In Episode 9, we get into the actual nitty gritty details of how to do estate planning. This episode is part 2 of 2 and covers the 16 essential estate planning checklist topics you should think about as you prepare or update your estate plan. This is a continuation from the last episode, where we introduced big picture concepts around estate planning.
What you’ll learn in this episode:
- The 16 essential checklist topics that should be part of any comprehensive estate plan
- The role of attorneys and CPAs in estate planning (and the distinction between what each does)
- How much an attorney will cost, how to find a good one, and things to think about if you’re considering to do parts of your estate plan yourself
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Links mentioned in this episode:
- 16-point estate planning checklist
- How to set up a revocable living trust (with sample trust document)
- How to write a will
- Life insurance: How to calculate exactly how much you need in 4 simple steps
- HYW private Facebook community
Read this episode as a post:
Okay, thanks for joining me for part two on this estate planning topic that we started discussing in the last episode.
In the last episode, we talked about a broad overview of what estate planning is, why it’s important, what the goals are, who it’s for, when you should be thinking about it at each phase of your life and what probate is when you don’t have an estate plan.
So we got all the basics out of the way.
In today’s episode, I want to walk you through a checklist that’s going to act as a guide for how to actually think about and methodically create a comprehensive estate plan and the questions you should be asking and the documents that are involved to make sure that everything is buttoned up.
So it’s going to be action packed and definitely encourage you to listen closely.
Before we begin though, I want to again caveat as I did in the last episode that I am not your attorney or accountant.
There is no attorney client or accountant client relationship formed by me sharing this information. You should definitely talk with your own lawyer or accountant to get into the specifics of your situation.
Also, I want to mention again, be sure to grab the freebie I created for these two episodes which you can get at hackyourwealth.com/9.
That freebie is the estate planning checklist and worksheet that will help serve as a framework and guide for you, as you think about all the elements you need to complete to create a comprehensive estate plan and which is what we’re going to talk about in detail today.
As I always do, I also want to encourage you to join the private hack your wealth Facebook group, which you can access at the URL shortcut link hackyourwealth.com/fb.
That Facebook group is a forum where we can directly connect and have a two way dialogue. I am in there literally every day answering questions and responding to everything.
And there are a lot of other members there who are interested in discussing topics around financial independence and retiring early, tax strategies, real estate investing, side business income, online income, career transitions and just asking for advice in general about things they’re thinking about related to personal finance.
And it’s a super supportive community where we just help each other get better and learn more about how to be more savvy with our finances and taxes. So definitely encourage you to check it out: hackyourwealth.com/fb.
Okay, so last time, we talked about a broad overview of estate planning.
In this episode, I want to walk you through the checklist that can help serve as an estate planning guide for you and lay out step by step what you need to do to have a good estate plan.
And so that you don’t make critical estate planning mistakes or omissions we’ll cover all the asset planning documents you need to have buttoned up in your estate plan.
And like I said earlier, don’t worry about taking notes because you’ll get everything I’m about to explain in the freebie for today’s episode, so make sure you grab that hackyourwealth.com/9.
Okay, so as a preview, there are 16 things you should be thinking about when figuring out how to create a comprehensive estate plan.
And not all of these 16 things will necessarily apply to you.
But you should consider them because they span the range of basically all the possible issues that you could face, depending on what your estate situation is, but if you at least consider all 16 and implement the ones that are relevant to you, you should have a rock solid estate plan.
Okay, so number one is to take inventory of all your stuff. Everything you own is included in your estate. So that first thing to do is to take stock of what you own.
The way I recommend doing this is to literally just open up a Google spreadsheet, or just write down a list on a big legal pad, listing out an inventory of all your stuff.
Tangible things like your house and other real estate, cars, motorcycles, boats, jewelry, artwork, collectibles, antiques, things like that.
If you have recent objective values for these things, then you’re going to want to list those as well. Otherwise, you may have to get them actually appraised to get a fair market value imputed to them.
In addition to physical tangible objects, like the ones I just mentioned, you’re also going to want to inventory your financial assets.
So this is going to be things like your checking and savings account, bank account, brokerage accounts, retirement accounts, like 401ks, IRAs and Roths, any CDs you have, HSA, FSA, 529 accounts, including all of their most recent balances.
It’s also going to include stocks and bonds, mutual funds, securities, any investments you have in closely held businesses, or private equity investments along with their most recent valuations.
And also include the location and contents of any safe deposit boxes you have, or physical safes. List out all the insurance policies you have like life and disability insurance, note their cash values, and what the death benefits are. It can help if you have the policy documents ready that are included in this inventory.
And with all these things, you’re going to want to note account numbers, access instructions, passwords, things like that, so your administrator can easily get to those things.
Additionally, you want to list out any money owed to you and keep that list attached to your inventory of possessions.
It’s good to include copies of any promissory notes or loan agreements that may specify who owes you what and on what terms. You want to make sure your loved ones can collect any such money that’s owed to you after your death.
