Meaningful family conversations to drive estate planning forward
As we get older and our lives get more complicated, estate planning becomes an important part of helping to protect against the unknown. Estate Planning, simply put, should be the process of mindfully planning for a time when you don’t have the ability to plan. Let’s be honest - this isn’t an easy topic. It combines two issues that most people want to avoid discussing: death & money.
As an only child and a person that does financial life planning for a living, bringing up the necessity of estate planning to my parents was both delicate and stressful. I had a reasonable idea of the structure that would make the most sense for both me and my family and had a list of resources and estate attorneys who could help us figure it all out. Despite my preparedness for the technicalities, the reality was that estate planning was not an easy process to begin or follow through on.
I’m writing this blog post to introduce estate planning as a super important process that anyone - not just rich people - can and should do. Even more importantly, I’m creating this post as an accountability tool for myself to make progress on getting my own family’s estate plan in order in the new year. So, let’s put pen to paper together and figure out how to use estate planning as a way to have meaningful reflection as well as conversations with our families. As Anne Lamott, novelist and writer of Hard Laughter reminds us, “Death is not the enemy, snakes are.” Let’s dive in.
A death in the family means we go to court? Huh?
You may have read that the estate tax exclusion limit increased in the 2017 Tax Cuts & Jobs Act - and this is true! The estate tax exclusion limits doubled and the IRS recently advised that this benefit will apply beyond 2026.
This means: If your estate equates to less than $11.4 million as an individual or $22.8 million as a couple, your heirs won’t pay an estate tax upon your death.
What this headline ignores, however, is that most individuals and families need an estate plan whether or not they will be paying estate tax in the future.
An estate plan is a broad term that can have many meanings, but if you are working with a fiduciary financial advisor and estate attorney partner, it should be a plan that definitively details what happens to you, your assets, your liabilities and your dependents in the case that you die, become disabled or otherwise incapacitated to make decisions on your own. Just like a financial plan, your estate plan will be tailored to your specific situation and should evolve over time as changes happen in your financial, physical or mental health, your family dynamics, desire to give charitably, or in tax or estate laws.
The primary document in an estate plan is called a will. This document specifies how you want your property to be distributed, who you want to handle the distribution, and who is nominated as a guardian for any minor children. After someone dies, the estate executor or the attorney representing the estate initiates probate. Probate is the legal process for distributing your property after you die. The court will validate the will and allow the executor to distribute the estate as per the will and make sure all taxes are paid in this process. If there is no will, the court will name someone to administer the estate and will follow the judge’s instructions on how assets get distributed.
The unfortunate reality is that court can be expensive. A will helps to alleviate the administrative burdens and questioning of the unknown wishes of the deceased, but it doesn’t remove the cost of actually going to court. This process is referred to as probate. Probate laws vary by state and so understanding the rules of your state matters. I consider myself lucky to live in California, but a major downside is that probate in California is incredibly expensive. Here’s how to calculate the cost of probate and why in California it’s definitely worth being proactive.
In the State of California, you can avoid probate if your estate is less than $150,000. If it is above $150,000 then the current probate fee rates are listed below. This statute is not only the rate that is paid to the attorney, but also to the personal representative / executor. So double...
4% of the first $100,000 of the gross value of the probate estate
3% of the next $100,000
2% of the next $800,000
1% of the next $9 million
0.5% of the next $15 million
Let’s say you have an $800,000 home with a $600,000 mortgage and a $200,000 investment portfolio when you pass. California works off of ‘gross estate’ including real estate, so your gross estate would be worth $1 million ($800k + $200k). In speaking with one of our estate attorney partners, this cost would come in around $65k, including $23k in Attorney Fees, $23k in Executor Fees, and almost $20k in fees related to filing, appraisal and bond. When unwinding the estate, you sell the home, sell the investments and pay off the mortgage and you are left with $400,000. After $65,000 of fees, you are left with $335,000 - essentially a 16.25% fee on the estate. No thank you.
