Estate planning is critically important for ensuring your money and assets are distributed how you want after you die, but 67% of Americans don’t have a will. Lots of people don’t even realize how low the limits are on state estate taxes; for example, in Minnesota, the estate tax is levied on estates of $3 million or more. Counting all assets such as houses and life insurance, more people than realize can be on the hook for estate taxes.
Even knowing how important it is, I still struggled with estate planning myself. After my children were born, my husband and I knew we had to plan our estate, less to make sure money was given where we wanted it and more to make sure we had a guardian for our children appointed and a trustee for their money. Even so, it took us about four years before we finally sat down and took the necessary steps.
Part of that was just the busyness that comes with having small children, but a bigger part was the emotional stakes. Thinking about not being there for our children and deciding who would care for them felt huge, and it was honestly easier (but not wiser!) to put it off.
Of course, the kids grew up eventually, and when the pandemic hit, we knew we needed to revise our estate plan. Now the issues were less around who would care for the children (who were now young adults) and more how could we ensure that any money left to our children would help enhance their lives.
I’ve seen children left money in their 20s or even 30s who use it to stop working, who get involved in drugs, or who simply blow through the money quickly. We really wanted to make sure our kids were set up for success.
Here are four of the considerations we followed when thinking about planning our estate.
1. Understand your goals
One of the most important things we did was think about our goals for the estate, which also took our children’s needs and wishes into account. The first thing we did was sit down with our children and talk about it. I’m so glad we did, because we had a really productive conversation that helped clarify my husband’s and my thinking while also understanding our children’s concerns.
It won’t surprise you to learn that they were very concerned about school loans and wanted to make sure any inheritance dollars were available to pay those off. Interestingly, though none of our children were married at the time, one of their preferences was that the estate be set up so the money would be protected if they got divorced – they were thinking ahead.
My husband and I also wanted to make sure our estate wouldn’t give unlimited money to our children at a young age. In my experience, it takes until around age 30 for money habits to be fully formed. Getting a lot of money before that age can have some really negative consequences, and we wanted to make sure that didn’t happen.
Luckily, when we talked with our children, they were on the same page. They really wanted a trust that would help protect their assets in case of bankruptcy or divorce but also would ensure they received some money annually, not all at once.
2. Decide who should administer
Once we decided that a trust made the most sense, we also had to decide who would administer it. I assumed we’d use a professional trust company, where for an annual fee an individual unconnected with the family would handle all the disbursements and any issues. Managing a trust can be a lot of work, and it also requires some financial savvy and knowledge, so I frequently recommend using a professional firm to my clients.
To my surprise, though, my children didn’t want that. They didn’t feel comfortable having an unknown person controlling the money. And while we wanted to respect their wishes, that also meant we had to decide who would be the best person to administer the trust. Ultimately, we named each child a trustee but with some controls and rules in place to meet their goals and our goals.
3. Set structures and rules for your estate
One thing I tell my clients all the time is that estate planning can be as flexible as you want it to be. As I mentioned above, we were able to put rules in place for our children when we named them trustees, and that kind of customization is very common with trusts.
You can do anything from setting ages at which percentages will be disbursed to setting rules as to what the money can be used for. For example, you could say that a certain percentage is released at age 30 and then again at age 40, or that the money can be used only for education or to purchase a home. You can set up disbursements at various life milestones, like marriage or graduating college. Truly, the terms of an estate can be whatever you want them to be (assuming it’s all legal, of course).
One thing I want to emphasize as well is that estates can be updated whenever you want. Just as we redid our plan once our children were grown, we’ll likely redo it again once they are even older or there are grandchildren in the picture. As circumstances change, so can your estate plan.
4. Consult professionals
I very strongly recommend working with an estate attorney and even a tax specialist when getting your paperwork in order. They have seen it all and will help make sure your wishes are clearly stated and legally enforceable.
But planning your estate can also be emotionally fraught. Here at Laurel Wealth Planning, we often simply sit with our clients and help them understand what they want. We already know our clients’ financial situation, and so we can help them think through their decisions, what their choices are, and map out how much should go to whom and when. We are a totally safe and non-judgmental space for people to clarify their thinking.
Regardless of how you go about it, it’s important to have a plan for what will happen to your assets after you die. Luckily, there are people ready and willing to help you understand your options.
Laura, the founder of LWP, is a Senior Wealth Manager, Chief Investment Officer and Shareholder. She has a master’s degree in tax and is an excellent listener. While she is a sophisticated financial planner with experience in complex issues, her priority is ensuring a financial plan works for people.