And lastly, you should also list all the debts and liabilities you owe. You don’t want your loved ones to receive an inheritance and then later get a surprise that they’re sued by a creditor who’s trying to collect the debt you owed them.
This could include things like any back taxes owed, mortgages, any lines of credit, credit card debt, personal loans, auto loans, student loans, or any other kind of debt.
Your executor, who is the person who is going to administer your estate after you die, is going to have to pay off these debts before distributing the leftovers to your beneficiaries.
So that’s number one: take inventory of your stuff.
Number two on the list is to verify the ownership title of any major assets you have, because the thing you’re trying to solve for is to have the option to transfer property to your beneficiaries outside of probate.
And one of the efficient ways to do that is to make sure the title documents and deeds reflect owners whom you would want to transfer to, should anything happen to you.
So any asset that has a legal title document like real estate or vehicles can be set up in such a way that upon your death title automatically transfers to somebody else, mostly it’s going to be a spouse, and that transfer would happen outside of probate, totally smooth.
But to do that, the title document must actually state that ownership is held by the other person as well. They have to be named as joint tenants with rights of survivorship – that’s the magic words on the title document that a probate court would need to see to smooth sail that through – or as community property.
In some states like California, Texas, which are community property states, husbands and wives share equally. And so title document should specify that title is held as community property.
You should know there are two downsides to adding someone as a joint owner in this way on the title documents.
One is that you’re going to need that person’s permission to effect any sale of the property or take out a loan secured by the property. They’re going to have to consent to that.
And second, if the value of the property is large, it could trigger federal gift taxes. So you just want to be aware of that.
If you have the title documents specified correctly, anything that has these magic words with right of survivorship will transfer smoothly outside of probate.
Anything that doesn’t have that kind of language will likely just become part of your estate that has to go through probate.
Okay, number three on our list of 16: consider getting life and or disability insurance.
If you have a family with kids, maybe a stay at home spouse, and you have significant debts or you expect to be subject to estate taxes when you die, then you may want to consider getting life insurance that can help offset those expected obligations.
The insurance can pay out to give your family financial security, pay off your debts, cover the taxes you owe. Also that your loved ones are not then suddenly facing big financial pressures on top of recently losing a family member.
So you should definitely consider life insurance and or disability insurance. That’s number three.
Number four on the list is to execute a last will and testament.
And the thing that you’re solving for here is to specify who’s going to get your assets after you die, and in what proportion and on what terms.
Most people know what a will is, even though in legal terminology it has kind of funny name “last will and testament.”
But basically, the concept is that it disposes of your property through declarations and gifts that you make to beneficiaries in your will.
But it can also deal with the care of your kids because you can appoint someone you trust to be a guardian for your kids.
But it can also be used to make charitable contributions and even create a foundation or take other philanthropic actions that you wish to happen at your death.
Okay, number five on the list is to specify beneficiaries. And what this means really is to review and update your primary and contingent beneficiaries on all your financial and investment accounts.
Generally those beneficiaries will have to be over 21 years old and mentally competent, or else a court may intervene and set it aside.
You want to specify these beneficiaries because it will allow these assets to pass to your beneficiaries outside of a will and outside of probate.
And specifically, this most commonly applies to 401k plans, bank accounts, brokerage accounts, insurance plan payouts, things like that.
If you do not name and beneficiary, then a court judge who is perhaps not aware of your situation or intent may decide, through the probate process based on state intestacy laws, who should get your property and under what conditions and that may not be what you want it.
So it’s actually really important to set up your beneficiary designations early on and review them periodically to make sure they always reflect intent.
Okay, number six on the list of 16 is to execute a living trust.
This is one of the most important estate planning tools you can use to ensure a smooth transfer of your property to your beneficiaries.
And what it’s really addressing is multiple things: how to avoid the probate process which everybody wants to do, how to defer taxes, and also how to distribute assets in installments rather than outright all in one fell swoop.
Okay, so, a trust or a living trust is actually a legal entity that takes ownership over your assets during your lifetime.
And the reason why, when you die, it can avoid probate is because trusts themselves actually never die. They are perpetual.
So when you die, it’s a non event because you don’t actually own any assets at that point, you’ve already transferred your assets into the trust during your lifetime. And so when you die, no event has occurred.
As far as the trust is concerned, the trust continues to go on. And so there’s no probate that occurs as a result.
In addition, no taxes are triggered at your death, because it’s not a tax event as far as the trust is concerned.
When you die, especially if you have a large estate or a lot of beneficiaries, then a living trust is probably your best option for distributing your property, avoiding probate and minimizing taxes.
Title to your property is actually transferred from you personally to the trust and then you become the trustee. You want to make sure all assets that you transfer into the trust are actually retitled into the trusts name.
So any title documents or deeds, you want to retitle them in the trust’s name and then you keep copies of all those documents.
It’s going to appear weird if you have a trust agreement that indicates it owns all these properties, but in your title documents, it still says you are personally the owner.
When you set up a trust, you also want to make sure that you fund it promptly. That just means you want to actually transfer the property into the trust promptly.
