Estate Planning is a Process, Not a Task

As satisfying as it is to complete tasks, planning your estate is not something you do once and then just forget about. 

I have only one estate…why am I planning it over again?

It’s a fair question.  We all only have one estate we will leave behind.  Why do you need to plan it over and over again?

Two reasons: it isn’t actually the same estate, and, even if it were, your needs will change over time.

Sally – A Sample Case

Suppose Sally is now 20 years old.  She carries around $15,000 in student debt, she has a car that is worth about $10,000 and she still owes around $8,000 on it.  She owns no real estate – she rents an apartment – and she has no other significant debt or assets.  She’s healthy, no kids, not married.  Does she need an estate plan?

YES.  Why? 

Even though Sally doesn’t have a large estate, she still needs a plan.  If Sally were suddenly incapacitated because of a car accident, she still has bills to pay.  With an estate plan she can designate someone she trusts to make sure her student loan, rent, and car payments are made.  They can interface with doctors to make any medical decisions that can’t wait until Sally regains consciousness. 

And if, heaven forbid, Sally dies, she still has personal property that has to be dealt with.  Someone will have to figure out what to do with her car, possibly pay off the car loan with proceeds from a sale.  Someone ought to apply for discharge of any debt that can be forgiven upon death (some student loans allow this), decide what to do with the personal property she has in her apartment, and get out of the apartment lease.

Now let’s fast forward Sally in time about a decade.  She’s now middle-aged in her 30’s.  She’s married with one child and pregnant with her second.  She and her husband own a home with a mortgage, they each own one car.  Sally’s paid off her student loans but she and her husband both have small loans on their cars.  They both have modest retirement accounts through their employers, and they have joint checking and savings accounts.  They carry a moderate amount of credit card debt.  Sally remains in good health, but her husband has a family history of heart problems.

We tend to look at the people in the “middle” of their lives and think, ‘they obviously need estate planning because they have young children’.  And that’s correct – they sure do.  At the absolute bare minimum they need to consider who they want to request the court to appoint as guardian for their children.  They should also consider how to structure their assets to best provide for those children if, heaven forbid, Sally and her husband were both to pass while the children were still very young. 

But Sally and her husband should also be planning with a view of his possible future medical condition.  He should be paying close attention to how heart issues have impacted the lives of his relatives – how long they generally lived and what their quality of life was.  If every person stricken with heart disease in his family only lived into their late sixties and their last 3-5 years were largely spent in care facilities, they need to plan like that might happen.

Now let’s fast forward Sally again but this time several decades to the sunset of her life.  She’s in her mid-seventies now.  Her husband passed away a year ago.  Her two children grew up and had families of their own, but one of Sally’s children also died.  Sally inherited all of her husband’s assets, which were significant, and Sally’s own investments increased in value dramatically over the last decade.  Sally remains in good health and is able to continue living in her own home.  She now owns the house she and her husband purchased and she carries no debt.  Sally loves her grandchildren and spends as much time with them as she can.  She has a good relationship with her remaining child. 

At this point we would say, obviously Sally should be considering how she can best protect her assets and plan to soften the tax blow on her estate.  She should also be considering to whom she wants to leave her assets.  But that’s really only scratching the surface.

While Sally is in good health and her mental faculties are still sharp, she should decide if there are any major purchases or trips she’d like to make.  She should reassess her living situation and decide whether she might want to downsize.  Sally doesn’t have a family history of any particular disease, so while she may not need to plan for the cost of long-term care, she should at least assure her end-of-life care decisions have been made.  Sally should also establish a plan for care if her health were to suddenly decline and designate someone she trusts to direct her care and finances.  All this will minimize the burden on her child. 

So What Changed at Each Phase of Sally’s Life?

In the early phases of Sally’s life, her estate was small.  She didn’t need an elaborate plan.  But she still needed a plan!   

Think of it this way: would I rather pick the people I would want making decisions for me if I wasn’t able, or would I rather a probate court pick someone for me?  Ultimately, the person the court appoints could be the same person you would have picked (like a parent).  But even if that were the case, it is a much more time consuming and costly process than if you just put a simple estate plan together.

In the middle of Sally’s life obviously she wants to plan for her children.  Few prospects are more terrifying to parents than the thought of not being around to raise their children.  No one can replace a parent.  But choosing someone to raise those children is, I would argue, even more important than designating people for the parents’ own care. 

Sally’s estate has also changed considerably by the time she’s middle aged.  Selling a house and liquidating other assets like retirement accounts is more complicated than selling a car and getting out of an apartment lease.  And when there’s a bereaved spouse and/or minor children, making these assets flow smoothly to an appropriate person to manage makes a world of difference.  Even if Sally and her husband avoid any catastrophic events or illnesses, middle age is a time for planning for old age, for retirement, and estate planning should be wrapped up in that. 

In Sally’s sunset years she is financially comfortable and no longer worried about providing for small children.  She can afford to do those bucket-list things she wasn’t able to do before when she was busy working and raising her family.  Her estate may even be large enough that she will want to consider tax planning to assure her child and grandchildren receive as much of her estate as possible. 

Sally will also understand by this point that even though she has enjoyed good health, that won’t last forever.  She will want her care wishes known and respected.

What do these changes mean in terms of planning?

One-size-fits-all is not a thing in estate planning.  While it is possible to write a will and then dump everything into a revocable trust, it isn’t always a sound strategy.

For starters, planning like this may be unnecessary.  Sally in her twenties didn’t need a trust, and thus it was not worth the cost at that point in time. 

While trusts are very good estate planning tools and can be quite flexible, there are instances where being the beneficiary of a trust could conflict with other more important planning.  This happens sometimes where assets disqualify someone for government benefits.

And even if you do use a revocable trust for planning, that doesn’t mean it won’t ever need to be changed.  You still need to remember to title assets to it, and you may change your mind.  Not to mention…complicating factors.

Complicating Factors We didn’t even Consider

Sally’s case was relatively straightforward.  But what if we had complicating factors at play? 

Like health conditions.  What if Sally had an adverse health diagnosis?  If she were battling breast cancer that would definitely change her planning.  And if her health condition was instead a mental health condition like persistent depression, that would change her planning in a completely different direction.

What if Sally had a blended family?  Say her first baby was the result of a union prior to her marriage.  That certainly impacts her estate planning, especially if her husband hasn’t adopted her first child. And if the father of her first child is no longer living or has terminated parental rights, Sally might want to designate a guardian for that child other than her husband.

Sally also had “vanilla” type assets: house, car, bank accounts, retirement account.  If Sally had started her own business she would almost certainly have strong opinions about how the business should be handled in her absence or death.  If there is no succession plan in place, this business would get swept up with her other assets and hang in the balance while probate is administered.

And finally, the biggest one in my mind, is the personal side of everyone’s life.  Who do you trust?  Who do you want to leave your assets to?  Is there anyone you don’t want to leave assets to? 

None of these scenarios account for Sally being estranged from one or both parents, for a divorce, or for children/grandchildren who can’t be trusted with money.  What if Sally had a disabled child?  Or what if one of her children or her husband had a drug addiction, what then?  What if Sally wanted to prioritize a charity in her estate plan? 

Or what if Sally herself needed long term care and couldn’t afford it?  What could she do to assure her assets were protected from unscrupulous relatives or caregivers?  Because once the money is gone, it’s usually gone for good.

The takeaway

The you of today needs a plan – everyone needs a plan – but the you of ten years, twenty years, forty years from now will need a different plan.  You don’t need to revise your plan every year, just be sure to review things every few years and whenever there are major changes in your life.