Things You Should Know About Planning Your Estate
by Scott K. Schmidt, U.S. Money Reserve
It’s about a lot more than passing your cash along to your loved ones after you go.
Over the span of our lifetime, we will each spend roughly 90,000 hours working. Whether we’re sitting in a meeting, waiting for a conference call to start, or actually getting down to brass tacks, we all work very hard for every penny we earn. That money goes to feed and clothe our families, send our kids to great schools, and perhaps even have a pleasant and comfortable retirement when we finally stop the daily grind. Yet we rarely think about what will happen to our money and assets after we’re gone.
There is much to know about estate planning and an inordinate number of misconceptions about the entire process. By the end of our lives, we all have accumulated assets that are valuable from both a sentimental and a financial point of view. Ensuring that these assets pass on to our loved ones without placing an excessive, additional burden on them is vital. Here are six things you need to know about estate planning.
Understanding Estate Planning
While it may sound like you need an “estate” in order to plan for its distribution after you’re gone, the truth is, you don’t. A good rule of thumb for deciding between a simple will or an estate plan is to consider your family and assets. In general, if you have a family, you should have an estate plan.
Another useful consideration to take into account is the size of your assets and what exactly you want to happen to them after you’ve passed on or become incapacitated. Even if you don’t think you have much, creating an estate plan can be a good way to ensure that your heirs get what you want them to get after your death.
Estate planning is pretty much exactly what it sounds like: planning the distribution of your wealth, such as homes, vehicles, and other financial assets to the people you care about the most in the event that you become incapacitated and/or die. Estate planning generally costs around $1,000 or more, according to Investopedia. It can require that you hire an estate planning lawyer to draw up the paperwork, and in some cases, it can also be beneficial to involve your accountant as well so that you can have a good understanding of just how much you have to distribute.
Common Estate Planning Misconception: “I have all the time in the world.”
It’s incredibly common to think that you have all the time in the world to plan for your estate. The truth is, time slips away quite quickly, and unexpected events occur. While you may hope and expect to live well into your silver years, the reality is that everyone gets sick; there’s always the possibility of an accident that could leave you incapacitated; and things “just happen” in life. We have no assurances about how long we will be on this planet, and if you want to take care of your loved ones well beyond your lifespan, getting an estate plan into place is the right choice to make.
Essentially you shouldn’t wait until you are of a certain age to create an estate plan. If you have anything that you own and want to see distributed to your loved ones in a specific way — and you want to keep the government (and tax collectors) at bay after your passing — you should get an estate plan in place. You’re never too young to have an estate plan.
Common Estate Planning Misconception: “I am not wealthy enough for an estate plan.”
Because financial planners, estate lawyers, and advisors often talk about the very upper limits of the estate tax, it often seems that unless you have vast stores of wealth, estate planning is not for you. The truth is that planning your estate can save your loved ones immense heartache, potential infighting over your assets, and huge costs when done right. While estate planning generally costs more than creating a simple will, it’s well worth the time, effort, and moderate associated expense.
If you are exceedingly lucky and have been a high earner your entire life, it does pay to know about the limits of estate taxes. As Fidelity notes, an excellent thing to consider is whether or not the estate’s value (your assets including homes, vehicles, stocks and bonds, any financial holdings, etc.) exceeds the estate tax exclusion. They say, “In 2020, for a legally married couple, generally each spouse would have the $11.58 million federal estate tax exclusion. At the death of the first spouse, their exclusion could be taken on by the surviving spouse, allowing the survivor to exclude $23.16 million (or more, because the surviving spouse’s exclusion will be indexed for inflation) from federal estate taxes.” Most people will never reach these levels, but it’s essential to know that they exist if this situation applies to you.
Common Estate Planning Misconception: “Estate planning costs too much.”
If your estate is relatively simple, there’s a high possibility that you can draft estate-planning documents yourself for little to no money. There are plenty of online options like those offered by places like LegalZoom that can help you legally draft documents to ensure that your assets are distributed the way you want them to be if you are ever incapacitated or upon your death. You can also potentially leverage the benefits at your job to create an estate plan. Many companies offer estate planning, assistance with wills, and even power of attorney options for employees as part of their benefit packages. It’s worth looking into to secure the future of your family.
Personally, I recommend enlisting the help of both a lawyer and an accountant to ensure that your estate plan has all the I’s dotted and T’s crossed, but if cost is an issue, you can find more affordable options out there that can make your estate planning smooth and easy.
Common Estate Planning Misconception: “My family will do the right thing and knows my wishes.”
If you’ve ever been through the death of a family member, you know that emotions run high. When emotions run high, logic rarely prevails. Additionally, family members may assume that they have a certain position in your estate. Money and assets make people behave in unexpected ways. People who may not appear to be greedy could suddenly show their true colors and go after assets that should belong to others.
This all causes significant interpersonal strife amongst the people you love. It can even sour relationships to a point where they are irreparable. Imagine if your kids stopped speaking to each other because they bickered over who got the lawn furniture after you had passed on. The truth is that while assets have value, nothing is so valuable that it should ruin family relationships. That’s why it’s vital to create an estate plan that clearly lays out exactly how you want your assets and possessions distributed. Your family may have an idea of how you want your assets distributed, but if you want to ensure that everyone gets their fair share, you need to draw up a formal document that outlines those wishes. It takes any potential additional stress out of the situation in the event of your death and ensures that your last wishes will be followed.
Common Estate Planning Misconception: “The people I want to have my assets will outlive me.”
We assume that our children will outlive us. We believe that our spouses or partners will survive us. In truth, only two things in life are certain: death and taxes. Death comes for us all at some point and, in many cases, unexpectedly. If one thing has become increasingly apparent as a result of the global pandemic, it’s that even those we consider to be incredibly healthy and robust may not outlive us. A significant part of estate planning includes making a contingent plan for the worst. Who will get your assets if your kids or spouse don’t outlive you? Who will take care of your pets? These are essential considerations to take into account when putting together an estate plan. The process of creating a plan for your assets helps you see the blind spots you may have and can help make your own passing that much easier for the people you love the most.
The Bottom Line
Estate planning is for everyone, and everyone needs a plan for what happens to their assets once they have left this earth. It makes good business sense and fantastic personal sense. It ensures the future security of your family, your loved ones, your pets, and your assets — and it allows those who outlive you to create a better life from the fruits of the 90,000 hours of time you spent toiling away at work. Whatever you do, don’t ignore the importance of having an estate plan to ensure that your family is taken care of when you can no longer do it yourself.