If you create a trust entity by executing a trust agreement, but you never actually transfer any assets into it, then the trust is going to be deemed invalid and it won’t be recognized by a court.
So it’s really important you have to know that a trust actually has to own the property. And so you actually have to fund the trust by transferring the property to it or naming the trust as a beneficiary after you die, which you can do with something called a pour over will or a pour over provision in your will.
A key point to keep in mind is that a trust entity that you create, if you want it to be valid, has to actually own your property, have the property retitled to it, be funded close to the time the trust is actually created, in order to be recognized as valid.
Once the trust is set up, it’s best practice to revisit your assets every year, make sure that everything that should be in the Trust has actually been transferred into the trust and keep that updated.
While you are alive, even though the trust owns the property, technically, you as the trustee still control the property just as if you owned it…but you just don’t actually own it.
So if you are the trustee of your living trust, which normally you would be, you can still do things like sell your property or mortgage it or use it whenever you want, just as you would as an owner.
Then if you die or become incapacitated, a successor trustee whom you would have specified in advance will go over and continue running the trust making sure that property is appropriately transferred to any beneficiaries you’ve specified, and make sure the beneficiaries are still getting served by the trust.
Now, I mentioned a moment ago, this notion of distributing your property in installments and how a trust can help facilitate that.
That’s because a trust lets you define the terms and schedule of when assets will actually be distributed to your beneficiaries, and on what cadence. .
That’s going to be useful if you have kids, and you don’t want them to, for example, inherit a big pot of money right when they turn 18, and they’re ill equipped to handle it, maybe they don’t have the temperament or training or know how to handle a big inheritance windfall.
And so you can specify in your trust that your beneficiaries, if they’re minor children, will get payments over a period of time in installments.
Lastly, as I alluded to, in the last episode, a really important benefit a trust is that the administration of it is private. And that means your property affairs are not disclosed in the court record to the public.
And therefore, it’s also less likely to be contested, whereas regular probate proceedings are generally public record open to the public: people will know about it.
So, one of the big benefits of having a trust is that you really keep things private.
Okay, so that was a good chunk on trusts.
Number seven on our list of 16 items is to execute a financial power of attorney.
The thing you’re trying to solve here is who will make your financial decisions if you are not able to make them yourself.
So the financial power of attorney aka the durable power of attorney authorizes someone: your agent who you trust to act on your behalf, for financial matters to manage your finances.
So they can enter into financial transactions. They can transact real estate, pay bills, and taxes, they can make key legal decisions as if they were you.
You can always revoke it after you granted if you’re physically or mentally competent. And also you should bear in mind that power of attorney always terminates when you, the principal, the original person dies.
Once you die, all power of attorney evaporates.
Usually power of attorney would come into effect when you become incapacitated. And without a power of attorney, your court may have to decide what happens to your property if you’re incapacitated.
And again, their decision may not be what you want it. So in many families, it makes sense for spouses to set each other up as reciprocal powers of attorney.
But there are cases where it might make more sense to have a different family member or some other trusted person who is you know, maybe more financially savvy or something like that, to act as a power of attorney rather than your spouse.
You can also set up limited power of attorney if you don’t want to hand over the keys to everything.
And so a limited power of attorney is a type of directive that basically imposes limits on the agent who’s acting on your behalf.
So you can limit them to, say, the power to sign documents on your behalf when you sell a home or investments, but nothing else.
It basically let you just put guardrails and constraints on what your power of attorney can do.
Okay, number eight on the list is to execute a living will.
And the thing you’re trying to solve here is what is going to be your healthcare directive if you cannot make healthcare decisions for yourself.
Okay, so you might be confused because a moment ago I talked about a last will and testament and here I’m talking about a living will.
So what is the difference? A last will and testament is a will as you commonly understand it.
It’s a document that says, hey, when I die, I want my property to be divided up into these different pots and I want Mary to get this pot and Joe to get that pot and Bob to get this pot.
A living will is also known as an advanced directive or a healthcare directive and it spells out your wishes for medical care if you cannot make medical decisions yourself.
Like, if you become terminally ill or you’re incapacitated due to an injury and you can’t communicate your wishes.
You don’t need a power of attorney like a healthcare power of attorney for a living will to be effective.
Courts and healthcare providers can act on the directive that set forth in the living will document alone. But it is common for people to have both a living will document and healthcare power of attorney.
And that actually brings us to item number nine, which is to execute a healthcare power of attorney.
So, like the financial power of attorney here, you’re giving a trusted person medical power of attorney for your healthcare.
You pick someone you trust, give them authority to make decisions regarding your healthcare if you become incapacitated and can’t make those decisions yourself.
A living will will often go together with a healthcare power of attorney because it serves as a guide to the agent who is acting on your behalf and it expresses your wishes.
If the agent isn’t available at a critical moment when a decision needs to be made, they can still look to your living well, but these two documents – the living will health care directive and the health care power of attorney authorization – are sometimes combined into one because they are so closely related to each other.
Okay, then number 10 out of 16 is to specify your guardianship designations. So, if you have kids, then picking a guardian in the event something happens to you is super important, but it’s often overlooked.
