiving topics, interviews with thought leaders, and provides expert advice for caregivers from Homethrive’s in-house Care Guides. Episodes are available on Apple Podcasts, Spotify, or wherever you listen to podcasts.
Our guest today is Ariane Sims, an attorney and counselor at law, strives to help clients craft customized estate plans that consciously reflect their wishes and achieve their goals – all in a warm and supportive environment.
A mother herself, Ariane knows that proper estate planning means that her loved ones will never be saddled with unnecessary costs, court, and conflict should something happen to her. She strives to give this peace-of-mind to others as well, ensuring that their healthcare and end-of life-wishes will always be followed.
Episode Transcript
Ali Habashi: So before we get into the weeds with estate planning and everything you should know about it, I wanted to ask you about you. How did you get into estate planning? Was it something that you were interested in, in law school?
Ariane Sims: Funny you should ask. When I was in law school, I actually was under the impression, very mistaken, that estate planning was something that you only needed to do if you were very wealthy to avoid estate taxes. And I have since learned, through my journey, that couldn’t be further from the truth.
I had a long journey with the law, but when I was pregnant, I started to think I have to do some adulting here.
I started to look into estate planning, and when I did, I couldn’t believe how important it is for people and how little people actually know about what happens when you don’t have a plan in place. And so when I started to look into it, to put it together for my own family, I said, this is the perfect practice area for me.
It allows me to counsel clients and help families make sure that their loved ones are protected, and I get to use my law degree to do that.
Ali: For anyone who doesn’t know, what is an estate plan?
Ariane: So at its core, an estate plan is really just a set of legal documents that authorizes and empowers the people you choose to handle the estate: your medical wishes and your financial matters.
That’s if you become incapacitated or pass away. Also, for parents with minor children, the plan really must also include a separate set of documents that are designed to ensure that your kids are always in the hands of those you love and trust. Oh, and I should also note that if you haven’t put a plan in place, you actually have one.
That is a default plan that the state has created for you. This default plan typically involves a court process called probate. It also includes conflict, great expense, significant delays and more. It’s truly a great big mess. So putting your own plan in place really spares your loved ones all of this.
And that’s one of the reasons I always call it an act of love.
Ali: Alright. So I have questions about both the estate plan and probate. So on the estate plan side, how many documents are we talking?
Ariane: So every plan is a little different and I craft very custom plans based on any particular clients’ needs, but there are four foundational documents that make up a typical estate plan.
The first is a revocable living trust. And if properly funded with your assets, and I think we’ll talk about that a little bit more later, probate, that court process, can be avoided.
The second is what’s called a pour-over will, and it really does what it sounds. Like it is there as a safety net or backup in the event that some of your assets aren’t in your revocable trust at the time of your death.
The third document is durable power of attorney. And this is where you can name agents who can handle financial, legal, and tax matters in the event of your incapacity.
And the fourth is an advanced health care directive. That’s what we call it here in California. Other states might call it a health care proxy or a living will. That basically allows you to name agents who are going to make medical decisions for you if you can’t. And it also identifies what those medical wishes would be around things like life support, organ donation, and the like.
Also, I should note, if you’re a parent with minor children, the additional documents that you want to have in place. And again, this is to make sure that your kids are always in the hands of those you love and trust, non-toxic family members, not child protective services.
These documents include a nomination of guardian which basically states who you would want to raise your kids if you couldn’t. A nomination of temporary or emergency guardian. So this is for emergency situations. Say you’re in a car accident and end up in the hospital. We don’t want child protective services to take your kids into custody. It’s the last thing we’d want. We’d want them to be comforted by friends or family who live close by.
The other two documents I put in place for all parents with minor kids are a power of attorney for the children’s medical care and a power of attorney for their day-to-day care. The first is to ensure that whoever those short- and long-term guardians are, that they can stand in the shoes of parents and make medical decisions for the kids if need be.
And the second is in this gap in time between the event happening and the point in time at which a court could formally appoint a legal guardian. It allows those people that the parents choose to register the kids for school, open their mail, do all the things that parents or legal guardians can do.
There are additionally some other documents that I put in place for clients. As the case may be, one is a confidential exclusion of guardian. So in some instances, I have clients who have selected the people they want to serve, but they also have a family member that under no circumstances would they want that person or people raising their children. And so we can actually put that in a legal document that we keep sealed and say it’s only to be opened in the event of a contested guardianship. And it identifies the person and the reasons why.
