Why Estate Planning isn’t Just for the Super-Rich

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Estate Planning Isn’t Just for the Super-Wealthy

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Commonly we find that individuals believe that estate planning is only for the super-wealthy—that they need only be concerned with estate planning if their net worth is greater than the IRS estate exemption amount.

As of January 2020, the IRS estate exemption amount was increased to $11,180,000 per person. This amount was further adjusted and increased for inflation as of January 2020 to $11,400,000. Simplistically, this means estates valued above this level are subject to the federal estate tax (40%!), while estates below this level are distributed to heirs tax-free.

With this in mind, it could lead a lot of clients to believe that they don’t need a plan; their estate will never be taxable, so why bother with anything more than a simple will? Or worse yet, why even bother with a will when everything will pass to their spouse or their children anyway? But will it?

Why You Need an Estate Plan
Estate planning is your best way of communicating to your heirs after you are no longer able. It is not necessarily a tax planning strategy. Depending on your desires, it can mean that you are providing for multiple future generations, or it can mean that you are providing for specific needs of your spouse or children. It can also mean that you are sharing your wealth with various charitable organizations. These decisions can also have tax implications, most of which can be planned around as needed. But generally, we don’t like to see “the tax-tail wag the estate-planning dog.” We believe that the two goals of tax and estate planning should work hand-in-hand, not one leading the other, to fulfill your goals.

“Shirtsleeves to shirtsleeves in three generations” is a much-used proverb in the wealth management industry to describe the pattern of generational wealth. As the Scottish say, “The father builds, the son sells and the grandson begs.” Think about it. This means that the greatest “threat” to your wealth is not taxes. It’s your heirs. Careful estate planning can potentially avoid wealth being mismanaged or squandered. Having said that, people differ in the ways they think about wealth and the generations to come. We find that some of our clients meticulously approach their planning and try to make provisions for every eventuality. Some clients don’t give it a lot of thought, assuming that the next generation will “figure it out.” Frank Bragg tells a story of an older client with a very large estate who vehemently refused to create an estate plan which would save his heirs a lot of money. He told his advisors, “No fancy planning for me…I want it to be an absolute disaster when I die!”

There is no one “right” estate plan for all people. The beautiful (and complex) part of estate planning is that it is entirely flexible and customizable to your unique situation. You can tailor your plan to match your specific objectives—including passing along your values in addition to your wealth—for generations beyond your death, if that is your desire.

As advisors, we want to help you think proactively about your “long game”—to grow, preserve, and transfer wealth for future generations or charity—and less about your “short game”—saving taxes. If you are successful with your long game, you will likely also be successful with your short game.

What a Good Estate Plan Includes

We believe that the best estate plan is not just a legally drafted will but a full set of legal documents (including a will) that not only includes the instructions regarding whom you want to receive property, what you want them to receive, and when they can receive it but also:

  • Includes instructions for actions that will support your values (religion, work ethic, education, etc.)
  • Includes instructions for your care if you become disabled before you die
  • Names a guardian and inheritance manager for minor dependents
  • Provides for family members with special needs without disrupting government benefits
  • Provides for loved ones who might be irresponsible with money, or need protection from future creditors or divorce
  • Appropriately considers life and long-term care insurance as needed
  • Describes your philanthropic desires and intent
  • Establishes a succession plan for your business, if needed
  • Minimizes taxes, court costs, and unnecessary legal fees
  • Provides consent to allow access to your digital assets
  • Addresses what should be done with your furry, winged, and scaly friends (your pets!)
  • Supplies direction on your tangible assets (art, antiques, collections of silver/coins/etc.)
  • States your wishes for your funeral arrangements and your remains

Your Estate Plan Should Provide Answers

Knowing how to incorporate these instructions in your plan might seem daunting, but fortunately your advisors can help you find appropriate solutions to accommodate your desires. Your main task is being able to articulate those desires. Thought of another way, there are basic questions which you (and therefore your estate plan) should be able to answer:

  • Who are your heirs? What are your meaningful material assets and how will they pass?
  • Who will take the lead managing your estate when you die?
  • Are trusts needed and who will be the trustees?
  • Who would be the guardian of your children when you die?
  • Has life insurance been properly considered for purposes of replacing income for your heirs?
  • Do you have long-term disability coverage? Should you?
  • Are your beneficiary designations for retirement assets and life insurance current?
  • Who is legally empowered to manage your finances if you are unable?
  • Who is legally empowered to make your healthcare decisions if you are unable?
  • What are your wishes if you are medically incapacitated or on life support?
  • The answers to these questions should be found in your planning documents including (at a minimum): your will, a healthcare directive, financial and health care powers of attorney in case you become incapacitated before your death, beneficiary designations and trusts (if needed).