It’s especially relevant if you are a single parent or divorced parent and you have sole custody.
Because without that guardianship designation, a court could send your kid to live with a family member that you didn’t want them to live with. Or even in some extreme cases, they may make your kid a ward of the state and send them into the foster care system.
So you definitely want to make sure you document your wishes for who is going to look after your kids. Don’t presume that certain family members are going to be up for it. They may not share your child rearing ideas and goals anyway.
And it’s important that the person you choose shares your views about how to raise your kids, and that person is financially sound and they genuinely want to raise your kids.
As with all these type of designations, I also suggest naming a contingent guardian as well, just in case something happens to your primary person.
All right, moving along to number 11 on our list is to draft a statement of desires or a letter of intent.
A letter of intent here in this context simply is a document that is left to your executor or a beneficiary. And the purpose is to define what you want done with a particular asset after your death, or if you become incapacitated. Some Letters of Intent also provide funeral details or other special requests.
It’s important to note that this is not a legally binding document, but it does give valuable information and guidance to your estate executor.
It’s helpful if it can include information that’s needed to clearly identify all of your financial accounts, insurance policies, credit cards, loans, mortgages, and also where physical assets are located like safe deposit boxes or storage units, etc.
It’s helpful if it also includes contact information for relatives who should be notified of your death, as well as instructions for your desires regarding burial or cremation or funeral or organ donation or whatever it is.
It’s just an explanatory document that helps augment and give full context to your official estate planning documents.
And while this type of letter of intent may not be officially recognized by a judge under law, it can still help inform a probate judge of what your intentions were, and it may help in the distribution of your assets.
Now, you may be wondering why would you do this. Shouldn’t you just have a formal will or a trust agreement which is recognized under the law? Then you don’t have to deal with this weirdness of describing your intent which is not recognized under the law.
Yes, you should absolutely have a will, or a trust, which does officially and explicitly spell these things out too.
But those also have certain formalities, and maybe you were just unlucky and your will was deemed invalid for some reason, like you didn’t follow the formalities, or maybe it just can’t be found. Or maybe there’s some ambiguity in the interpretation of your will or your trust.
In these situations, having a letter of intent can actually help set the record straight. It just won’t have binding legal authority, but it could have persuasive legal authority.
A court judge can still throw it out if they think it was forged or manipulated in some way. But if it’s legit and no one challenges it, it is likely to be persuasive to a probate court judge.
When I did this for my own trust, what I actually did was, I recorded a video.
And in the video I actually held up the official will and trust documents and exhibits up to the camera, so you could clearly see the text and match the text to see that it’s the same text as in our actual hard copy documents that we have.
You can see the dates. You could see that I referenced names and pages and clauses explicitly. And I explain my intention paragraph by paragraph.
I had two family members appear in the video alongside me. So it was also clear that they were witnessing it. And I actually executed and signed the will on the video in their presence.
So it was clear that it was executed by me in the simultaneous co presence of both of these family member witnesses, and that they executed their signatures right afterward.
So under these circumstances, I think it’s unlikely my will or trust could be deemed invalid.
You can always go back to that video to see explanations for my own words, if there are any ambiguities and interpretations.
So that’s really the purpose this letter of intent or statement of desires serves.
Okay, number 12. Prepare your funeral expenses and final arrangements.
What this is really getting at is, will your loved ones have to suddenly fork up a lot of funds to pay for your funeral while they’re just trying to grieve and mourn.
As part of your will, and healthcare directive and letter of intent, you can make your end of life wishes known regarding things like burial, funeral, cremation preferences, organ and body donation.
Funerals are expensive, and they can easily cost many 10s of thousands of dollars, even six figures for some elaborate ceremonies or expensive burial plots.
And so, it may be worth thinking about how you would want to pay for those things.
For example, you could set up a payable on death bank account, put money into it, and then it pays your funeral expenses.
Once you die, you could also get some life insurance policies that have funeral provisions where money can be taken out of the policy to be paid out from the policy if death looks imminent, to help you cover funeral costs.
So just something to think about.
Number 13 on the list: protect your business.
This is one that is sometimes overlooked, but really important and can be costly if you ignore it.
So what this is trying to solve is what will happen to your business.
If you get sick or pass away, will your loved ones be compensated for all that you’ve built in your business?
If your business is your primary source of family income, it is worth having a plan to ensure an easy transition to protect both your heirs and your business if you die.
That means thinking about the succession plan, or moving your business into a trust or having an exit strategy, like a buyout agreement, where business partners buyout your stake, should you die.
And so that way, you know, your family is not left in a pinch, where they can’t really access the wealth that’s tied up in your business.
Okay, number 14 on the list is to store your documents.
You’ve inventoried them in item one in this list. And now here, you want to store them in an organized way, so they’re easily retrievable.
And what this is trying to solve is: will your loved ones be able to find all the important information related to your assets when you die? Will they be able to locate your original estate planning documents? What will happen if no one can find the documents?