The other things that I do, they’re not legal documents, but I give parents wallet ID cards. So they’re just laminated cards to keep in their wallet with the emergency contacts listed. So if they’re in an accident and can’t speak, the authorities know who to call.
And then finally, I put together important instructions for caregivers. So if the children are in the care of a babysitter, a nanny, they know sort of the course of events of who to call, what to do, what not to do in the event of an emergency.
Ali: Okay, so just to simplify and clarify that stack of papers we’ve just gone over, an estate plan will help you protect your health, your assets, and your children. Is that right?
Ariane: Yes. Exactly.
Ali: Perfect, alright. So now I want to get into a probate, that thing that you said happens when you don’t have an estate plan in place. You mentioned it was costly.
Ariane: Every state is different, and California here is notorious for being the most expensive and taking the longest. But, in California, we estimate the probate costs about 5 percent of the fair market value of the probate estate. So, let me say that again: 5 percent of the fair market value.
When we talk about probate estate, we’re talking about assets that would otherwise pass through probate. So this is real property, bank accounts, non-retirement investment accounts like brokerage accounts, and business interests. On the side for the moment, life insurance and retirement. So long as an adult beneficiary or a trust is named, those do not pass through probate.
So going back to the cost of probate, for example, say your only asset is a house that costs a million dollars. And here in California, it’s pretty easy for that to happen. If the only asset that had to go through probate was that house, it would cost $50,000 to probate that house. It’s a lot of money.
The cost of probate remains the same no matter how much equity you have in that property. So say you only had $50,000 down, it would still cost the same to probate. It’s about the fair market value. And then add in all the other assets that I said would go through probate, and you’ve got yourself a very expensive court process.
The other cost of probate is the length of time. It can easily take 18 months to two years, even for an uncontested probate. And then as is true in every state, probate is a public court process. So there are definitely stories of people preying on vulnerable beneficiaries, young adults who might be inheriting a sum of money and people can go in and prey on them.
Ali: So what happens if you can’t pay that cost of the probate?
Ariane: The assets would have to be liquidated and sold.
Ali: Oh my gosh. So comparatively, what does it cost to get an estate plan written up?
Ariane: Far less at the end of the day. It’s a little bit more money now upfront to save so much hassle, so much cost, so much grief, so much frustration down the road.
I’d also really like to stress the significance of making sure that your plan is reviewed on a regular basis.
I recommend at least every three years. The reality is that people put plans in place and then they think, great, I did that. And then they don’t need to think about it for a very long time. The reality is that laws change, family dynamics change, assets change. And especially over time, the trust may not actually work if you don’t do these updates.
For example, I had some clients, they had put together a trust years ago when their kids were little. And now their kids are certainly old enough to serve as their successor trustees and agents. But when we took a look at all of their assets, we determined that even though they had a trust, they would have had probate in three different states.
And the reason for that is they had since they had created their estate plan, purchased properties in three different states. They never put those properties in their trust. So even though they had spent the money to do the trust, they had the trust in place, they still would have had probates. And so this just to me really underscores the importance of really babysitting your estate plan.
It’s a living, breathing set of documents that need to be looked at and thought about with some regularity.
I have one more thing to say about this. Not only is it important that you keep your estate plan updated, but on accounts that have beneficiaries.
Oftentimes, these are retirement accounts, life insurance policies, and sometimes even bank accounts or brokerage accounts. It’s so important to keep those beneficiaries updated. I’ve heard so many stories about an ex from decades ago receiving a million-dollar life insurance policy because the policyholder never updated the beneficiaries.
I even heard a story, a friend of mine, when he was young, his father passed away and his mom was left as a single mom with two young children, it turned out that his father had had a life insurance policy and had never updated it. His ex-wife was the one who received the life insurance proceeds, not his current wife who was the mother to his young children.
So this is just a perfect example of why it’s so important to always make sure that your documents are sorted, your beneficiaries are current, because you don’t want something like that to happen.
So the bad news is that these problems can happen very easily. The good news is that so long as you do some advanced planning, they can be completely avoided. Problems with guardianship, problems with needing to seek conservatorships, problems with the wrong beneficiaries receiving assets, problems with probate.
