Introduction
What is estate planning, anyway?
When a person dies owning anything, that property has to go to somebody, somehow. An estate plan provides the legal means of transferring property upon death in a way that recognizes your wishes and the needs of your survivors – young or grown, or with special needs. Some of us have a charity in mind.
An estate plan almost always involves a will, but there are other aspects to it as well. That’s why “getting your affairs in order” is a very appropriate description.
The way you hold property, account beneficiary designation forms, life insurance when appropriate, planning for disability, the late stages of life, and a variety of family considerations are all included in the process of “estate planning.”
We’ll look at all these things.
We’ll also look at trusts. A trust can be used to supplement a will; much more on that later.
All of these elements must be coordinated – that’s what makes an estate plan a “plan.”
Here’s the bottom line: If you don’t put in writing who’s going to be in charge and what’s supposed to happen when you die, there’s a good chance you’re creating big problems for your loved ones. A combination of luck and state law will take over upon your death or disability.
Maybe things will work out fine without a bit of planning. But I’ve gone to court and seen families torn apart over who gets Dad’s wristwatch, a kitchen wall clock, or even a tissue box cover. (True story.)
If you want your wishes to be fulfilled without starting World War III, avoid the following common invitations to disaster:
“Everybody already knows who’s supposed to get what.” OR
“In my desk drawer there’s a list of my possessions and who gets them.” OR
“I don’t have much. The kids can just come in and divide it among themselves however they decide.” OR
“Last year I put all my money in a joint account with my oldest daughter. After I die, she knows to split it three ways with her brothers.”
All the situations above (and any others you might add) are prescriptions for trouble, for various reasons. There is simply no way to ensure your intentions take effect if they are not contained in a legally enforceable plan. And perhaps because it is so ancient, the law of property, estates, wills and trusts is quite inflexible. Legal documents and details have to be prepared and handled just right, especially before – but also after – a person passes.
Are online resources and document preparation services any good?
A great deal of self-help is possible by people who take time to educate themselves – as you’re doing right now.
After all, if – if – you know what you don’t know, you can scour the internet and find many of your answers. There’s a lot of information out there, as well as document preparation services. But that’s often a very big “if.”
And keep in mind the words, “takes time to educate.”
Many states have official websites with a lot of information and downloadable probate and administration forms. Their court personnel are helpful. They are not allowed to give advice, but they will point do-it-yourselfers in the right direction.
And judges are generally elected officials. They regularly handle routine matters for folks without lawyers. I’ve told plenty of people they’d be wasting money hiring me, as long as they feel comfortable talking to the judge, who is generally quite friendly.
In some states, however, the situation is quite different. Their rules and procedures make life difficult and almost force you to get an attorney to go through the probate or estate administration process. (New York, Florida, and California come to mind.)
So searching online for estate planning guidance and information is an excellent idea, even for those who intend to consult an attorney – and especially for those considering an online document preparation service.
Yes, online will preparation services can produce perfectly fine results in a great many uncomplicated scenarios. They guide you with basic questions about your family situation and wishes. Therefore, they are a cost-effective solution for plenty of families. The “catch” is recognizing if you’re one of them.
Will preparation services, however, can’t promise to take into account all the details, people-problems, contingencies, and very specific issues that might be critically important to a particular family.
Note that, to their credit, all online legal services clearly state (if you look closely) that they are NOT providing legal advice. So it’s up to you to determine if an online service is right for your situation.
It boils down to your comfort level in making that determination. Remember the question, “Do you know what you don’t know?” When you talk to a lawyer, he or she will know what you know and what you don’t know. With their perspective and experience, they might recognize a looming issue you hadn’t thought of.
Unfortunately, my client and reader questions over the years have revealed many, many good people who haven’t read up on estate planning or haven’t come to terms with family realities. They’ve put off calling a lawyer and are clearly on the way to messing up their situations badly. (Now that you’re here, I hope that won’t include you.)
So, virtually everyone would benefit from – if not need – an attorney in almost every estate planning situation, at least for a brief consultation, or to answer some questions.
Many clients have begun by telling me of their “very simple situation,” only to reveal after five minutes of discussion that it was anything but!
Often, a few questions to them uncover an interpersonal family issue that would be a serious problem unless it’s dealt with now – not when it’s too late. There are lots of important factors that people understandably just don’t think about.
Some online services offer some form of attorney support as an added option to their basic service. Seriously consider the value of this individualized add-on consultation if you go the DIY route.
But in case you’re wondering, few if any lawyers will briefly review and “bless” documents you’ve already prepared online. I would not.
A few states have generic, downloadable fill-in-the-blank official will forms. (These are quite different from online will and trust preparation websites.) Texas is an example. The form is confusing, and it plainly states:
“You can fill out this Will Form yourself, but you are encouraged to get a lawyer to help you fill out this Will Form or to review your completed Will Form. Wills are complicated. This Will Form is not a substitute for legal advice.”
So why bother filling out the form if the state advises you to see a lawyer anyway?! These forms are inappropriate for many people’s situations – and no state dares to offer much, if any, guidance as to how you should arrange your affairs or set up a will or trust. Feel free to look up your state’s “official” generic will form if there is one, but rely on it with great caution.
Reddit is a useful resource.
To my surprise, as of the time of this writing, I have found Reddit to be a very useful estate planning resource for individual, highly specific situational guidance. (Note that I said “guidance,” not advice.)
