MYM #017: Estate Planning Nightmares...

By: Fran Walsh

Read Time: 5 Minutes

In this edition, we're diving into a topic that is an extremely important one in securing your future and your loved ones: Estate Planning. I know I know, you're probably over there thinking "Ugh - why do I need to worry about this I'm only X years old." Well my friend, we're here to tell you today why it is so necessary - because time & time again people continue to make the same mistakes which costs their families BIG TIME.

Estate planning is not just for the wealthy—it's a fundamental step for anyone seeking to protect their assets and ensure a smooth transfer to their heirs. 

The misconception that estate planning is reserved for the rich & famous often deters individuals from establishing one. This erroneous assumption leads many to neglect this critical aspect of financial planning, leaving their loved ones vulnerable to legal and financial complexities.

Key Points:

1. Understanding Estate Planning Essentials

2. Securing Your Family's Future

3. Tax Efficiency

Understanding Estate Planning Essentials: First order of business - what even makes up an Estate Plan? An estate plan comprises a set of legal documents and strategies designed to manage and distribute your assets according to your wishes. This typically includes:

• Wills:

  • Wills are fundamental as they allow you to clearly state how you want your assets distributed upon your passing. Without a will, the state's laws dictate asset distribution, potentially conflicting with your desires and causing disputes among heirs.

• Trusts:

  • Trusts are essential for managing and protecting your assets during your lifetime and ensuring a smooth transfer to beneficiaries after your passing. They can minimize estate taxes, avoid probate, and provide for the ongoing care of loved ones, making them a powerful tool in estate planning.

• Power of Attorney:

  • Establishing a power of attorney is vital to designate a trusted individual to handle your financial and legal affairs if you become unable to do so. This ensures that decisions align with your preferences, even if you're incapacitated, preventing financial and legal chaos.

• Advanced Healthcare Directives:

  • Advanced healthcare directives, including a healthcare proxy and living will, are crucial components of an estate plan. They allow you to outline your medical treatment preferences and appoint a trusted individual to make medical decisions on your behalf if you're unable to do so. This ensures your healthcare aligns with your values and preferences, alleviating the burden on your family during challenging times.

• Beneficiary Designations:
  • Designating beneficiaries on financial accounts, life insurance policies, and retirement plans is a critical aspect of estate planning. These designations override your will, ensuring the specified individuals receive the assets directly. Keeping these designations updated is essential, as they ensure your assets pass smoothly to your chosen heirs, often avoiding probate and its associated delays.

Each of these pieces play an important role in helping to secure the financial future of your family. Depending on an individual's situation, they may not need all of these items right away, but should at least consider a few of them.  We are not licensed estate planning attorneys - but if you need to get connected with one we know several good resources & are happy to connect you with them!

An extremely simple way to ensure you have everything you need is just form a checklist of all of the possible things you feel are necessary to YOUR specific situation, and check them off one by one knowing you are making progress. Here's our super-simplified checklist from the Master Your Money Video Course:

Securing Your Families Future: Now that we know what these things are & what they are designed to do, the next question one might ask is - well, are they really THAT big of a deal? Let's dive into a few famous examples...

Numerous notable celebrities have faced substantial estate planning issues, often resulting in prolonged legal battles and disputes. For instance, Prince, Heath Ledger, and Chadwick Boseman, among others, lacked clear estate plans, leading to major issues for their families.

Prince's estate, valued at hundreds of millions, faced extensive legal fees, estimated at tens of millions, and over six years of legal battles. According to this article from the Karp Law Firm, it was costing the family $600,000 a month just to manage the estate! So much time & money lost when the family could have been focusing on other things if he had someone helping him prepare for his family. Here is a great article from Forbes outlining what happened & the impact it has had.

Heath Ledger passed away in 2008. According to this article from Haimo Law Estate & Business Planning, he hadn't updated his will since 2003. A LOT can change in 5 years. His partner or daughter were not included in the 2003 will, and would have received nothing if not for his parents & siblings deferring his assets. Many times though, people forget to change their beneficiaries or wills as things evolve in life & they are not so lucky. According to the article his estate was worth approximately $50 million, so one can imagine how big of a mistake this could have been!

Chadwick Boseman's lack of a clear estate plan resulted in complex legal proceedings, imposing both financial and emotional strains on his family. According to this article from Ingle Law, not having a will cost his wife nearly $1 million in legal fees over the course of 15 months. On an estate that ended up being $2.3 million split between his wife & family, this is obviously a significant cost.

The list goes on & on. These stories are important to make note of - not simply because they are celebrities, but rather because it goes to show not many individuals are taking proper planning as seriously as they need to. We all want to take care of our families, especially if we are not around anymore. This is why its imperative to hope for the best, but prepare for the worst & ensure everything is taken care of so your family will never have to deal with any of these issues.

Tax Efficiency: Estate planning is a fundamental strategy to ensure tax efficiency in the transfer of assets to heirs and beneficiaries. Without proper planning, sizable portions of an estate's value can be eroded by various taxes, including estate taxes, gift taxes, and capital gains taxes. Let's look at some examples:

1. Estate Taxes:

   • Without proper estate planning to mitigate estate taxes, a large estate exceeding the exemption threshold (which changes annually) could face a tax rate upwards of 40%. 

2. Probate Costs:

   • Failing to structure assets appropriately can lead to a lengthy and expensive probate process. According to this article from the Motley Fool, probate costs can range from 4% to 7% of the estate's value. For an estate worth $1 million, this could mean $40,000 to $70,000 in probate fees.

3. Legal and Administrative Costs:

   • The lack of a clear estate plan can lead to legal disputes among heirs, increasing legal and administrative costs. Legal battles can consume a significant portion of the estate's value. For a complex estate, these costs could easily reach hundreds of thousands of dollars (Millions in the celebrity cases we discussed earlier!!)

4. Family Conflict and Emotional Costs:

   • Insufficient estate planning can cause family conflicts, straining relationships among heirs and leading to emotional distress. The emotional toll on the family due to disagreements and legal battles can be immeasurable, impacting family harmony and well-being.

Conclusion:

 We totally get it. Estate Planning isn't something that is extremely top of mind for everyone. It's not exactly the most exciting topic to talk about, and is something most of us hope we don't need to worry about for the next 30-40 years. 

However - as we have stressed multiple times throughout this newsletter - it is IMPERATIVE to your families financial future. Taking care of a few small things today will provide a huge sense of relief in knowing you have all of your ducks in a row no matter what. 

It doesn't matter if you are wealthy or not, these are things that can make a big difference in everyone's life when it comes to transfer of assets to your heirs in the event something happens to you. Being prepared is always a positive!

Actionable Tip: Take the first step today—if necessary, consult with a professional estate planner. Their expertise can guide you through the process, ensuring that your plan is tailored to your unique circumstances and guarantees a seamless transfer of assets.

At a minimum, start doing some due diligence in figuring out where some gaps may be in your current estate plan & how you can make strides to improve upon that. You got this!

Whenever you're ready, there are 2 ways the we can help you:

1. The Master Your Money System: Discover the ins and outs of automating your finances with our easy-to-follow video course. Learn the same strategies we use for our millionaire clients to maximize your money.

2. Join Our Private Client Group: If you're in your 30s or 40s, earning a good income, and aiming for financial freedom, let's team up. Leave the financial headaches to us and concentrate on what truly matters – your family and your career.