Having an estate plan is not a function of how much money you have.
Estate plans are about taking care of your family, preserving your legacy, and facilitating a smooth transfer of assets after death. Having an estate plan is not limited only to the wealthy. Everyone needs an estate plan regardless of their net worth. Because…it’s about so much more than the money.
(I am an attorney, but I am not your attorney. Nothing in this post is legal advice or constitutes an attorney client relationship. This post is merely for informational and educational purposes. Please seek the advice of your own counsel to discuss your particular needs and jurisdiction.)
As an estate planning attorney, I have plenty of people tell me that they don’t need a will or an estate plan. Most of the time they believe one of two things. Either they believe: 1. That their family will take care of things, or 2. That they don’t have enough money to justify an estate plan.
I want to dispel both of those myths right now. More specifically, I want to tell you that estate plans aren’t about the money. In fact, everyone needs an estate plan regardless of how much money they have.
WHAT IS AN ESTATE PLAN, AND WHY DOES EVERYONE NEED ONE?
Although the vast majority of people I meet in my office come to me asking for a will, they leave with an estate plan. Unlike a simple will, an estate plan is a comprehensive plan that provides for the care of you and your assets from your incapacity and after your death.
The most basic documents in any estate plan include:
- Durable Power of Attorney for Property
- Durable Power of Attorney for Health Care
- Living Will or Advanced Directive for end of life treatment
- Last Will and Testament (Will)
These documents not only provide for the orderly disposition of your assets after your death, but they provide a means for others to take care of you in your final days. Durable powers of attorney allow you to name an attorney-in-fact to make your decisions in the event you are unable to do so.
RELATED POST: Types of Powers of Attorney
An advanced directive or living will allows you to make your personal end-of-life decisions. These might include whether you would like to have a DNR, whether you authorize an autopsy, and whether you want any other life-saving treatments.
And, finally, the Last Will and Testament governs any and all assets that you still own at your death. The will only governs those assets that were titled in your name alone at your death. It will not govern any assets to which you add a beneficiary, a transfer on death designation, or a pay on death payee.
(To read more about some of the elements of an estate plan, check this out.)
WHAT HAPPENS IF YOU DON’T HAVE A WILL?
If you don’t have a will, your state makes one for you. In some states, a portion of your estate would pass to your spouse. In other states, your entire estate would pass to your spouse only if you had been married for a minimum number of years.
In still other situations, your estate could pass to your distant relatives: aunts, uncles, cousins.
But, if you have no family at all, your estate will most likely pass to the state. When your estate escheats (transfers to the state), your entire financial legacy passes to your state government.
Never mind your friends, that long-served charity, or your long-term significant other. Without a will, these individuals are cut from your assets completely, and the state takes all your hard-earned money and assets.
RELATED POST: Without a Will Your State’s Laws Make One for You
Similarly, without a durable power of attorney, your friends or family will have to get a guardianship to be able to make decisions about your health and finances. Rather than being able to discretely care for you in your golden years, they must report your assets, your health, and your mental status to a court. No one wants to have to deal with a guardianship.
RELATED POST: Power of Attorney: The Most Important Document in Your Estate Plan
IT’S NOT ABOUT THE MONEY.
Sure, transferring your property and your assets at your death might be a great windfall for someone. But, just because your estate doesn’t rank in Hollywood, you should still prepare a legal estate plan.
Having an estate plan is not about how much money you have, whether you have a trust, or whether you are funding the futures of the next 10 generations. Instead, having an estate plan is about your family, your dignity, and so much more.
Here is why I believe that everyone needs an estate plan:
1. Estate plans are about your dignity.
I’ve said it before, and I will say it again. The most important document in any estate plan is a power of attorney. Specifically, I believe that every adult individual needs a durable power of attorney naming a trusted individual to make health and financial decisions.
Without a power of attorney, if you are incapacitated, then your closest friends and family will have to take you, your assets, and their future plans for you to a court. Then, in front of the whole world, because these proceedings are public record, your friends and family will discuss your mental and physical health.
Then, they will disclose your assets to the judge and anyone else who cares to know or is in attendance. No one wants to have to go through a guardianship of an adult who failed to plan in advance. You don’t want your private health and finances broadcast in front of a room full of strangers.
A simple power of attorney preserves your assets and your dignity regardless of the amount of money you have.
2. Estate plans are about your kids.
Having an estate plan is about protecting and respecting your kids. If you have minor children, then you need to be sure to name a guardian in your estate plan. Further, your minor children should have someone reliable and trustworthy to manage their assets in the event of your death.
