This article was shared by Katie Charleston
Most of us think we have a “simple” estate. One with assets that aren’t worth that much. So the most basic estate plan possible is enough, right? No special planning needed when you have a simple estate – just a nuts and bolts Last Will & Testament.
Here’s the thing:
It’s not the SIZE of your assets that determines what kind of an estate plan you need. It’s the KIND of assets that dictate whether a basic plan – or more advanced plan – makes sense. And even then, it ultimately boils down not to the size of your estate, but what you want for your heirs.
Here’s a really good example:
John has $1,000,000 in life insurance with his adult daughter designated as the beneficiary. Mary owns her $1,000,000 home. Neither has any other assets. So it seems pretty clear that John and Mary both have simple estates (just one asset each), and both could get away with having a nuts and bolts Last Will, right? How could an estate with only one asset ever need anything other than a basic document?
Here are two reasons:
(1) Beneficiary designations avoid probate and hence avoid probate lawyer fees.
- John’s estate will lose $0 to lawyer fees when he passes away.
- Mary’s estate will lose $50,000 to lawyer fees when she passes away.
This is because John’s estate holds life insurance and life insurance is a beneficiary-designated asset. It’s simply paid out to John’s daughter directly. It doesn’t have to go through probate court.
However, Mary’s estate consists of real estate, and real estate owned by Mary has to go through probate court before being distributed. Her heirs will need a lawyer to help. And lawyers charge about 5% of an estate to move assets through probate. So $1,000,000 x 5% = $50,000 lost to lawyers.
That’s an expensive mistake.
(2) The $1M payable to John’s adult daughter ends up being split with her ex-husband.
The other wrinkle is that anything payable directly to a named beneficiary is paid out to them outright, free of any restrictions whatsoever. While that sounds good, it means the moment she receives the money, it’s now exposed to her creditors. Who are her creditors? An ex-spouse, a bad debt, or someone who sues her and wins.
Her ex-husband is pretty pumped because it’s a complete windfall for him.
But if you asked John, he probably wouldn’t like that outcome very much.
Here’s the takeaway:
It’s a mistake to think you can (or would even want to) get away with the most basic estate plan possible just because you have a “simple” estate. A more advanced level of planning may actually save you and your family a huge amount of money.
That’s one of the biggest benefits of estate planning – learning how to pass on your assets in the most cost-efficient way possible. Schedule your Family Wealth Planning Session and we can help you do exactly that. We’ll even waive the $750-$950 session fee if you mention this email, or if you schedule online use code SIMPLENOTCHEAP.
Schedule online or by calling us at (317) 932-0363.
To Your Prosperity,