It’s a common misconception that “estate planning” is only for the rich. It conjures up ideas of palatial mansions and sprawling, manicured lawns. But, the truth is that we all have estates, because we all own stuff, and we all have people we care about. Fundamentally, estate planning is about preparing for two of the most important things in life: everyone you love, and everything you own. Although there are tons of other planning opportunities beside those listed below, here are The Top 9 Most Common Reasons to Get an Estate Plan.
1. Control over your assets
Think about the stuff you own. Maybe you own a house, a car, a bank account or two. Maybe you have a 401(k) or an IRA or other employer-sponsored benefit plan. If you’ve done well for yourself, you might have a boat or a vacation home or two. All of this stuff is your “estate.” If you were to pass away, how will ownership of those things pass?
Without an estate plan in place, everything will splatter out in all directions like a Jackson Pollock painting: all of your jointly titled assets will pass to the other joint owners, all of your accounts and plans with beneficiary designations will pass to the beneficiaries, and everything else will pass according to the rules of “Intestate Succession.” Those rules, created by statute, apply when you die without a will. Perhaps unsurprisingly, what the government has decided you will want to happen to your stuff when you die may not actually be what you want to happen.
As a surprising example, Missouri’s rules of intestacy provide that if you die without a will, your spouse doesn’t get all of your stuff; instead, your spouse gets $20,000 + half of the rest, while your marital kids get the other half. If one or more of your kids are from a prior relationship or marriage, your current spouse and your kids split your stuff 50/50. This may or may not be what you’d want or expect to happen when you die. Having a will or trust in place can help avoid undesirable outcomes. It can also allow you to give to whom you want, when you want, and how you want, sometimes even long after you’re gone. Exercising control over your assets is the first big reason to get an estate plan.
2. Tax avoidance
If you were fortunate enough to accrue quite a bit of wealth over your life, having an estate plan can ensure that all or most of it will pass to your family without the IRS taking its cut. Under federal law, every person is entitled to exempt a certain amount of wealth from estate and gift tax when they die through what’s known as the “unified credit.” After the Tax Cuts and Jobs Act of 2017 was passed, that exemption amount shot up to a little over $11 million per person. However, that amount is set to expire in 2026, at which time it will return to the $5+ million per person exemption amount. Given the mounting US debt, however, it may be reasonable to assume that these exclusion amounts may not always remain at historic highs. Proper estate planning can allow for a married couple to take advantage of both of their estate tax credits either through the use of various trust mechanisms or through the use of the tax code’s portability provisions.
3. Avoid a family mess
Although it is certainly possible for families to fight even in the face of a (presumably) well-drafted estate plan, it is much, much less likely. The reasons for that are several. First, your wishes are carefully detailed, avoiding most issues of ambiguity about what you intended to go to whom, when, and how. Second, you can appropriately provide for your descendants tailored to the circumstances; maybe one child helped you a great deal in your sunset years or another needs a specialized plan due to their irresponsibility. All of this can be accomplished through proper planning. Third, a will or trust may include what is known as an “in terrorem” or “no contest” clause, which operates to disinherit anyone who challenges the will or trust except in certain circumstances. Fourth, a will or trust can also provide for binding arbitration or mediation requirements that can help to smooth ruffled feathers and resolve disputes before they waste a tremendous amount of time, money, and emotion in court.
4. Avoidance of probate
Probate is the process of gathering up the assets of the estate, paying debts and creditors, and distributing the assets to the beneficiaries. In Missouri, this process can be either “independent” or “supervised” by the probate court. A supervised proceeding is a public and sometimes adversarial piece of civil litigation before the probate court. Attorneys are involved and are entitled to minimum percentage-based statutory fees. Additionally, while any court proceeding is likely to take time, some probate proceedings can last a year or more. A will or intestacy proceeding is also a public ordeal requiring the public filing of documents and public notice to potential inheritors. Because of all of this, many people prefer for their families to avoid probate and the court’s oversight of the administration of their estate. Worse still, if a person owns real estate or other assets in more than one state, probate is required in every state in which that property is situated unless it is disposed of through a proper estate plan.
Fortunately, Missouri residents, whether they leave a will or not, are entitled to expedited administration if their estates are under $40,000, which can be finalized in as little as 30 days. Missouri’s probate code also allows for a number of other mechanisms for transferring typically small to modest amounts of wealth without a full probate proceeding. This could occur if, for example, the estate is passing to a spouse and minor children and consists of less than a year’s support.
However, small estate administration is often not an option for families without careful estate planning. For example, it is possible to reduce the size of an estate subject to probate below the $40,000 threshold through the use of trusts or non-probate transfers such as beneficiary designations, beneficiary or transfer-on-death deeds or titles, and joint ownership rights in property and accounts. This sort of planning can completely eliminate the need to file anything with the probate court and can allow for the settling of a deceased person’s estate in a shorter period of time. As a result, eliminating the cost and delays of probate is a common reason to build an estate plan.