It can all be avoided.
Ali: So, I have a question then for you, I’m sure you’ve seen people from all different walks of life at this point coming through your doors to set up their estate plan. So my question is, what are the parents of America neglecting when it comes to estate planning?
Ariane: So one of the biggest misconceptions is that you don’t need to plan if you’re young and healthy. Okay. But anything can happen at any moment. I mean, for example, my son and I were in a terrible car accident less than a year ago, and thankfully we’re fine. But in a split second, anything could have changed.
And I don’t think that people truly know what happens when you don’t have a plan in place and what that default plan is. And when I explain this to people, those who have delayed planning for years, their jaws drop and all they want to do is like get a rush on putting their plan in place. And so the impact of not doing a plan is leaving people, especially if you’re young and healthy, something happening is going to be a shock situation, most likely.
And they’re not going to be prepared for it. And so you’re leaving people at a time when they should be spending time grieving, connecting with family, figuring out their next steps in life. And instead they have to deal with lawyers, courts, deadlines, all these things that should be the last thing that anybody in that kind of position should have to deal with.
Ali: We’ve spoken a little bit about what happens when you don’t have an estate plan in place, the sort of plan that’s in place for you. But what happens if you’re a parent, and you don’t have a plan for your children. If there’s no guardianship documents, what happens to the kids?
Ariane: It’s a great question. And especially because so many parents will say, oh, well, our family knows who’s going to take the kids or who’s going to take them or how they’re going to raise them or something like that. But the reality is that it is a judge who is going to be making the final decision.
They are going to give somebody the authority to be those kids’ legal guardian. So let’s take a step back for a second in the short term. Say you, you’re out on a date night and you’re in an accident and you don’t make it home. You end up in the hospital. The kids are home with a babysitter and the police show up at the door.
What the police are going to do if there’s no plan in place They’re going to take them into protective custody, until such time as maybe a very close family member can arrive. And, these days, close family members might live across the country, in another country, or just be hours away.
And so in a traumatic situation like that, the last thing that any parent would want is for their child to be taken out of the home with strangers. So that is one of the reasons that I always make sure that we have a temporary or short-term guardian nomination in place. Essentially, a parent, stating who can be with their children in the short term in the event of this emergency.
Then, we want to make sure that you also name long-term guardians. So, these are the people who would raise your children if you couldn’t. And the reason this is so important, both these documents, particularly the latter, is that, as parents, you want to have agency over who is going to raise your children.
Because a judge is a stranger and doesn’t know you. And while the judge will make the best decision that he or she can, it’s not going to be with the understanding and knowledge of your values, your principles, family dynamics, etc. I know a story of a woman who had a sister and a sister-in-law and on paper, the sister-in-law was the way better choice.
She was married, had a stable job, had kids of her own. The friend’s sister, on the other hand, lived this very bohemian lifestyle, didn’t have a partner, didn’t have children, traveled a lot. But at the end of the day, there was not even a choice in my friend’s mind as to who she would want to raise her kids.
It was her sister, not her sister-in-law. But a judge would have chosen her sister-in-law. So, it’s about having agency and choosing the people that you know are going to love and care for and raise your kids in the way that you would.
Ali: Alright, so let’s talk parents with children that have disabilities, are medically complex, or neurotypical. What should a parent with a child like that take into account when setting up a trust?
Ariane: So, when there’s a child with a disability, there are two major concerns. first is making sure that any money that they inherit doesn’t jeopardize any government benefits that they may be receiving or entitled or eligible to receive.
Then the second is that if there’s a child that just can’t handle money for whatever reason, that they don’t have control over the money, that they could either just blow through it or in some cases even use it to fund or fuel self-destructive behavior.
So what parents in those situations will want to explore is what we call either a special or supplemental needs trust. And these trusts can be created and funded in different ways and at different times. but the idea is that money stays in trust and you have a designated trustee. Managing those assets for the child and using them, using the assets to supplement whatever benefits the child might otherwise be receiving.
Now, there are very stringent rules and regulations that, as I understand, constantly evolve. And so having someone in place, you know, an appropriate trustee to oversee it is really crucial. I should also note that there’s many situations where it may be unclear whether a child might need such trust down the road.
We really just don’t know what a four-year-old will be in 15 years. There’s also the reality that something like a car accident can cause a special needs situation as well. And so I always include language in my trust that anticipates these situations and that allows the trustee down the road the flexibility to create such trust if it’s ever needed.