I know it can bring up uncomfortable emotions to think about your own death or be daunting to think about the answers to these questions. Talk to your advisors who can help you chip away at these questions. We encourage you to think about one piece at a time. Answer the “easy” (for you) questions first. Complete at least a first draft of your documents and know that you can (and should) go back to revise the documents once you have more clarity on the answers to the more difficult questions. A quick review of the intestacy laws (what happens by law if you don’t have a will) should reveal to you that having something in writing is better than nothing; I don’t know anyone who would choose to pass their assets in the exact way that they would pass under the laws of intestacy.

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Review Your Plan

Even the best plan must be reviewed and updated periodically as needed as your family and financial situation (and laws) change over time. Review your existing estate plan every three to five years, whenever a major life event occurs, or when the tax laws change.

  • Does your plan still reflect your current financial affairs and philosophical desires?
  • Are the people named to specific roles still appropriate (power of attorney, executor, trustee(s), etc.)?
  • When was a life insurance review last held? If a policy is owned by a trust, is it being properly administered? Permanent life (not term) insurance policies should be reviewed every couple of years.
  • Are beneficiary-designated and other non-probate assets still aligned with your desires?

Above all, be sure to communicate and share your plans with a family member or friend, so they know where to start when you are gone. Take a look at Debbie Taylor’s One Last Gift for a simple checklist you can include in your plan for survivors. And for an additional resource, Lynn Araujo wrote a wonderful article titled Estate Planning 101. I would encourage you to re-read her article and then consider this a refresher (or, Estate Planning 102).

At Bragg we work with clients who have sticking points in their estate plan. We find that, as a disinterested third party, we are really good at helping individuals and families work through these sticking points. We are also happy to help you have meaningful conversations about your estate and financial affairs with your loved ones. Just give us a call. We would love to see you.

This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.

Why Estate Planning isn’t Just for the Super-Rich

When we die, all our worldly possessions will pass to our family or next of kin. This seems like a simple enough process, especially if you don’t have much in the bank. However, passing your estate on after death can be tricky, no matter how much you were worth in life. You don’t need vast assets or an abundance of wealth to benefit from a solid estate plan.

In fact, a good estate plan is about more than just making sure the kids inherit the house once you’re gone. It can cover other parts of your life, including medical care, power of attorney and even funeral plans. For that reason, estate planning isn’t just for the super-rich. It’s really for everyone.

In sickness and in health

When people think about estate planning, they often get caught up in writing a Will. While this is an important document to have, it’s not the only thing to consider. There may come a time when you’re unable to make important decisions for yourself, and other documents may be needed to help handle your estate.

An advance medical directive could help if you ever encounter a health issue that leaves you unable to voice an opinion about the medical treatments offered to you. Permanent disability, serious illness and even a coma could mean that someone else may need to step in to help run your life. Advance directives are a way to choose who this will be and outline your own preferences when it comes to certain medical treatments and interventions, where you’ll live and who should care for you.

It’s not just about you

Whether you have minor children or elderly parents that still require around the clock care, an estate plan could help insure that they are properly looked after if you’re not able to do so. Typically, naming a legal guardian in your Will is a good way to take care of this. That way, the person of your choosing will be placed in charge of your family’s wellbeing, instead of leaving this decision to the courts.

When someone dies without a Will, their estate must go through a process called probate. Here, a judge will use the law to determine legal guardianships (as well as who will inherit what). However, the letter of the law may not match your personal wishes. Having a Will could help reduce the stress and anxiety that could be placed on your family otherwise. Leaving your family in a legal mess is not ideal for anyone, and an estate plan could be an immense help to them when you do pass away.

Setting your final wishes

Wills and medical directives are hard enough for many to think about, and as such, it may be easy for them to skip making any funeral plans. However, writing down even a general outline of what you’d like your funeral to look like could be helpful in the future. Instead of leaving your family to simply guess at “what you would have wanted”, you can actually write it down, so they’ll know.

An estate plan might also include arranging money, especially for a funeral. This could be done through a dedicated savings account, a life insurance policy you took out when you were younger, or a funeral insurance policy is taken out especially for this reason. This money could help cover the costs of the service and burial, and hopefully, keep your family from accruing debt for your final farewell.

