Estate Planning Basics: Steps to Create Your Estate Plan
Last month in the first article in this series, I went over what documents are included in a typical estate plan. This month in part two of estate planning basics, I’ll go over how one actually puts an estate plan together step by step.
Step 1 – Figure out what you need
As I said previously, most estate plans include a will, a trust, a power of attorney, and a health care directive. But that’s not true in every case. If you have no minor children and your estate (everything you own in your name) is worth less than $166,00 (as of 2021; this number is indexed for inflation), then you may not need a trust. On the other end of the spectrum, if your estate is worth more than $11 million ($22 million for a married couple), then you will very likely want to have several trusts to reduce your estate tax liability. There are also special trusts for certain circumstances, such as a special needs trusts for disabled people who are either incapable of managing their own money or who will lose government benefits if they inherit too much. An attorney can help you figure out what’s best for your specific situation.
Step 2 – Create the plan
Once you know which documents you need, the next step is to create those documents. There are various products and services out there to help you make them yourself, but I would highly recommend hiring an attorney for several reasons. First, I’ve seen some of these DIY wills and trusts, and I can’t say I’ve ever been impressed with them. They’re usually missing something important, adding something irrelevant to the client’s situation, or so convoluted it’s hard to make sense of them (sometimes all three). Second, an estate litigator once told me that the large majority of his cases involve a DIY will or trust. Professionally drafted estate plans are not contested as frequently, and when they are, the drafting attorney’s testimony is given a lot of weight. Third, hiring an experienced professional will bring you peace of mind that the plan was put together correctly and meets your specific needs. So please, hire an attorney for this step. It doesn’t even have to be me, as long as they’re experienced and reputable.
Step 3 – Implement the Plan
Unfortunately, it’s not enough to create the documents. You have to do something with them in order for things to work out the way you want. If you have not created a trust, this could be as simple as making sure your agent knows where the documents are (or even better, your agent has a copy). If you have created a trust, there’s a little more work involved because a trust has to be funded. What that means in plain English is that you need to make the trust the owner of your high-value assets, like your house. Michael Jackson’s estate ran into this problem – he created a trust, but he never funded it, so his estate still had to go through probate. California tends to be relatively lenient on post-death transfers into a trust, but it’s much less hassle (and much less expensive) to simply do the work while you’re still alive.
If you’d like to learn more about steps to create an estate plan, you’re welcome to sign up for my newsletter, where my “Estate Planning Overview” document is available as a free download. You’re also welcome to email me at firstname.lastname@example.org.