Having a trust or similar vehicle to hold, invest, and manage assets for your minor children can be the difference between your child’s guardian driving a Porsche and your kids being able to go to college.
(To read more about the documents every parent needs to have before they have children, check this out.
Or, to find out how a prenuptial agreement can protect your children, check this out.)
3. Estate plans are about avoiding escheating.
A family once came to my office and asked me for assistance administering an estate for a friend. For decades the family cared for this friend and treated her as their own family.
For those same decades, the friend had attended family events, been included in family pictures, and had even assisted the family financially. In all the decades of friendship, the family was told that the friend had no family.
The friend never made a will.
Despite her investment in the family, the family’s investment in her, and the common bonds they had, the family knew that they would never receive the proceeds of the friend’s estate.
Further, they knew that the friend’s assets would ultimately pass to the state. For months the family sorted through belongings, held sales, and even auctioned the house. In the end, they passed a check from the estate to the state government –never seeing a dime.
Regardless of the closeness of your friends and family, without a will, the state will not create a will based on your probable wishes. Instead, if you have no close family, your assets will likely pass directly to the state. Your legacy will never benefit the friends, charities, or loved ones you treasured during your life.
Even if you only own a modest home or a small account, create a will to benefit those you love the most.
4. Estate plans are about preserving your assets. (So maybe sometimes it’s about the money!)
Did you know that in addition to a will, there are a number of other non-probate transfers.
There are loads of ways to transfer your property at or after your death that doesn’t include a court or even a family fist fight!
Most of these non-probate transfers do require that you meet with an attorney to discuss your options as well as the pros and cons. However, in my experience, nearly every single one of the non-probate options is far cheaper than a probate estate.
Probate estates are not all bad. Probate is not a dirty word. However, probate is generally more expensive, time-consuming, and inflexible than a variety of other non-probate transfers.
Add on to the cost of probate the potential costs of federal and state estate taxes, and you really have a hefty bill.
Having an estate plan that suits your individual needs, wants, and wishes is truly a way to preserve your assets in the long run.
Sure, I will always counsel you to spend all of your money during your life. Heck, give it away to your kids while you are living just to watch them enjoy it! But, no one ever listens to me!
So, if you want to get the biggest bang for your long-term buck, get an estate plan to keep your assets out of probate and out of the tax man’s hands as much as possible by having a personalized and comprehensive estate plan.
5. Estate plans are about avoiding headaches.
Did I mention that probate and and intestacy is a pain? Probate, though not a bad word, is still a lot of work for both attorneys and your heirs. That’s why I have a day job!
Your children or other beneficiaries don’t want to have to spend the next 6-12 months tracking expenses associated with your estate, reporting them to an attorney, and in turn reporting them to the court.
Instead, your family would rather spend the time relaxing with their family enjoying the great memories you shared. Instead, your family would rather be able to work out asset transfers and management among themselves.
And, if you fail to have a will or a prenuptial agreement, your spouse might find himself or herself booted out of your marital home in an effort to settle the estate.
Don’t believe me? I’ve seen it happen more times than I can count. Don’t leave your family without an estate plan wondering how to pay bills or wondering where mom will live. Get an estate plan!
6. Estate plans are about your business partners.
And, finally, for those of you who own, operate, or manage a business, get an estate plan to protect your business partners.
Don’t leave your estate without a plan and leave your business to satisfy your debts. Be sure to meet with an attorney to develop a life insurance plan, a transfer on death designation, and even a valuation technique that is tailored to your business and your business partners.
(To read more about what an LLC is and whether you might want to consider one, check this out.)
Estate plans might benefit your family. But, you don’t want your business partner’s livelihood put into jeopardy because of your greedy family members.
You have employees, partners, and clients depending on you. Don’t bring their lives to a halt simply because you failed to institute a comprehensive estate plan.
ESTATE PLANS ARE FOR EVERYONE, NOT JUST THE WEALTHY
Get the picture? An estate plan isn’t always about the money, and it certainly isn’t always about you. Instead, it is about your family, your dignity, the people who rely on you, and the legacy you leave behind.
Estate plans and wills are not only for the wealthy. An estate of any size, assets of any shape, and adults of every kind need an estate plan.
Get an estate plan regardless of the amount of your nest egg. Protect your family, friends, and reputation by meeting with a reputable attorney in your jurisdiction to discuss your wishes and particular circumstances.
(Stories and examples shared in this article are not necessarily true but are based on hypothetical examples that can occur in estate planning or that have occurred in my own life.)