So your attorney and estate executor may need access to originals or copies of things like your last will and testament, your trust agreements, your Letter of Intent, your living will healthcare directive, power of attorney documents, insurance documents, real estate documents, any title documents or deeds to things like vehicles, boats and jewelry, artwork, antiques, collectibles, other high value assets like that.
Certificates also for stocks and bonds and annuities, as well as bank account numbers and mutual fund numbers, safe deposit box numbers, again, along with their passwords and access codes and combinations, names and addresses of people, beneficiary designations, all the information you would need to piece those things back together efficiently.
You should also include retirement plan details like your 401k, IRAs, Roths, again with their passcodes, beneficiary designations, along with debt information like credit cards, mortgages, loans, utilities back taxes that you may owe along with their login and password information, loan and account numbers and names and addresses and phone numbers of key service providers that you work with on those.
Importantly, you should also include any marriage, divorce, or separation documents, prenuptial agreements, post nuptial agreements, any adoption and birth certificates for your kids, documents that layout your funeral payment arrangements, any final arrangements that we just discussed a moment ago.
You might also even want to include login and password details for your digital accounts like email, social media and online business accounts, things like that.
You just want to make it really easy for administrators to navigate your property without being stuck at different stages. Making sure you store documents that help them piece together that puzzle is definitely going to make it go smoother.
Okay, number 15 on the list is to handle taxes.
And here, what you’re solving for is: Will your estate be subject to various taxes? And is there a way you can minimize or even avoid them?
As I’ve mentioned earlier, estate planning is also about financial planning. And one of the potentially significant parts of that is estate taxes.
The estate tax has also been referred to as the death tax. And the notion is that when you die you leave behind an estate. That estate is worth a certain dollar amount. And the estate tax is simply a tax on that dollar amount if it exceeds a certain threshold, and it only applies after you die.
Your estate pays it before distributing any leftover as inheritances to beneficiaries. And it has the effect of reducing inheritances for beneficiaries.
But it doesn’t apply at all unless your estate is pretty large and exceeds a certain threshold. If it does not exceed that threshold, then you won’t pay a single dollar in estate taxes. That threshold right now Is $11.4 million per person, double that for a married couple.
So, a solid estate plan will reduce your potential estate tax burden. And in some cases, a good estate plan can even let you avoid estate and inheritance taxes entirely.
I’m not going to get into the specifics on how that’s done because it applies to so few people. But the kind of techniques involved are things like making gifts to family and friends to bring your estate size down below the thresholds, or making charitable contributions, or setting up very esoteric, complicated trusts, or using certain types of life insurance instruments, or having a business where you set up family limited partnerships so that you reduce the size of your estate.
Most estates (99.8% of them) will never owe any federal state taxes because, as I mentioned a moment ago, the exemption amount is $11.4 million per person, double that for married filers. And each year it gets adjusted upward for inflation.
That number doubled after the passage of the 2017 tax cuts and jobs act and stays in effect through 2025 before it has to get renegotiated by Congress.
So bottom line is: if your estate is worth less than $11.4 million per person, then you probably don’t need to worry about estate taxes at all because you’re not going to get taxed by it.
Also, you should know that any assets left to a spouse as long as that spouse is a US citizen, or left to some tax exempt charity, our tax free full stop.
In addition to federal estate taxes, you should be aware that a few states also have enacted state level estate taxes. Those thresholds can actually be quite a bit lower.
For example, Illinois imposes an estate tax on any estates over $4 million.
And New Jersey even imposes an estate tax on estates that are more than just $675,000.
So, as you can see, there are examples where a state will impose an estate tax even when you’re not nearly as wealthy as the federal threshold level.
Some states also have inheritance taxes, and that means the people who inherit money that you give to them may need to pay tax on it.
Only a small number of states do that though right now. I think right now, it’s just Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania that have state level inheritance taxes, and those basically range from 1%-20% of inheritance value.
One thing I wanted to suggest is that if you are one of the few lucky people for whom estate taxes actually could be an issue, I would definitely encourage you to hire an attorney or CPA to help you craft an estate plan that helps you minimize or avoid estate taxes.
Don’t try to do it yourself. It’s just not worth it.
Okay, the last of our items on our list, number 16, is to review and update.
You want to review and update your documents and accounts whenever your situation changes: either your assets or your family situation or the laws change.
I recommend doing a review annually and making updates whenever your circumstances change.
Maybe you got married or divorced, you had a kid or adopted a kid, you lost a family member or loved one or a power of attorney agent or successor trustee or some other representative or maybe even a beneficiary passes away.
That’s also a good opportunity to revisit and update your estate plan.
Or maybe you get a new job or you lost a job, or you got a windfall inheritance, or you even won the lottery, or you bought an asset like real estate, or you sold an asset, you took on a big debt, or you paid off a big debt.
Any major change in your financial situation or family situation justifies reviewing and updating your estate plan to make sure it stays in line with your current status.
It’s also worth revisiting your estate plan just periodically, even if your situation doesn’t change, because sometimes the laws might change.
