Do I Need an Estate Plan?
If you are like a lot of our new clients, you may think your situation is so simple that you even wonder whether you need to do an estate plan (whatever that is). Some people think that estate planning is really only estate tax planning. So if the value of your property is well under the 2024 limit of $13.61 million per person ($27.22 for married couples), then you may think your estate is too simple to justify an estate planning process. The decision isn’t made any easier by the fact that, according to a recent survey conducted by WealthCounsel, about 74% of Americans find the topic of estate planning confusing.
Ending confusion!
Let’s start by defining a couple of terms.
First, WHAT IS AN ESTATE?
Do you wonder if you even have one? Well, you do. At least the odds are great that you do. Nearly everyone does. Your estate consists of everything you own: your car, home, other real estate, checking and savings accounts, investments, life insurance, furniture, and your tangible personal possessions. You may own a business, or a share of one, and all of us in this day and age have digital assets; those online accounts that are password protected. From online banking and investment accounts to social media, when you think about all that you do online, it can be shocking to find the number of digital assets someone will need to deal with.
Everyone has an estate and we all share something else in common. We can’t take it with us.
So given that we will all leave behind an estate, WHAT IS ESTATE PLANNING?
Estate planning as a deliberate decision-making process in which you decide (a) who you trust to take care of you and your assets during your lifetime, and (b) when you die, what people or organizations do you want to benefit from your estate. To ensure your wishes are carried out, you need to provide written instructions specifying:
Who you want to receive something from you,
What you want them to receive,
When they will receive it, and
Who you trust to be in charge of carrying out your instructions.
All while minimizing the amount paid in taxes, legal fees, court costs or other costs of settling your estate.
That is estate planning in its simplest terms. Making a plan now, directing how you want your property used during your lifetime (and who will be in charge of carrying out those instructions) and naming in advance the people or charities you want to receive estate assets when you die. Your estate plan should make carrying out your plan as easy as possible.
What does a good estate plan do?
A good estate plan should do the following:
include instructions for your care (and your spouse, if you’re married) and financial affairs if you become incapacitated before you die
include arrangements for disability income insurance to replace your income if you cannot work due to illness or injury, long-term care insurance to help pay for your care in case of an extended illness or injury, and life insurance to provide for your family at your death
provide for the transfer of your business at your retirement, disability, incapacity, or death
name a guardian for your minor children’s care and instructions on how to administer and distribute each child’s inheritance
provide for family members with special needs without disqualifying them from government benefits
provide for loved ones who might be irresponsible with money or who may need protection from creditors or in the event of divorce
minimize taxes, court costs, and unnecessary legal fees, which may include funding assets into a living trust, completing or updating beneficiary designations, or otherwise aligning your assets with your estate plan
Importantly, estate planning is also an ongoing process, not a one-time event. You should review and update your plan as your family and financial circumstances (and the relevant laws) change over your lifetime.
Is estate planning for you?
The short answer is that estate planning is for everyone. Not just for wealthy retirees (although people who have accumulated wealth tend to think more about preserving it). It isn’t just for retirees, because none of us have a promise that we will live to retirement age. Unexpected illness and accidents happen to people of all ages.
Estate planning isn’t just for the wealthy, either. In fact, in our experience families with modest assets are much more severely impacted by the loss of time and money that poor planning (or no planning) cause. A loss of $10 million dollars would not impact the quality of life for Bill Gates’ heirs at all. But a loss of $10,000 would have a huge loss to my sons.
I firmly believe that estate planning benefits families with modest estates much more than it does wealthy people, even though preserving wealth is important, too.
What does an estate plan cost?
As it is with so many legal questions, the answer to this question is, “It depends.” It depends on whether or not you decide to invest in an estate plan, the type of plan you choose, the attorney who prepares it, and the relative size and complexity of your family circumstances and/or your assets. Do you have children or grandchildren with special needs? Do you want to protect your spouse in case he or she is disabled in the future? Do you want to protect your eventual beneficiaries (children or grandchildren) from the risks in life none of us can control? Risks like divorce, lawsuits, financial reversals, an unexpected illness or accident?
I can tell you which types of plans cost the most. From most to least expensive they are:
DOING NOTHING. The cost of doing nothing is almost always the most expensive choice any person can make. Doing nothing significantly increases:
The financial cost of settling your estate. Your family will be stuck in the most expensive probate proceedings of all. Probate without instructions from you are the most complicated and expensive possible.
Loss of control. The state of Texas’ plan for your assets will control in the absence of instructions from you. State law will decide everything, including:
Who will be in charge
Who will inherit from you and what share of your estate they will inherit
How and when they will inherit. The how is outright. Direct to them, with no protection at all from divorce, disability, and other risks of life. If an heir is a minor, he or she will inherit their share at age 18. Until then, it will be held by the court in a fund managed by the state. Once they inherit their share, there will be zero protections, guidelines, or advice for them.
