Estate Planning: Importance, Pitfalls, & Solutions
What happens to everything you’ve accumulated when you’re no longer here?
If you’re not sure - you probably need an estate plan.
But just like most insurance - no one actually looks forward to getting their estate plan - being with how closely it’s tied to death, it’s no wonder why.
But that doesn’t mean estate planning isn’t important (or that we don’t recognize its importance… many do); rather, it’s easier to not do it, than to do it - so we resort to the easier route & just not do it.
It’s not until you encounter some pain that estate planning's importance scares you into action.
One reason I love what I do is from seeing and hearing, firsthand, how not having estate planning can impact relationships and wealth (not because I want to see that, rather, it helps reframe the importance of the topic so I can learn from the mistakes of others).
From ex-spouse’s getting assets, to misinformed communication between what the Will says and pre-passing spoken word, to estate’s being contested - it gets messy quick.
More often than not - a little planning goes a long way.
The importance of estate planning stems from a couple different ideas:
Smooth asset distribution
Assets are distributed to the right person
You can control how those assets are distributed (think amount & time - a trust is most ideal for this).
Maintain privacy by avoiding probate (& probate fees)
Expressing personal wishes
& most important of all:
You make sure everyone still loves you when you’re no longer here.
Many think of estate planning as the one-time creation of documents like a Will, Medical Directive, HIPAA Authorization, and Durable power of Attorney.
While that is true, many forget the power of:
Beneficiary designations
Joint asset titling
Transfer of death (TOD) & Payable on death (POD) designations
Assets titled in the name of a trust
These tools allow for assets to transfer before they reach the probate estate.
Any assets not accounted for via the above tools, are probated and to be distributed according to your Will.
If you die without a will, you die intestate.
If you die intestate, your estate is distributed according to state law.
In Delaware, who gets what depends on whether you have children, parents, or other close relatives. You can read more about Delaware intestate law HERE.
Any disgruntled family member can contest a Will, so many individuals who wish to have greater degrees of control resort to creating a revocable trust to add an additional layer of control & remove their asset from being publicly probated.
A revocable trust includes three parties:
Grantor
Trustee
Beneficiary
Where the grantor (person who created the trust) assigns a trustee (person to distribute assets from the trust) to the beneficiaries (those who receive trust assets).
Trustees could be anyone who you trust. Some grantors will assign a corporate trustee to eliminate any concern for trust documents not being adhered to compliantly.
One mistake I find for those who create revocable trusts is nothing is actually named in the trust itself.
Once you create the trust, you have to retitle assets to be named in trust name - otherwise, your trust is nothing more than a piece of paper.
Yes, you could (& should) have a pour-over will but it itself is probated in the process of transferring assets to the trust to be distributed according to trust wishes.
This process of titling assets in trust name is called asset coordination - & is just as important as creating the trust documents themselves.
The same applies for Medical Directives and durable power of attorney’s:
Make sure your financial institutions have your durable power of attorney and your healthcare providers have your completed documents on file - these documents only work when they’re in the right hands of those who can make decisions.
Above all - keep these documents located securely somewhere in your home that they can be found.
It is often helpful to include:
Net worth statement
Passwords for important accounts
Contact information for financial professionals
A final word to those who will be reading these documents when you’re no longer here.
Once this has been completed - I’d say the hard part is done.
Now it’s a matter of revisiting these documents to ensure your estate wishes are still in line year-over-year and amending documents as things change.
Estate planning is the ultimate form of having control from the grave.
The anticipation of dealing with an estate matter or planning for your inevitable passing is oftentimes more stressful than the actual process itself.
The sooner you get this done, the sooner you free up mental bandwidth to make the most of the time you have remaining.