So it’s probably a good idea to consult an attorney or do searches on Google or YouTube every other year just to see if there have been any major estate law changes that would justify revisiting your estate plan.
The bottom line is that when you take the 16 items in totality, there is obviously considerably more to estate planning than simply writing a one page will and deciding how to divvy up your assets when you die.
A will is a really important place to start. But it is only one part. It’s worth thinking about estate planning holistically in terms of this 16 point checklist.
And importantly, estate planning is also not just about money, but also about making sure that your family members and other beneficiaries are actually provided for and they can access your property and funds when when the time comes.
So to help prepare you for thinking about estate planning and getting your estate plan together, it’s helpful to synthesize the questions you should be asking yourself as you go through this process.
So this would include things like:
What exactly do you own right now vs. owe right now?
Who should manage your financial or healthcare decisions if you become incapacitated?
If you die, who should inherit your assets? How and in what proportions?
Who should be responsible for distributing your assets?
How much is needed for your children’s care and education or your spouse’s care?
Do you need insurance to guarantee those things?
Who do you want to care for your kids if you pass away?
Can your loved ones and advisors find all the documents and information they need about your estate if you suddenly pass away?
What will happen to your business if you can no longer work in it?
It’s worth reflecting on all these questions, and going through the checklist as you get your estate plan together.
Because this type of methodical systematic thinking is what’s going to help you get to a very robust and comprehensive estate plan.
OK, so now that we have discussed in great detail the checklist of action items for a comprehensive estate plan, now I want to talk a little bit about the role of professional advisors – attorneys and CPAs.
in terms of service providers who handle estate planning, your lawyer and CPA are probably going to be your most important ones.
Lawyers are involved in drafting legal documents like your trust agreement, your will etc.
A CPA is going to provide advice on tax implications and strategy, asset valuation, and things like that.
What an estate planning attorney does is that they will consult with you and advise you on estate planning strategy from a legal perspective in terms of legal risks and potential solutions.
They’re also going to draft your documents: your will, your trust, your power of attorney documents, any business agreements, and things like that.
What your estate planning CPA will do is advise you on tax implications and estate taxes and inheritance taxes and then they’re also going to help you with asset valuations on different parts of your estate.
Now, how much does estate planning actually cost?
There’s no easy answer. The cost of developing an estate plan can differ very significantly depending on a wide variety of factors.
It depends on how complicated your situation is in terms of your assets, your ownership, your family situation, how you actually want to distribute your estate.
Obviously, whether you hire a professional like an attorney or CPA to help you, and how much they cost, whether you’re in an expensive or inexpensive market, whether you handle any parts of the process yourself.
For a totally basic estate plan where you’re basically using online templates, a DIY estate plan with a few pieces like a will and maybe a medical directive could be a couple hundred bucks – just to buy the templates that you can then fill in sort of TurboTax style.
But once you start involving an attorney, then the costs are going to definitely go up significantly.
So even if you have a basic estate plan, but now you have an attorney involved, it might be maybe under $1,000, if you’re lucky, for a will and some power of attorney docs, but likely is going to be more than that.
If you have a fairly straightforward estate that includes a trust, but it’s not complicated, not a complicated family situation, you can hire an attorney to do that, they will probably charge you either an hourly fee or a flat fee, and it’s likely going to be at least a couple of thousand dollars, probably less than $5,000. Certainly less than $10,000 should be enough.
But the more complex it gets, obviously the higher the cost is going to get.
Because not only is it going to take more time, it’s also going to require more expertise on certain types of trusts, how to handle complex tax situations, or maybe understanding of corporation law, they’re doing some business advising as well.
And also, it’s going to require increasing knowledge of how to draft all these various types of agreements.
And they may actually need to be customized for your situation, if their existing templates don’t fit well.
So if you have a complex estate, that could easily be 10s of thousands of dollars, even multiple 10s of thousands of dollars to properly create an estate plan.
Again, if your estate is big and complex, you might still be able to get hourly billing or flat fee billing depending on what your preference is, but the rates will be higher in a situation where your estate is more complicated.
And at the very, very extreme end if you’re an outlier, like if you’re a billionaire or a hundreds of millionaire, then you should probably be comfortable expecting to pay well into six figures or even seven figures for super world class, white shoe law firm type of customer service.
Now that may seem expensive, all the numbers I quoted depending on how complicated your estate plan gets, but also make sure to consider the latent cost of NOT having an estate plan or a sloppy plan.
If you have a legal battle that emerges between family members after you’re gone, if you have to go to probate, then the costs of probate can very quickly exceed the cost of just having it done right the first time up front.
And so that’s really why it’s worth not being penny wise pound foolish when it comes to thinking about the cost of estate plans.
They do cost something. They’re not super cheap. But you’re buying expertise and knowledge and prevention of expensive mistakes later on down the road.
Okay, so, with that in mind, how do you actually find an estate planning attorney and how do you choose one?
So there are a few steps I want to highlight.
Step one, first, get clear on what you need. You need to first get clear on what you want to accomplish with your estate plan.