Discord and conflict among your family members. With no instructions from you, a family power struggle can ensue, as family members battle over who should be in charge, and who should inherit what assets.
Pain from unrealized hopes and dreams. If you need an example, read my article that includes Shirley’s Story.
WILL PLANS. These plans are second in cost only to the cost of doing nothing. A will plan will of course center around a Last Will and Testament, supported by powers of attorney to handle financial and medical issues if you are ever incapacitated, and advanced directive. The amount an attorney - including me - will charge you to prepare the initial plan documents is somewhat lower in a will based plan, but Wills chain families to the probate system. And all of those costs must be included in the calculations of which plans are more or less expensive. There are two types of probate Wills leave you and your family exposed to:
Guardianship. A Will does nothing for you during your lifetime. If you are ever disabled by an accident or illness, your agents under your power of attorney for financial matters will be in charge of managing your property while you can’t. And your agent will be at the mercy of banks, brokerage firms, and the custodians of any other assets you own. Those institutions may or may not agree to work with your agent. Whether they say yes or no may depend on what your agent needs to do. If your power of attorney for financial matters doesn’t work, the only alternative available to your family will be to apply for a declaration from a probate judge that you are legally incapacitated, so that a Guardian can be appointed for you.
A Guardianship proceeding involves endless trips back and forth to the courthouse, including for annual accountings from the guardian to the court. As long as the disability continues, attorney’s fees and court costs just continue to pile up; all because in a guardianship it is the Judge - not your guardian - who is really in charge of your assets. It is the most expensive probate proceeding. I tell clients to expect $15,000 to $25,000 to to establish the guardianship, and up to $100,000 in total cost over the life of the case.Probate of a Will. It is almost always necessary to probate a Will. What does probate mean? It means filing an Application with a probate court asking the judge to review the original Will and hear evidence about how the will was executed; whether it was revoked; and whether or not the maker of the Will was unduly influenced by a third party in making decisions about who is in charge and who will inherit. Probate of a Will can easily range from $3,500 to $15,000; again depending on the relative simplicity or complexity of the work required by the estate and the Will. For married couples there will be two probates - one for each spouse’s Will - so the cost could double.
TRUST PLANS. It may surprise you, but trust-based estate planning is almost always the least expensive way to manage property during your life and distribute it to the people you want after your death. The amount an attorney will charge for establishing a trust based plan will be somewhat more than the cost of a Will-based plan. However, holding your assets in a trust you establish avoids probate altogether. You may become disabled, but when a trust holds your assets there is no need for a guardian. Your trust will be managed by whoever you appointed to succeed you as the Trustee (the person who agrees to hold legal title to property for the benefit of the persons for whom the trust was intended to benefit), so there will be no need for a guardian to manage it.
In the same way, there is no need to probate a Will to pass title to assets that are held in a trust. So no spending on guardianship, and no spending on one or two probate proceedings. How is it that a Trust is so different from a Will?Unlike a Will, a Trust is effective the moment you sign it. So instead of waiting until your death to begin the transfer of your assets, you can transfer legal title to your trustee (the initial trustee is almost always you, so the transfer is to you as Trustee). Beneficial title, which is what we think of as real ownership, remains with you as the creator of the Trust.
Once your trust is holding your assets - with you as Trustee and you as the sole beneficiary - if you are later disabled, there is no need for a guardianship. You, in your individual capacity, have no assets to manage. You are no longer able to serve as the trustee, but your rule book - called a Trust Agreement - appoints the person you trust to take over as your Trustee.
With a Will-based plan, you continue to own your assets in your individual capacity. Therefore, if you are disabled you do have assets that need to be held, invested, and protected for you. Unlike a trust-based plan, during disability you will no longer control who is in charge of your assets. That important decision will be made by either your bank and investment firm or a probate Judge. You can express your wishes about who you prefer to be your Guardian, but the judge will not be bound by your choice. He or she will have absolute discretion to appoint anyone they believe is best-suited.
That person may be a court-appointed lawyer to serve as Guardian. In that case, you will be paying a stranger to manage your assets for you.At your death, your Trust will take the place of a will. Your assets will be distributed by the person you named as Trustee to the people you chose to be your beneficiaries. How and when they inherit their share will be specified in your Trust Agreement - your Rule Book. There will be no need to ask permission from a judge. What needs to be done will be done because you directed it to be so. Your assets will not be delayed as they would be in probate (usually up to six to eighteen months) to get a person appointed to be in charge. Your Trustee can begin winding up your financial affairs, paying your remaining bills, and then distributing your assets as soon as they decide it is appropriate to do so.
An estate plan does not have to be expensive. At Breshears Law, your financial investment in your plan will be set by you! You will choose the level of plan that best meets your needs and accomplishes everything you want for your future. Since all of our planning is done for a fixed price, that means you will know the exact price of your plan before you decide to hire us as your planning counsel.
Joe Breshears, Founder & CEO
Breshears Law PLLC
