As a financial advisor, I’ve seen firsthand the chaos that the death of a loved one can bring, especially if they don’t leave clear instructions behind about their last wishes—even those without a spouse and/or children! That’s why estate planning is such a vital part of the financial planning process. While I know enough to be dangerous, I’m not an attorney. Luckily, I have my good friend Rob Bexley (remember him from this other awesome article on small business formation?) to tell me what’s what.
Michelle: Before we get in to the particulars of estate planning, I want to address the biggest pushback I get from clients: “People like me don’t even NEED an estate plan.” So to start, what value does estate planning have for someone is young? Who does this article apply to?
Rob: Absolutely, I hear this all the time as well. One of the biggest things that young people are concerned about is, “I don’t have an estate,” because the most common association with the word “estate” is a huge piece of property. In legal terms, an estate is simply the possessions, both literal and legal, that a person has at the time of their death. Some peoples’ estates have higher dollar values than others, but all people have estates.
Your estate includes what you have, what you had, and what you could have. Let’s say for example that you get into a car accident and die, and another person is at fault. If that person owes you a million dollars for the accident, your estate gets the money. In other words, your estate has an interest in the money that would be owed to you.
Young people don’t necessarily have that perspective; for younger people, estate planning is less about what is and more about what could/will be. It’s another form of future planning. We don’t know what the future holds, so you need a plan, just in case.
A lot of people with families also don’t see the value in estate planning, because of some of the misconceptions about how the law works. Many believe estate planning is only for wealthy older people. But a young couple or single person that has a child—anyone with children—needs to have an estate plan, because a properly made estate plan also includes guardianship provisions for the child. Let’s consider what happens if the parent or parents pass away. If you have two parents and one passes away, it’s straightforward, but what if it’s a step parent? What if it’s a single parent? What if both parents die in the same unfortunate circumstance? The courts have to review all the documentation and decide where your child goes. Having guardianship provisions in the plan will inform the court where you want the child to go, and will establish a testamentary trust for minor children. This takes whatever assets you may have, small or large, and assigns trustees for the child, so they have something when they get older.
Another popular misconception is that if you have a married couple and one dies, that the other automatically gets everything. That’s actually not true in Georgia, if there are kids in the picture. If there are no children and one spouse dies without a will, the other spouse gets everything. But the spouse is only entitled to a minimum of a third of the estate, so if you had two kids for example, and one spouse dies, the surviving spouse only gets a third of the estate. The other two thirds would go to the children. There are ways to avoid this, but they can be costly. Certainly, costlier than just getting a will.
I once handled a case where the father died, leaving behind a spouse and a three-year-old child. The surviving spouse had to split her house, retitle the house in the child’s name, establish a trust, and become bonded—a form of insurance in case the mother “steals” the assets. This supposedly “straightforward case” took two years to sort out because they didn’t have a will. Having a minor child without a will makes things super complicated.
Every situation where someone dies without a will is a worst-case scenario. If someone dies without a will, it’s known as being intestate. I have to double my rates for these cases because they’re so complicated. As a reference, probate work typically costs $1500-2000 in the metro-Atlanta area, but if someone comes to me with a death without a will, I automatically set a minimum retainer of $4000, because it’s so complicated and sticky and expensive. Sometimes it’s a full-blown lawsuit that can take years to resolve.
Doom and gloom aside, there are a few main triggers to getting an estate plan, or life events that render it particularly important: If you get married, get divorced, have a child, or lose a child, you need an estate plan.
The bottom line is this: estate planning gives you piece of mind that if something unexpected happens, your family is protected from the expensive, complex, tedious process of being intestate. An ounce of prevention is worth a pound of cure.
Michelle: Okay, so we’ve established that far more people need an estate plan than anticipated, which we always think about as just being the Last Will and Testament. But there are other pieces involved, yes?
Rob: That’s correct. Your basic foundational estate plan contains 3-4 components. Three of these are absolute basics, or the bare minimum: The Last Will and Testament, the Advanced Directives for Healthcare, and the Durable Financial Power of Attorney.
Let’s start with the Advanced Directives for Healthcare, which actually used to be two separate documents (a Living Will, and the Healthcare Power of Attorney). Georgia, along with many other states, has combined these two documents into one Advanced Directives for Healthcare document. This document assigns a healthcare agent, usually a partner or spouse, with the agency and authority to made healthcare, end of life, and post-life decisions for a person. It would break down the important medical decisions in the event that someone dies or becomes unable to make decisions on their own. This includes what kind of medications, procedures, and treatments are allowable, whether someone wishes to be buried vs cremated, whether someone wants to be an organ donor, etc.
The most common piece is the “pull the plug” provision, which directs the healthcare agent as to under what circumstances they want their life to be extended as long as possible, or whether to have those life-support treatments withheld. Basically, it articulates under what circumstances you want your life to end. That’s why the Advanced Directives for Healthcare can be a difficult document – one that provides a lot of clarity, but requires a great deal of maturity to create. In the hundreds of cases I’ve handled, with people from all walks of life, I’ve never heard of anyone who wanted their life extended as much as medically possible. Being on life support is a medical and emotional burden on their family.