And then that’s going to in turn help you determine the type of attorney to look for.
Most people will only need a generalist attorney who can draft a will or a power of attorney document or a basic basic trust.
But if you have a little bit more complex situation, say you have some financial interests overseas, then you might need an attorney who specializes in international estate planning.
And likewise, if your case requires legal work in more than one state jurisdiction, then you may need an attorney who is licensed to practice in multiple states.
All these customizations can increase the range of skills you need and can influence how you go find candidates to potentially work with.
Okay, step two is to start getting referrals.
Make a list of attorneys who specialize in your specific needs. And the way you make that list is to ask for referrals from, say, your financial advisor or your CPA, if they already know someone that they trust and have worked with before.
Trust me, things will go smoother in terms of coordination among those professional advisors that you have.
Just be sure to be aware of whether there’s any type of referral or finder’s fee arrangement between them so you understand any potential conflicts of interest.
You can also ask for referrals from lawyers that you’ve used maybe for other purposes in the past. Like maybe you hired a lawyer to help with your small business or to buy your home.
Whatever it is, they might know other attorneys just from networking in the community who practice trust and estates law.
You should also consider contacting your local city, county, or state bar association. These lawyer bar associations often maintain a list of attorney members and their practice areas and some even will offer an official referral service to the public to help you find an attorney that has the experience and skills you need. So you can go to the state bar or local county bar association and get referrals as well.
You can also, in some cases, contact the local probate court. Now this may not work if you live in, say, a very large city.
But if you’re in a smaller community, the court clerks will know all the local attorneys and which ones are easy to work with and which ones the judges like.
And so one of the upsides of practicing in a smaller community as a lawyer is that it can allow you to have this good working relationship with people like court clerks and judges, which then just makes it easier to get referrals sent your way.
Barring that, you can also look online. There is a tool called Martindale Hubbell, which is a lawyer profile lookup tool. It’s been around forever, which you can use to look for potential recommendations for trust and estate lawyers.
You can also use services like UpCounsel which is basically like a Thumbtack for lawyers or an Uber for lawyers where you can hire an attorney who has a particular skill set or expertise.
Lastly, you can always search on Google and Yelp for “estate planning attorneys near me” and you’ll get some recommendations and you’ll probably also see some ads as well.
Definitely encourage you to start with recommendations. Friends and family for sure to start because that’ll be the easiest.
But also keep in mind that you can look for referrals from your existing financial advisor, or your city’s county or state bar association, or other lawyers you’ve worked in the past, or even with personnel staff in the local probate court.
Okay, so after you have gotten clear on what you’re trying to accomplish, that was step one, and step two, gotten some referrals, then step three is to actually start narrowing down your list and to interview candidates with a set of questions you will have already prepared in advance.
And so after you narrow down your list to a few candidates, and you confirm that they’re actually admitted to the state bar, then you interview them.
And you prepare a list of questions. For example:
How long have you been practicing?
Where did you go to law school?
If I became a client, how would we communicate on my estate planning stuff?
What are best ways to contact you?
Will you be my point of contact directly? Or will someone else be like a paralegal or junior attorney?
Will you send me updates about the status of my estate plan? Or do I need to actually take the initiative to proactively reach out to you?
How are you going to charge? Are you going to charge by retainer? Is there going to be a minimum? Are you going to build by the hour? And what is your rate / fee structures?
Drafting estate plans can vary and some attorneys are going to be okay charging a flat fee. Others want to charge by the hour.
Hourly rates are fairly common to from $150 to $200 an hour, sometimes significantly more than that. Maybe $400 an hour.
I’ve definitely talked to estate planning attorneys across that entire spectrum, and just know that it is normal on top of this for attorneys to actually bill their hourly bill in increments of six minutes. 1/10th of an hour.
So if you get bills that are strangely marked with increments of six minutes, that’s the reason why.
Lastly, you want to ask the attorney, what charges are NOT included in the sticker rate? Their hourly billing rate or their flat fee or whatever they quoted you. What other charges might you be charged, for example, will cost a materials be billed back to you?
Some attorneys may also pass along fees like online research services that are incurred when working on your case. Or court filing fees, copying documents, or courier fees.
And so it’s just worth asking about all these potential charges upfront before you jump into a decision regarding going with one attorney versus another.
Some people wonder how feasible it is to do estate planning yourself, if lawyers and CPAs are so darn expensive?
Or maybe you’re just very detail oriented and you could do it yourself if you feel confident doing it.
I did this myself. I handled all of my own estate planning documents.
But, keep in mind, I’m a Harvard educated lawyer, I passed the CFA program, I nerd out on tax planning, and also my estate isn’t all that complicated.
And so for relatively simple estate plans, it might be okay to just do it yourself, to draft all the documents yourself.
But as your situation gets more complicated, you should know this process of getting it right is not for beginners.
You should be comfortable in your understanding of how all these legal documents work, especially if you know you’re going to be writing, for example, a trust agreement yourself and you want to make sure all the official documents are executed properly with all the proper formalities of signing and witnessing and notarizing.
