Always important, never urgent: An estate planning plea.

My older brother is an attorney; and a darn good one in my humble opinion. He’s also one of the most patient humans you’ll ever meet. So when our family bugs him for legal advice that’s outside of his wheelhouse, he stays cool and politely declines. See, even though Jim began his career as a securities litigator, it has never stopped us from hitting him up for unrelated help… “Jimbo, my landlord is doing some shady stuff (possibly illegal?) can you write him a scary-sounding letter?”. “Jimmy, Grandma’s estate plan is 20 years-old, can you give it a face-lift?”. “Jim, my man, I got an idea for this app. We’re going to need to patent this puppy asap…you game?” We’re insufferable. But Jim is unflappable, and he stays in his lane.

In defense of my family (and the non-attorney general public), we just can’t help ourselves. Whether you’re a physician or a lawyer, when we see MD or JD behind your name, we automatically think you have a proverbial license to kill any and all health/legal problems in sight. But there’s a reason eye doctors don’t perform colonoscopies and patent lawyers don’t draft pre-nups. No one is good at everything. So, unless you spend your week drafting wills and reviewing trust documents, a quick estate planning primer might prove useful. Or so I hope.

Why Bother?

I don’t have any assets; do I really need to fuss with an estate plan? A fair question considering many early-career attorneys, physicians, and MBA’s have minimal assets and a negative net worth—salt, meet wound; wound, salt. But estate planning isn’t just for the wealthy… to varying degrees it’s important for everyone. Here are the key considerations, broken out by life stage.

Single, broke, and paying rent.

With no money, spouse, dependents, or mortgage, your estate planning checklist can be brief. Here’s what you should consider.

Financial power of attorney (POA):

If you’re incapacitated, someone will need to make financial decisions on your behalf. That someone must pay your bills, manage your investment accounts, file your taxes, etc. If you haven’t picked someone to do this, the court will pick for you. It could be a family member (if they petition the court for this role), or a court-appointed conservator. In either case, if the court gets involved it will become a time-consuming and expensive process. 

Healthcare power of attorney (POA):

Similar to the financial power of attorney, but for healthcare decisions. Without a designated healthcare POA, the court will take charge. Even if a family member is ultimately appointed, this can get messy if family members have differing opinions on how your care should be administered.

Living will:

This allows you to spell out your wishes for end-of-life care ahead of time. Would you want to be resuscitated if your ticker stops tickin’? How long would you want to be on a breathing machine, or a feeding tube? This is morbid stuff, but important to consider. 

Will:

There are no assets to divvy up, why a will? Let’s say you want your nephew to get your baseball card collection, and your sister to get your car. Spelling that out in a will would ensure your stuff gets to the right people. Without a will, there are no guarantees. 

Married, less broke, with a mortgage payment.

Life is picking up a head of steam. You got hitched and bought your first place. What needs to be added to the estate plan?

Financial power of attorney – your spouse is not your default POA. This still needs to be in writing.

Healthcare power of attorney – see above.

Living will – see section one.

Will:

If you pass, your spouse will get a lot of your stuff automatically if you’ve named them as beneficiary. 401k’s, IRA’s, and life insurance policies all have a named beneficiary and whomever you name as bene will get the property with minimal hassle. Also, jointly owned bank accounts, investment accounts, and homes, will go directly to the surviving joint owner. The reason you’d still want a will in this instance is for all the other stuff. Want the stock portfolio your Dad gave you to go back to him? Want your sister to get your jewelry? That’d need to be written in your will.

Also important, a will allows you to designate an executor of your estate – the person who ensures all your property goes where it’s supposed to go. In most states, this responsibility defaults to your spouse (if you die without a will). But, if you want someone else to fill that role, you’ll need to spell that out.

Living trust:

If most of you and your spouse’s property has a beneficiary or is jointly owned, why do any additional planning? Well, if you and your spouse passed away together, settling your estate could be a costly mess. Even with two valid wills, your home, retirement plans, bank accounts, and all personal property could be subject to probate. Your surviving family would spend the next 12+ months working through the probate process, shelling out as much as 3-7% of the estate’s value before it’s all said and done. God forbid, someone in the family feels jipped and contests the will, you could be looking at a much longer and more costly probate process.