But it’s all so hard!

Another common misconception is that estate planning is hard, so it really only works the trouble for the very wealthy. However, this isn’t always true. Many estate plans can be created in a few short hours with the right information. There are many online resources to help you create and manage your plan yourself, with detailed steps to help guarantee each document is legally binding. Your local library or council office may also have information to help with this, so you can be sure that the plan you create meets the requirements in your country.

If you’re at all unsure, you can always seek expert legal advice. A solicitor may be able to help guide you through the process or complete the work for you. This may depend on what you’re hoping to achieve by having an estate plan and if you want to add more complicated steps, such as establishing a trust for your children.

Keeping it up to date

Estate planning isn’t a “set and forget” process. You may need to update each document at some point in the future as your circumstances change. Events like having a child, divorce or remarriage may mean that it’s time to review your plan and make sure it still makes sense.

You don’t have to be super-rich to have an estate plan. Preparing for an uncertain future is something everyday people do for everyday reasons. It’s about protecting you, as well as your family and others you care about.

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4 Reasons Estate Planning Is So Important

It’s All About Protecting Your Loved Ones

It seems like many people devote more time to planning a vacation, which car to buy, or even where to eat dinner than they do to estate planning—deciding who will inherit their assets after they’re gone. It may not be as fun to think about as booking a trip or checking out restaurant reviews, but without estate planning, you can’t choose who gets everything that you worked so hard for.

Estate planning isn’t only for the rich. Without a plan in place, settling your affairs after you go could have a long-lasting—and costly—impact on your loved ones, even if you don’t have a pricey home, large IRA, or valuable art to pass on. Not convinced that an estate plan is necessary? Consider these four reasons why you should have one, in order to avoid potentially devastating consequences for your heirs.

Key Takeaways

  • Estate planning allows you to choose who gets what.
  • Estate planning affords you the chance to name your children’s guardian in the event of your early death.
  • Estate planning reduces taxes on what you leave behind.
  • Estate planning minimizes the chances of family strife and ugly legal battles.

1. It Protects Beneficiaries

If estate planning was once considered something that only high net worth individuals needed, that’s changed. Nowadays many middle-class families need to plan for when something happens to a family’s breadwinner (or breadwinners). After all, you don’t have to be super-rich to do well in the stock market or real estate, both of which produce assets that you’ll want to pass on to your heirs.

Even if you’re only leaving a second home behind, if you don’t decide who receives the property when you pass away, you won’t have any control over what happens to it.

That’s because the main component of estate planning is designating heirs for your assets, whether it’s a summer house or stock portfolio. Without an estate plan, the courts will often decide who gets your assets, a process that can take years, rack up fees, and get ugly. After all, a court doesn’t know which sibling has been responsible and which one shouldn’t have free access to cash. Nor will the courts automatically rule that the surviving spouse gets everything.

If you die without a will, which is a vital part of an estate plan, the courts will decide who gets your assets.

2. It Protects Young Children

Nobody thinks of dying young, but if you’re the parent of small children, you need to prepare for the unthinkable. This is where the will portion of an estate plan comes in.

To ensure that your children are cared for in a manner of which you approve, you’ll want to name their guardians, in the event that both parents die before they turn 18. Without such a will, the courts will again step in. This time it’s not to determine who gets a piece of real estate or artwork; it’s to decide who will raise your children.

3. It Spares Heirs a Big Tax Bite

Estate planning is all about protecting your loved ones, which means in part giving them protection from the Internal Revenue Service. Essential to estate planning is transferring assets to heirs with an eye toward creating the smallest possible tax burden for them.

Even with just a little bit of estate planning, couples can reduce much or even all of their federal and state estate taxes and state inheritance taxes, which can get very pricey. There are also ways to reduce the income tax beneficiaries might have to pay. But without a plan, the amount that your heirs will owe Uncle Sam could be quite a lot.

4. It Eliminates Family Messes

We’ve all heard those horror stories. Someone with money dies and the war between family members begins. One sibling may think they deserve more than another, or one sibling may think that they should be in charge of the finances even though they’re notorious for racking up debt. Such squabbling can get ugly and end up in court, with family members pitted against each other.

Stopping fights before they start yet another reason why an estate plan is necessary. This will enable you to choose who controls your finances and assets if you become mentally incapacitated or after you die, will go a long way toward quelling any family strife and ensuring that your assets are handled in the way that you intend them to be.