You want to make sure you are totally buttoned up so that those documents don’t get challenged in court.
Another strategy you can consider to potentially help save money is to prep a lot of the docs yourself, and then bring them to an attorney to just review and comment on them.
That way, you can save some time and cost because the attorney doesn’t have to write the docs themselves. They’re just reading and reviewing docs you’ve put together.
Although it’s also worth keeping in mind that many attorneys will have form documents and templates and boilerplate clauses they already use broadly for clients and would want to repurpose in your case.
And perhaps counter intuitively, it can actually be faster and more efficient for the attorney to be working from their own documents and templates, even if they are writing them from scratch than actually spending time to scrutinize the language and think about the language for DIY documents that you brought to them that aren’t their document templates.
It really just depends on the specific attorney and how complicated your estate plan is for which one is going to actually be faster. So it can go both ways.
If you’re inclined to try to do a lot of the work yourself, then I would definitely suggest getting clarity by simply calling and asking your attorney and getting his opinion on which approach will probably be more cost efficient: your attorney writing from their own templates even though they have to do everything from scratch, or reviewing DIY templates you put together yourself and just giving you advice about them.
Ultimately, whether you hire an attorney or CPA to help with your estate really depends on your situation.
If your estate is simple, then will writing software or even template documents are probably going to be sufficient for your needs.
But if you have doubts about the process, it’s worth consulting an attorney, possibly a tax advisor. They can advise you through the process, and also if there’s special state rules or tax consequences you need to be aware of.
For large and complex estates, like if there’s special childcare concerns or business issues or a complex situation involving errors or a lot of money at stake, then an estate planning attorney and tax professional can help maneuver any tricky legal or business or tax issues for you.
I would generally say, only if you have an estate that’s more than $100,000 – $200,000 is it worth jumping through the hoops of getting a super comprehensive estate plan with a trust and a will and a living will and a financial power of attorney – all the documents you need.
If your estate is less than that, you might consider just self serving and buying and customizing form documents which you can purchase easily online.
In my case, I did beneficial designations on all my accounts, I drafted my own trust and will, customizing from various templates I found online. And then I did that video letter of intent. And then on the video, witnessed and notarized everything.
So I actually wrote a couple of posts on the hack your wealth blog that I encourage you to check out: one on trusts and another one on wills, following my experience, setting up my own estate plan, and so I definitely recommend you check them out on the hack your wealth blog, too. I will also link to them in the show notes so you can access them easily.
Lastly, I wanted to talk about whether estate planning fees you incur are deductible on your tax return. Generally the answer is no.
There were some fees that were never deductible even before the tax bill changes that went into effect December 2017. So things like most of your expenses that you spend on wills, power of attorney documents, trusts, basically, the major things, those are not deductible.
There used to be some estate planning fees that were eligible for a miscellaneous itemized deduction on Schedule A of your tax forms. But the Tax Cuts and Jobs Act eliminated them, at least through 2025.
For now, I would say it’s safe to assume that estate planning fees are not deductible.
Okay, that is a big whirlwind, action packed, super dense, but hopefully it’s given you a pretty holistic overview of how estate planning works and how all the different components of a comprehensive estate plan come together and the role of attorneys and tax advisors on estate planning matters, if you choose to hire one or both of them.
So across the last episode and this one, we covered what an estate plan is and why it’s important, when to do it.
We covered the 16 components of a comprehensive estate plan.
So just to rattle off really quickly: taking inventory of what you have and what you owe, verifying ownership title of your major assets, getting life and disability Insurance, executing the last will and testament, specifying your beneficiaries, executing a living trust, a financial power of attorney, a living will, a healthcare power of attorney, specifying guardianship designations, drafting a statement of desires or letter of intent, preparing your funeral expenses and final arrangements, protecting your business, storing your documents so they can be easily accessed and retrieved later, handling taxes, and reviewing and updating periodically.
And we also talked about the role of attorneys and CPAs in the estate planning process and how much they can cost, how to find one and some of the things to think about if you’re considering to do parts of your estate plan yourself.
So I know there was a ton of information in these last couple episodes. Again, definitely encourage you to check out the freebie I linked to this episode at hackyourwealth.com/9 also available in the last episode hackyourwealth.com/8.
And it is the 16 point checklist we covered in this episode, which can help act as a guide for you, whether you choose to do it yourself or hire a lawyer or a CPA to help you. These are the checklist items you should keep in mind to make sure you create a comprehensive estate plan.
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All right, thanks for tuning in. Next time, I am going to talk about robo advisors: what they are, what they offer, what the trade offs are of using him, and how to think about the similarities and differences between robo advisors vs. human financial advisors in terms of their offerings, service levels, cost, all that jazz.
So be sure to check that out. It’ll definitely be an interesting one. And until then, I will see you soon.
If you want to beef up your estate plan by writing a will, be sure to check out my post on how to write a will to make sure you do it the right way.
If you’re thinking about estate planning strategies, also consider setting up a revocable living trust. Check out my post on how to set up a revocable living trust (with sample trust document).