Ali: What’s the difference between a will and a trust?
Ariane: So this is a really important question because I’d say about 95 percent of the people that come to me don’t know the difference. A will essentially tells the judge who you want your assets to go to. But in many cases where there are sufficient assets to cause or trigger a full probate, a probate will still have to occur. All the things I mentioned earlier, the length of time, the expense, the public nature.
A trust, however, completely avoids probate. So long as the assets that should go in it, go in it.
I like to describe a trust as a wagon and during our lifetime, we can put assets in and take assets out of that wagon at any time. And again, the assets that we can put into a trust are real property, our bank accounts, non-retirement investments like brokerage accounts, and business interests. And the way that we fund or put assets in the trust is simply by retitling them.
So instead of owning my home as Ariane Sims, I own my home as Ariane Sims, Trustee of the Ariane Sims Living Trust. The idea is that whoever is serving as trustee, me during my lifetime in my capacity, and my successor trustee during either my incapacity or death, can manage the assets that are titled in the name of the trust.
It’s almost like taking assets from your right pocket and putting them in your left pocket. And just to be clear, what I’m talking about is a revocable living trust. This is not a separate entity for tax purposes. It uses your social security number. There’s no separate tax filings. So I just want to be clear that that’s the type of trust that we’re talking about.
And so long as those assets are in the wagon, say I drop the handle, something happens to me. My successor trustee, the person I’ve named to take over, and pick up the wagon handle and keep going and manage the assets according to the terms of my trust. And depending on the trust, you can have all sorts of provisions about how your beneficiaries receive those assets, whether it’s an outright distribution, whether it remains in trust for different reasons.
There’s a lot of tools in the living trust toolbox that we can utilize so that parents can make the best choices for their families.
Ali: And how does life insurance play into all of this?
Ariane: Okay, well first let me say that if you’re a parent with minor children, I honestly can’t stress the importance of life insurance enough.
If something happens to you, it’s essentially immediate liquidity that helps feed, clothe, and educate your children. Another big piece about life insurance is that it also ensures that you can choose guardians for your kids, not based on the potential guardian’s resources, but on how much they would love and raise your kids with the values you hold dear because you are providing the resources.
I should also note that most parents typically don’t have enough life insurance. They might have a small policy through work, which if they leave that job, will expire. Or sometimes they’ll have a small personal policy.
Now I don’t sell life insurance, and I highly recommend that you meet with a professional who can guide you through it. There are so many kinds, but what I do tell my clients is that a simple term policy is inexpensive. And really crucial.
So getting back to the trust question. Oftentimes what I see parents do is name their children as beneficiaries. And this is a problem. The reason for that is that minors cannot legally inherit assets.
If the minor did, the court would appoint somebody to manage the assets for them, and then at 18, they would get everything. I don’t know many parents who would just hand an 18-year-old a million dollars if they were living. So, the idea is that we certainly want to make sure that doesn’t happen, particularly if the parents aren’t there to guide them in kind of making the choices that would otherwise guide them.
And so this is where a trust comes in. The things that we put in the trust are real property, bank accounts, non-retirement investments and business interests.
But what we can do is name the trust as beneficiary on the life insurance and so instead of a minor child receiving the life insurance proceeds, the trust does. And so the person that you’ve chosen to serve as trustee and use the life insurance money for the children’s needs and then at an age that is appropriate for the children to either have access to the money or be able to control it through an ongoing trust.
That is what we can dictate in the terms of the trust. The trust essentially serves as a funnel, a protective funnel, for the life insurance. That is also true for retirement assets that would otherwise go to minor children. The trust can be the beneficiary.
Ali: Gotcha. and I’m convinced now that I need, maybe all of these things. I need to consult a lawyer. But for anybody who’s not convinced, for people who just don’t care, they think, hey, I’ll be dead. What do I care at that point? What would you say to them?
Ariane: I would ask them, what sort of legacy do they want to leave behind? Do they want to leave one of discord, conflict, expense, hassle, or do they want to leave one of ease, peace, simplicity, for their loved ones who may be shocked and grieving? I’d be willing to bet that most people would opt for the latter.
And as I said earlier, this is exactly why I consider estate planning to be an act of love.
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