The subreddit, r/EstatePlanning, is a community of people asking questions, and commenters who offer their answers and opinions about both personal planning and handling a loved one’s post-death affairs. These commenters must be approved by a group of Moderators (“Mods”).
The questions posed are often about quite complicated situations. There are usually multiple helpful, accurate replies. The Moderators and commenters seem to be genuinely knowledgeable and well-intentioned estate planning attorneys or financial professionals with experience in estate planning and administration.
The Moderators and commenters often choose unusual, even self-deprecating screen names – but don’t let that fool you. Of course, opinions and perspectives differ, but almost all are valuable. Of course, that does not make them infallible.
But I have never seen any truly bad advice there. The Mods are very good at rejecting commenters trying to offer incorrect responses to questions, and the community makes clear that replies to questions are not a substitute for individual legal advice from your own lawyer.
Reddit is not intended to offer a comprehensive estate planning overview, however. That’s why both questioners and commenters understand that r/EstatePlanning is simply a place to gather some insights before seeing an attorney.
If you keep that in mind, it’s worth posting a question if you’re dealing with a specific issue or problem.
The “hats” worn in your estate plan and documents.
We’ll get into this important concept repeatedly.
You – or other people of your choice – wear several hats (play various roles) in your estate plan and the probate process after you’re gone. These include your personal representative. That term refers to the executor named in your will or the administrator appointed by the court if you have no will. We’ll also explain the hats worn by your trustee (if you have a trust), and your agent under a power of attorney.
Whoever serves as your personal representative, trustee, or agent is a “fiduciary” and has a “fiduciary duty” to you and the beneficiaries of your will or trust. This is the highest of legal duties.
A fiduciary is obliged to act with loyalty, good faith, and the highest degree of care and prudence while managing assets or acting on behalf of you and your beneficiaries. Self-serving conduct is not allowed by law.
But keep in mind that whoever is wearing a hat on your behalf is in a position to botch things up or even rob you blind. So, as they teach at Harvard Law School, choose your people carefully! (I didn’t go to Harvard, but I’m sure that’s what they teach there.)
Your people have to be honest, of course. You also have to rely on their judgment – will they make the decisions you would make? (Just like you, they are encouraged to seek professional advice if needed.)
The people wearing these hats can and usually do change, but their various roles do not. Some hats you can wear for yourself while able to do so. Even then, be sure you know what responsibilities the job carries. We’ll look at these various hats (roles) as we explore the tools and documents associated with them.
The key point is that when you prepare a legal document that allows someone to handle your affairs – a will, for example – the choice of that person is just as important as the document itself. All estate planning lawyers have seen plenty of people learn this the hard way.
There are no commandos ready to swoop in and prevent misconduct. That’s why you’d better trust whoever you ask to wear a legal hat and act on your behalf.
A word about same-sex marriages and relationships
Planning for those in committed same-sex relationships involves the same considerations and tools that we will discuss regarding couples, generally. So your concerns about loved ones, the disposition of your property, and medical and financial arrangements in case of incapacity are all addressed here.
Certain issues like parental rights can present special challenges, however. These are not addressed here.
As with opposite-sex couples, whether the partners are married or not is a very big deal. The various challenges unmarried couples face are not fully addressed here. But the “trick” – applicable to everyone’s planning – is simply to ensure that your documents and other arrangements actually fit your needs.
If you simply check your present arrangements, then handle things properly with professional guidance, there is virtually zero chance that your plans can be successfully challenged by someone simply because they disagree with your lifestyle or choice of partner.
If there are such people in your life, however, it’s particularly important to see a lawyer to make sure you’ve got your ducks in a row. Don’t give anyone who might challenge your end-of-life choices a legal leg to stand on. (Of course, dealing with those who might disapprove can cause “life” problems that a lawyer probably can’t help you with.)
What about taxes?
Tax planning is not covered on this website because not many people have to worry about it.
Changes in the law have made federal estate taxes a non-issue for almost everyone.
(An “estate tax” is one that is levied on the assets of the deceased, before those assets are distributed.) The federal estate tax is designed to take a bite directly from the assets of only the wealthiest deceased taxpayers, so I don’t deal with that issue here.
An “inheritance tax” is one that is levied on a person who receives money from a decedent, e.g., under a will.
To answer a common question: There is no federal inheritance tax; If you inherit money – regardless of the amount – the IRS does not consider it taxable income, and it doesn’t even need to be reported. But any income that an inherited asset produces after you receive it is taxable – post-death interest income on bank accounts, for example.
(If you inherit a traditional IRA, 401(k), or 403(b), however, the money inside has never been taxed. So any distributions or withdrawals you make from these accounts count as ordinary income and must be reported on your tax return for the year you withdrew them.)
Ultra-wealthy folks – individuals approaching the $15 million area code ($30 million for married couples) – can definitely still find the practical advice here useful – in fact, they need it at least as much as the rest of us. But they also need sophisticated tax advice not covered here.
As far as this website is concerned, it’s everyone for themselves when it comes to their state tax situation. About 16 states have their own estate or inheritance tax. Most families are either exempt from those taxes or the tax rate is not very high.
Sorry, I can’t go into that level of detail, but your attorney or tax advisor can tell you if it’s possible to avoid any state “death” tax that might apply.