With 20/20 hindsight, most individuals would look back at this situation and realize an estate plan would have been the financially wise option. The cost of an estate attorney is typically a fixed hourly rate, but the attorney should be able to give you an idea of the total cost. Depending on your state of residence, an estate plan created by an attorney for you will cost $1,500+. In California, we typically see fees starting at $3,000+. While this is a meaningful cost, by planning ahead you can manage the cost to a fixed and lower overall fee, rather than pay a percentage of the estate.
We gave the example of California above, but there actually are some states that have cheaper and easier probate procedures. According to the College for Financial Planning, probate in Alaska, Arizona, Colorado, Florida, Hawaii, Idaho, Maine, Michigan, Minnesota, Montana, Nebraska, New Mexico, North Dakota, South Dakota, South Carolina, and Utah are often informal and unsupervised by the courts and, sometimes (if it’s an easy estate), can be completely done without the use of an attorney - unless the will is contested. We aren’t lawyers - so we defer the state level specifics and legal advice to qualified experts.
In sum, probate rules are state specific, involve legal documents and account structuring for tax purposes. Upon death, you can’t go back and make changes or clarifications to the documents that govern this process, so it’s important to get these right early on. It’s hard to dream up all of the scenarios in which your written wishes might not be interpreted correctly. Estate attorneys will understand the right questions to ask for individuals with large estates or complex family dynamics.
Estate planning is not just for old people.
Even before planning for death, there are parts of the estate plan that are important to implement. Estate planning captures planning for a time that you might not be able to plan for yourself. We don’t like to think that our minds or bodies will go - but in the case of an accident or sudden illness, these documents will help to ensure that you delegate responsibilities that you would normally be very capable making to someone who understands your wishes. These documents include:
Power of attorney for health care
Power of attorney for asset management
A living will
Do not resuscitate orders (dark, we know.)
HIPAA waiver
As financial life planners, we rely on our expert partners when it comes to giving advice on taxes and estate planning. Because of the state-level nuances, we recommend partnering with an estate attorney in your state. There isn’t a ‘standard cost’ for estate attorneys, but many charge by the hour and will be able to give you an estimate of how much the total cost will be to set up your estate plan. If you have a relatively simple plan, you shouldn’t have to pay $500/hour to put something together. Estate attorneys are like doctors - there’s specialists and generalists. If your estate plan only requires the documents mentioned in this blog and you don’t have any estranged greedy family members, it’s likely that a generalist will work great for you. If you aren’t exactly sure what your plan might require, but you have your own business, have had past marriages, have a child or close family member with special needs, or have an argumentative family - these could all be reasons for increased complexity. How do you find the right advice for each situation? We recommend asking each of the estate attorneys that you are interviewing about what they would recommend as required for your plan. Don’t hesitate to be truthful when explaining your family’s complex dynamics - what might feel emotionally difficult at the time could minimize both financial and interpersonal burden in the future.
Ok I’m convinced I need an expert, but how do I find one?
Ask your financial advisor and CPA. These professionals often partner with estate attorneys to create estate plans, so they should be great professional resources to start the conversation with. Estate attorneys are not legally allowed to take or receive referral fees, which helps ensure there are no deals on the back end.
American College of Trust and Estate Counsel: These are your expensive but “on it” specialists.
National Academy of Elder Law Attorneys: A focus on helping with elderly and disabled.
Special Needs Alliance: Where to start if someone in your family has special needs.
Finding an estate attorney might take some time, but we recommend interviewing at least three attorneys so you get a good grasp of what is being offered. Make sure they are active in their local or state bar associations - this ensures that they are keeping up with their continuing education.
Not all attorneys are equal in the way they structure their businesses. It’s our preference for estate attorneys, like financial advisors or other advisors, to offer a free consultation as they get to know your situation. Clarify this in advance, because the last thing you want is an hourly bill for your preliminary work.