All of this can be avoided with the use of a living trust since trusts and the assets they hold are not subject to probate.

Married, kids, house, and a few bucks to your name.

Okay, life is officially a blur. Sleep is a luxury, Cheerios are perpetually plastered to your clothes, and ‘baby shark’ has become the soundtrack of your existence. If you’ve put off your estate planning until now, I pity you. But you still need to do it. Here’s your updated checklist:

Financial Power of attorney – same as above. 

Healthcare power of attorney – same as above. 

Living will – same as above.

Will:

With kids in the picture, you’ll want to update your will by adding guardian(s) for all minor children. If you and your spouse were to pass away, someone will need to care for your progeny. Not fun to think about, but far better than leaving the decision in the hands of the probate court.

Living trust:

Kids. The saboteurs of sleep. The breakers of the budget. The conduits of the common cold. But you still love ‘em, and you want to make sure they’re cared for no matter what. A living trust can help ensure that happens.

By transferring your assets to a living trust, you can control how, when, and in what proportions your minor children would receive their inheritance. In the absence of a trust, chaos can ensue. Here are a few of the potential not-so-great outcomes:

·      If both spouses pass: Minors can’t directly inherit your assets, so the probate court designates someone to manage the money (a “conservator”) until they turn 18. This “service” can be really expensive and erode the inheritance you intended for your kids.

·      If both spouses pass: Once your kids hit the age of majority (age 18 in most states), they get it all. Most 18-year-olds I know can’t walk and chew gum, let alone responsibly manage a million-dollar inheritance. A trust allows you to control how and when your kids get the money.

·     If one spouse passes: If I died tomorrow, I hope my wife would re-marry. I way out-kicked my coverage, and heaven knows she could do better. But what if the new guy was a jerk? Should he get the keys to our estate? Worse yet, what if his kids were total bums? Without thoughtful planning, there are scenarios where his kids could wind up with half of the estate, effectively disinheriting my kids. Not cool. A well-designed trust can protect against these risks.

Rich & getting richer.

Maybe you’re anticipating a large inheritance. Maybe you’re on track to collect big-firm partner paychecks for the next 30 years. Maybe both. Whatever the source, a high net worth necessitates more involved estate planning.

Financial power of attorney, healthcare power of attorney, living will, will, living trust: These are all still important. See the explanations above.

Estate Planning 201- planning for estate taxes:

If you die with a lot of money to your name, the federal government will want to skim a little off the top in the form of an estate tax. Here’s how that works. If you’re unmarried and you croak with a net worth greater than $11.58M, estate taxes will be owed on every dollar above $11.58M. If you’re married, your estate would owe taxes on every dollar in excess of $23.16M (at the passing of the second spouse). Adding insult to injury, some states will want a piece of the pie as well (currently 9 states impose some form of estate tax).

Why should you care? Odds are if you’re reading this, you’re relatively new in your career and none of this seems relevant. And it’s probably not; at least not right now. But, consider this. You’ve chosen a career field with a very high-earning potential, the number of first-time millionaires is growing at an unprecedented rate (an estimated 675,000 new US millionaires in 2019 alone), and the federal estate tax exemption will be cut in half beginning in 2026. Estate taxes might be on your radar sooner than you think.

If that time comes, what’s to be done? This is where a good estate planning attorney will be worth their weight in gold. Depending on your legacy goals, they’ll design a plan using some combo of gifting, trusts, insurance, and charitable donations to ensure your wealth is transferred both efficiently and intentionally.

Concluding thoughts.

The doctor who smokes more cigs than Don Draper. The financial advisor with a mountain of credit card debt. The attorney with no estate plan. We really should know better. But these have become clichés for a reason –practicing what you preach isn’t always easy. So, here’s your chance to shatter the stereotype. Call up your lawyer buddy who does estate planning and knock this out. 

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

Securities and Investment Advice offered through LPL Financial, Member FINRA / SIPC.