5. Protect beneficiaries
An estate plan can protect a beneficiary both from others and from their own irresponsibility. For example, suppose that you and your spouse pass away leaving behind minor children. You were smart and you designated in your will a loving relative to take care of your children, but you know this relative is not the best with money. One option you might try would be to establish a trust either before your death or in your will that places your assets in the control of a trustee for the benefit of your minor children. The trustee might be another relative who is good with money or, in appropriate cases, it could be left with an institutional trustee such as a bank or other financial organization who would invest the money wisely and for the long term.
Another advantage of placing assets in a trust is that they could not be blown as easily by the caretaker or someone close to them. To make matters even more secure, it is possible to appoint an institutional trustee or trust advisor to manage the assets while a trusted family member might be set as the “distribution” trustee entitled with determining when a distribution should be made. It can be helpful to have a neutral third party determining when your child’s caretaker may be properly or improperly requesting money.
Additionally, these same procedures could be set to apply to your child once they become older, or even to your adult children if you worry about their capacity to squander a large inheritance. Imagine yourself at age eighteen (or heck, even age thirty): what would you have spent tens or hundreds of thousands or even millions of dollars on, and how quickly would you have spent it? Estate planning provides flexibility in making sure your children and other beneficiaries are protected from anyone who might seek to take advantage of them and their inheritance. It can also help to protect your children from their own irresponsibility as they age. These, too, are reasons to create an estate plan.
6. Protect minor children
One of the bigger reasons parents with young children often have for planning their estate is not just the financial care of their children, but their physical care. State law allows a parent in his or her will to designate a guardian for his or her children. In the absence of this sort of designation, the probate court will make that determination for the child following application by interested persons. Particularly if the child is likely to inherit anything of significant value, it can be important to know and trust the person who will be caring for them. Before making this decision, however, it is important to speak with the appointed caretaker to make sure they are up for the job and will accept it if the time comes.
7. Protect assets
Developing an estate plan can also serve to protect your assets from creditors and predators after you pass away. In addition to the ways of protecting the use of money for your children as discussed above, a growing part of estate planning is the concept of asset protection planning. Missouri generally, and St. Louis City specifically, consistently rank in the top “Judicial Hellholes” for the nation. This is because of a nasty combination of routinely exorbitant verdicts, easy-to-prove Missouri Merchandising Practices Act claims, sometimes loose jurisdictional rules, often weak expert witness standards, and the infamous 537.065 agreement employed especially in catastrophic personal injury litigation. This has resulted in Missouri and St. Louis having gained a reputation for being very plaintiff-favorable venues.
While insurance, particularly umbrella insurance, can help to defray some of the costs of huge verdicts and costly legal fees and save your personal assets from judgment execution, insurance does not always cover all of a loss, nor does it cover many types of losses. Collection by business or other bankruptcy creditors or divorcing spouses do not usually fall within the purview of insurance coverage, but all of the above can be shielded by a properly designed trust containing appropriate asset protection language such as spendthrift clauses and discretionary distribution rules. Missouri is also one of an increasing minority of states that even allows a living grantor (the person who makes a trust) to put his or her own assets in a trust while still retaining the advantages of asset protection, provided the trust is designed properly. Because of the growing size of verdicts and the desire to keep money “in the family,” asset protection is becoming an increasingly important benefit of proper estate planning.
8. Incapacity planning
Part of a comprehensive estate plan is designating someone to take care of you and your financial affairs if you become incapacitated or permanently disabled. Basic wills are often accompanied by powers of attorney for financial and/or medical decisions that will allow a designated agent to make financial or medical decisions on your behalf when you are unable to do so. Without appropriate documents in place, many financial institutions will refuse to cooperate with requests by anyone other than the account owner. Proper documentation before the incapacity develops can help avoid this problem. This sort of estate planning is not just important for people with families or young kids or substantial assets; anyone, including the young and healthy, can benefit from taking steps to ensure their persons and their financial affairs are handled should something happen to them.
9. Peace of mind
Last, but not least, is the fact that having a comprehensive estate plan in place provides peace of mind. You don’t have to worry about whether or how your kids will be taken care of if you become incapacitated or pass away. You don’t have to wonder who will inherit your assets, whether your kids will be properly provided for, or whether your passing is likely to create a family feud. You don’t have to worry about your teenage son blowing his inheritance on a Tesla Roadster or your scheming brother in law from talking your kids into letting him “manage” their inheritance. A proper estate plan lets you rest easy knowing that if the worst should happen, your loved ones will be alright. You can’t put a dollar figure on it, but it’s hard to overstate the value of peace of mind as a reason for establishing an estate plan.