Assuming you get a free consultation, describe your family situation and the composition of your net worth (your financial advisor should help you with this!). Questions you’ll want answered:
What has the estate attorney done for individuals in your situation in the past? What part of your plan do they think is the most complicated?
What are the typical fee ranges for this arrangement? What would cause this fee to increase? Are the fees negotiable?
What is the expected timeline and how will we define a successful relationship?
An important plan, not just for the rich.
I’ve encountered many families who genuinely believed that they were not wealthy enough to have an estate plan. We love to debunk the myths of exclusivity in traditional financial advice. We recommend that you work with estate attorneys in your state of residence to develop a plan tailored to you. However, as you work towards saving money to pay a lawyer, there are steps that you can take to improve your estate plan without hurting your wallet.
Update your accounts with beneficiary designations. Designate beneficiaries on all accounts that give you this option. By designating a beneficiary, these assets will automatically transfer to the beneficiary upon your death. No probate for these accounts! No adding to your gross estate! All retirement accounts (401k, IRAs and other workplace plans) and life insurance policies have this option.
Make your other bank and investment accounts payable on death. Although this is not as common for retirement accounts and insurance policies, some banks, other accounts, and real estate in certain states can include a designated beneficiary as well. Log into your accounts or call your bank to see if this is possible.
Get organized & consider online options for estate planning as you ramp up. Have a central storage for all things in your money life and create a digital estate plan. Here are a few options, but remember that these are legal documents so complexity may not be well-captured: Everplans, Final Roadmap, Willing
Write a will. We absolutely recommend working with an estate attorney to construct estate planning documents, but as you get started that may not be financially feasible. NerdWallet shares some recommendations - like LegalZoom and Rocket Lawyer- to work on a basic will for under $200.
Review every year. Sometimes in the midst of life events, individuals forget to update their accounts. Make sure if you get married, go through a break up or have a child, your account designations get updated.
How should you involve family in this process?
Death and money are two topics that most people care to avoid, so we want to discuss some strategies to open constructive conversations about them. It’s extremely important to understand what your family thinks and how they feel about money. These beliefs and emotions are often rooted in an individual's personal experiences. Money lessons can be passed down, and sometimes adverse money habits are learned when families avoid discussing finance at all. It’s important to avoid making financial life decisions as knee-jerk reactions to the stress that money causes. One fantastic way to get in touch with these stressors, our emotions, and behaviors is through meaningful family conversations.
Here, we put together a list of questions that can help you create a framework for healthy and mindful discussions with your family.
If you fast forward one hundred years, what is the legacy you’ll want future generations to remember you by?
What are some stories you can pass on to children in our family that best demonstrate this legacy?
What are family stories around money that you learned from your mother and father?
How were these stories passed onto you?
If there was one lesson you wanted to teach me about either money or life today, what would it be?
What are the most important values you want to be sure I live by and pass onto my children?
Thought provoking questions and sharing one's own experience can build a foundation for a family's unique values. Think of your family structure like a mission-driven business - focus on elements of discussion that construct a shared vision to get all 'team members' on the same page. This kind of defined structure gives a framework for decision-making, and can create openness and support for any tough situations that the family encounters down the line. Our advice is simple: starting the conversation about death and money now will equip you to address death and money later. Openness and honesty will help your family face life’s greatest challenges with confidence and compassion.
Stephanie Bucko is a fee-only financial planner based in Los Angeles, California and is the Chief Investment Officer of Mana Financial Life Design. Mana Financial Life Design provides comprehensive financial planning and investment management services to help clients organize, grow and protect their wealth throughout life’s journey. Mana specializes in advising professionals in the tech industry, as well as women who work in institutional investing, through financial planning and investment management. As a fee-only fiduciary and independent financial advisor, Stephanie never receives commission of any kind. She is legally bound by her certification to provide unbiased and trustworthy financial advice.