Estate Planning…For Everyone

Thinking about dying is something most people do not like to do. And yet, it is important for many reasons, especially if we value the legacy we want to leave or want to ensure the well-being of others in our care. This brings me to the topic of estate planning and the importance of undertaking the appropriate planning by midlife. Planning which gives you control over your assets.

Please note, while this conversation with a seasoned trust and estate attorney is relevant for everyone, many of the specifics are based on the laws of the state of California. If you live in a different state, the laws may be different. 

Karyn:  Why should someone think about estate planning?

LB: There are a few reasons. The first is to ensure control over the disposition of your assets upon your death. For example, if you are middle-aged when you die, there is a chance your spouse remarries. If you have left everything them, to do with as they want, they might spend your half of the money on their new spouse or their kids in a way which you never foresaw or intended. You can prevent this with your estate plan.

A prenup is another tool for control. While it might seem antithetical to those early years of being head over heels in love and thinking nothing could go wrong, lawyers are trained to think about and protect against what could go wrong. So if one person coming into the marriage has significantly more assets, a prenup can be a useful tool of control.

The second reason, particularly in the state of California, is to avoid Probate Court. Without an estate plan the division of your assets and property defaults to the laws of the state. Going through probate also can be  expensive as your family will have to hire a lawyer. In addition, probate court is a public record which means anyone can see your assets.

A third reason is to ensure the continued care of anyone under your care, for example your parents or a sibling with a disability. With an estate plan you can set aside money and directions for the support of these people.

Fourth is for protection. Take for example a situation where there is a lot of money and there is concern that the widowed spouse or partner could be taken advantage of in the future. To prevent this from happening you can set up a trust that directs the deceased spouse’s money into a trust with strict parameters around how it can be used.

Lastly, if you have children under 18, and you and your spouse both die at the same time it allows you to provide for you children. You can appoint a guardian and also have the ability to split the caretaking role from the financial oversight role if you feel these roles would be handled better by two different people.  A lot of people when they make their initial estate plans name their parents, if they are alive and healthy, as guardians. But at a certain point you might realize your parents are no longer the best guardians as their capacity may not be as great as it was when they were younger.

You can also dictate at what ages your children receive any assets and how the assets are to be divided among them. Some people split their assets equally among their kids. Others do not split them equally as they have a child who is already financially successful, or they have a child with special needs who needs more financial support.

Karyn: Why is it important for women to be thinking about estate planning in midlife? 

LB: Midlife is a great time to revisit an earlier estate plan or to begin estate planning if someone has put it off.

Most often people do their initial estate plan when they first have children. It then gets put on a shelf and they never look at it. It might be 10-15 years, when the kids are headed to college, before they look at it again and it may no longer be relevant. For example, perhaps the people named as guardians are dead or no longer capable of either a caretaking or financial oversight role. So it is a great time to reevaluate your plan and adjust accordingly.

And if you don’t have an estate plan yet, midlife is often when people face their own mortality for the first time and realize they need one. And although conversations around death can be hard, after having these conversations and putting a plan in place, people often say they feel much, much better.

Once everything is settled and you have a plan in place you should review it every 5 to 7 years to make sure it is still current.

Karyn: What are the estate planning tools everyone should have?

LB: In the state of California everyone should have a will and a trust. People often think of trusts as only for very rich people because they do not think they have enough money to worry about estate taxes. And it is true that under current law you do not pay estate tax below $12.9 million (double for married people).

But, in California you still need a will and a trust, even if you don't need a trust for tax purposes, to avoid having to go through Probate Court. This allows you to avoid probate fees and dispose of your assets as you desire and in private.  

People also should have an Advanced Healthcare Directive and a Financial Power of Attorney, which address physical and mental incapacity. For example, you could be in a car accident and survive but be severely disabled or as you age you might become less mentally able. If you have your assets in a trust and you become incapacitated, then the person you have named to be in charge of your assets (the successor trustee) can step in to see your wishes fulfilled. However, you need the healthcare document to permit your agent to care for your health and the financial agent to manage your assets, especially if you do not have a trust.  Everyone over the age of 18 should have these documents.

These four documents will enable your family or friends to make the right decisions with regard to your assets and health without having to go to court.

Karyn: What is the most common question you get from clients in their 50’s?  

LB: The two most common questions we get from clients in their 50s are, “If I die now, what kind of control can I have over my assets?” And “I am feeling pressure to address my future, something I have been putting off, how do I get started?”

Karyn: There are a lot of free estate planning tools online these days, why should someone work with a professional advisor?  

LB: I do not know how many online tools are free vs. low cost, but estate planning can be complex, and these sites typically just provide templates.

Thre are a couple of reasons why working with a professional advisor makes sense. First, I have found that talking about death is one of the hardest topics for people to discuss. Having an experienced professional advisor can be very helpful in facilitating these conversations.

Second, we all come from different backgrounds and circumstances and have different goals. A professional advisor can help you navigate your particular situation by asking you questions that will help you realize your financial and health goals through your estate plan. There are many different ways to structure an estate plan depending on someone’s circumstances and goals.

It is also worth mentioning that there are a range of estate planners available to meet varying degrees of complexity. For example, some estate lawyers specialize in working with people who do not have to pay estate taxes and others might focus on ultra-high net worth families whose situations are very complex. There are also those who focus on corporate executives or founders of companies, or families with children who have special needs, or people with a non-US citizen spouse. And these are just to name a few!

Parting Thought

Moving gracefully and stress free through midlife means being on top of the nuts and bolts of your life. This conversation was exactly the kick in the pants I need to revisit our estate plan!

To be continued…