It also will help you make individualized plans if necessary, to make arrangements for a child with health problems or set up a trust for one who might be better off not inheriting a lump sum. It can also help you give more to the child who did most of the work of caring for you in your later years or less to the one whose long education you funded while paying far less for their siblings.

Deciding whether to divide your estate exactly equally is one of the key tasks you need to think through. And, of course, if you’ve had more than one spouse or have children from more than one family, an estate plan is urgent.

The Bottom Line

If you want your assets and your loved ones protected when you can no longer do it, you will need an estate plan. Without one your heirs could face huge tax burdens, and the courts could designate how your assets are divided and even who gets to raise your children.

Billionaires are living longer than ever, making heirs wait

When Tom Benson died last year at the age of 90, he left behind a sprawling empire that included two professional New Orleans sports teams and a group of car dealerships. Unfortunately for him, he spent some of the last years of his life squabbling with heirs over who would get what.

The legal battle was marked by claims Benson wasn’t mentally competent when he made sweeping changes to his estate plans. His daughter and two grandchildren alleged he was acting at the direction of his third wife, Gayle Benson, 72, whom he married in 2004. Tom Benson rejected the claims, and a Louisiana court agreed. When all was settled, his wife ended up with the New Orleans Saints and the New Orleans Pelicans and his daughter and two grandchildren got most of his other holdings. But it took a lot of time, a lot of lawyers — and presumably a lot of money.

This kind of drawn-out fight for control is a risk faced by a growing number of longer-living American billionaires. At least 15 of them died last year, leaving behind assets collectively worth about $60 billion, including all the complex trappings that come with immense wealth: wide-ranging business interests, properties, sports teams, yachts, planes — you name it.

The number of U.S. billionaires has grown swiftly of late. There were an estimated 747 of them in North America in 2020, up from 490 in 2020, according to a study. At the same time, long-term economic data suggest the 10-figure crowd and those just behind them control ever-larger pieces of the economic pie. The wealthiest 1% control 37.2% of the country’s personal wealth, while the bottom 50% control nothing.

And the rich are living longer than ever, adding years of asset accumulation at a time when income inequality has become a political flashpoint. While cuts to estate and gift taxes are partly to blame for the concentration of wealth, another cause is a growing advisory industry aimed at making sure all that money goes exactly where the super rich want it to go.

A New Orleans native, Tom Benson got his start selling cars, first in Louisiana and then Texas. In 1985 he was part of a group that bought the Saints franchise, now worth almost $2 billion, for $70.2 million. In 2020, he bought the Pelicans for $338 million. That franchise is now worth about $1 billion.

The rich are living longer than ever, adding years of asset accumulation at a time when income inequality has become a political flashpoint.

The fight over his estate began playing out in 2020, after the billionaire, then 87, shifted future control of some assets from his daughter Renee and her children to his wife, Gayle Benson. The grandchildren, Rita and Ryan LeBlanc, had been involved in running parts of the family businesses. The dispute culminated in a mental competency hearing, where a New Orleans judge held that, despite “memory lapses,” Benson was able to manage his own affairs.

Another prominent case involved a multi-billionaire still among the living. Disputes over the competency of 95-year-old Sumner Redstone led to four years of litigation over his assets and business holdings. In January, Redstone settled a long-running legal fight with a former lover and confidante. The deal resolved all pending lawsuits between him and Manuela Herzer, who after a falling-out had sought to be reinstated as Redstone’s health-care agent. This triggered a cascade of litigation around his family’s control of the media empire, Redstone’s pay and his daughter Shari’s influence over his $3 billion fortune.

These days, the fortune of modern-day billionaires is “so large that it’s anticipated to last for not just children or grandchildren or even great-grandchildren, but great-great-grandchildren who these patriarchs will never know,” says Elizabeth Glasgow, a partner at Venable who specializes in succession and wealth planning. And with that expectation comes the increased threat of litigation.

So it’s not surprising that 45% of wealth management firms now offer estate and succession planning as primary services, up from 37% just a year ago, according to Cerulli Associates. The data provider estimated that demand for these capabilities will continue to snowball: Over the next 25 years, $68 trillion of wealth will be transferred in the U.S. alone.

Most major banks now advertise “family office” and planning services for clients with more than $25 million in investable assets. Some offer perks for the super-privileged: Wells Fargo & Co.’s family office group has a historian to document family legacies, while Citigroup Inc. and Deutsche Bank AG boast summits that teach heirs how to invest in Silicon Valley.

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