An estate plan helps direct your assets upon your death, but it also plays an important role while you’re still alive.
Fact Checked byMatthew Schwartz, CFP®, CRPC®
For many people, the idea of drawing up an estate plan equates to writing out your obituary, but that’s not the case. It is true that an estate plan helps direct your assets upon your death, but it also plays an important role while you’re still alive.
Most people are aware of their need to have some type of legal documentation regarding their estate, but the majority of Americans fail to have something in place. Recent studies have shown that only one in three Americans currently have some type of estate plan in place. For ages 55 and older, that number creeps up to 44%. This means that approximately 56%, over half, of Americans today ages 55 and older have nothing in place for their estate. 1
How can this be? Much of it is tied to the excuses we tell ourselves for not preparing. Let’s look at three big excuses often used to avoid estate planning.
1. I don’t have enough assets so I probably don’t need one.
This is a very common excuse used by many of us to avoid estate planning. We have some type of association that it’s really only the mega rich who need to have something in place in order to make sure that all of their precious assets are dispersed appropriately. However, if you have any type of assets at all that you desire to go to your family, specific individuals, or charities, then an estate plan is needed. Furthermore, beyond the distribution of assets at death, an estate plan includes things like powers of attorney which allow individuals outside of ourselves to help make decisions regarding our health and finances if we were deemed incompetent or incapacitated. This means that if we are ever in a position where we can no longer make decisions on our own, for medical purposes or mental health reasons, someone that we trust is allowed to step in and help facilitate decisions on our behalf.
Insurance statistics show that one out of two Americans will suffer a period of prolonged incapacity in his or her lifetime.2 Without a durable power of attorney in place, your family has to go through a lengthy court process in order to obtain guardianship and the right to make decisions on your behalf. This process can be quite expensive, far more expensive than the cost of having powers of attorney drawn up.
Here are some examples of actions that could be necessary if you were incapacitated or deemed incompetent that would be able to be executed by your power of attorney:
Applying for work-related disability or income continuation benefits and public benefits such as Social Security disability, accessing or changing retirement plans, filing insurance claims or appealing denials, signing tax forms, selling a home to move somewhere more accessible, contracting for health care services, and hiring accountants or lawyers.
As you can see, having an estate plan in place is about more than just what you have in assets.
2. My kids know my wishes
The concept that your kids know exactly how you want your estate distributed and your medical decisions executed is very common. However, even if it’s true that your children have a good understanding of what you desire to see happen, that knowledge alone holds no ground in a court of law. Without written documentation, everything is up for interpretation.
When someone dies intestate it means that they died without any type of legal documentation regarding their estate. This means that the state is now in control of the distribution of assets through a process known as probate. A local probate court then has to decide how to distribute your property. While they follow state intestacy laws that try to mimic the final wishes of the average person. This means that your actual wishes may remain unknown.
This process often starts with the state naming a personal representative (or administrator) for you. Most of the time, your surviving spouse or one of your adult children will get this job. Until the court appoints a representative, your assets will be frozen. If no one wants to handle your estate, the courts will name a public trustee to distribute your assets.
The probate process can be slow and expensive with guidelines varying widely from state-to-state. Also, it gets even more complicated when you have an especially large or complex estate.
Probate is also a public process meaning a public record is created of everything you have and where it went. If privacy is a priority to you, then this is not the route to go.
3. An estate plan is too expensive
There are a lot of preconceived notions about the cost regarding an estate plan. And while there can be very expensive versions, the average cost for an estate plan is not excessive.
Prices can range widely if you are working with an attorney — from under $1,000 for a standard will and powers of attorney to between $7,000 and $10,000 for complex estates.3
There are many online tools that can help you get started in the process of creating a basic willand powers of attorney for a very low cost. If you’re looking to create a revocable living trust, the price will increase as you’ll need to seek out an attorney for some of the additional documents.
Here is the main thing to consider: If you choose to not get any type of estate plan and you go into the probate process, the average cost for probate is 3% to 7% of the total value of the estate.4 So simply add up your total net worth and multiply that by 7%. Is that more than the cost of the estate plan? And let’s not forget to add in the hourly rate of all your family members who will be forced to take time off in order to facilitate the distribution of your estate during court proceedings.
All that being said, it’s important to put away the excuses and prioritize planning when it comes to having an estate plan in place.