It’s also important to note that if you have an operation, the medical facility will always ask for a copy of your Advanced Directives for Healthcare. If you don’t have them prepared, they’ll ask you to do them on the spot before the operation—same thing goes for medical emergencies. Trust me, you don’t want to be making those decisions on the spot when you’re already under emotional stress. This way the decision has been made when you were of sound mind, so your loved ones don’t ever have to carry the guilt of wondering whether they made the wrong decision about what you would have wanted.
The second main document is the Durable Financial Power of Attorney. This is the power of attorney that you give to another person granting control over all financial aspects of your life. It’s called durable because it lasts indefinitely, even when you can’t make decisions on your own. I should note that the power of attorney only applies when you’re alive or incapacitated; powers of attorney go away when you’re dead, because then the will takes over.
Durable Financial Power of Attorney grants a person the power to make decisions about your house, your taxes, your bank accounts, and any other relevant financial matters. Again, this role usually falls to a spouse, significant other, or close family member. The reason that this is so important is largely to do with security. Governments, financial institutions, and healthcare institutions such as hospitals, won’t accept your marriage documents as valid proof that you’re able to make financial decisions on behalf of your loved one. It’s not their job to parse out to decide whose relationship is healthy enough to make those decisions. The Durable Financial Power of Attorney cuts through that garbage.
It’s not even just for serious health issues, though. Let’s say you’re travelling, and you get stuck for whatever reason in another country and you’re unable to return home. Power of attorney could grant someone else the ability to cover your financial business while you’re away, to help you access your money, or any other myriad financial issues that could arise in your absence.
The Advanced Directives for Healthcare and the Durable Financial Power of Attorney are the two central periphery documents. Then, you have the will. The Last Will and Testament is the most common form of will, the one that people know and love. There are plenty of other forms, though. For example, if you’re in a committed relationship or married, you can have a reciprocal will, or mirror will. The concept is that the two wills mirror one another. There might be some nuances, such as certain separately-owned personal objects that are earmarked for other people, but for the most part it’s one will in two forms.
The will apportions how a person’s debts and assets are distributed when they die. First, all your property, furniture, clothes, other possessions, etc. get put into a pile and sold and turned into money. That’s where the estate sale come from—people buy whatever’s not nailed down, since most families want to get rid of as much as possible.
Then, the debts part comes into play. This part is easy—creditors get first crack at an estate, including private student loans, credit cards, your mortgage, etc. Whatever’s left over after the debtors get paid gets divided up amongst the heirs.
Usually the spouse gets everything, as it should be, but in the will, you get to determine that in advance. That’s why it’s good to have a will, because what’s left gets divided. I should also note that you don’t have heirs until you die. That term specific to death. Until you die, they’re called beneficiaries. If you’re not married and you don’t have kids, under Georgia law your first heirs are parents and siblings. Let’s say you hate one or more of those family members… do you really want your assets to go to an abusive parent or sibling? That’s why even if you’re not married and don’t have kids, you still should get a will. You don’t want someone undeserving profiting off your hard work.
So the will portions out your debts and assets, creates guardianship provisions for children and pets, and sets up trusts for the children. This document also creates the executors of the will—the people that execute the estate proceedings—and gives the executors their power by setting what they can and can’t do.
These are the three documents combined, which together form your estate plan.
Michelle: You mentioned that there were 3-4 documents, but you’ve only talked about three. What’s the fourth that might come into play?
Rob: That fourth document, which isn’t relevant in all cases, is the trust. There are dozens of different types, but the most basic type is the revocable living trust. This is a trust that’s created by individuals or families to hold their money and assets, such that the assets pass on to beneficiaries outside of the probate process. It makes the probate process exponentially easier. I do want to dispel another myth though: many people believe that when you have a trust you avoid probate, which is the process by which a court gets involved in the administration of an estate. That’s not exactly true. It makes the probate process easier and makes getting the assets quicker, but all estates have to go through probate. A trust is not for everyone, but an attorney can help you figure out whether you need one.
Michelle: I’ve heard of a lot of folks trying to create wills and estate plans themselves. Is this legal?
Rob: In Georgia, the Last Will and Testament has a few requirements:
- Your document must be typed. Handwritten wills are not allowed, and likely won’t hold up in a court of law.
- It needs to be witnessed by two individuals that do not have an interest in the estate, people who cannot inherit under any circumstances. Make sure that these are good friends or neighbors, not relatives.
- The person making the will has to be over 14 years of age and of sound mind. For what it’s worth, if someone is older and has dementia, there is a misconception that they can’t get a will. If you are able to take advantage of a moment of lucidity with two witness ready to go, a doctor present, videotaped, etc. then technically you can take advantage of this window and get a will created.
- It does not need to be notarized, though it is a best practice. Most have a self-proving affidavit, which makes the process smoother later on, but notarization is not necessarily a requirement.
You’d be surprised at how many people don’t follow these guidelines, or the document doesn’t fulfill all of these requirements. The will itself may be structurally sound, but then the person makes it unenforceable by using the wrong witness, or something else goes wrong.
One of the other things I’ve seen that makes wills unenforceable, is when the document is either so complex that the will is too complicated and expensive to enforce OR so contradictory that the will becomes too impractical to enforce, for example if you leave the same possession to two different people. These drafting considerations are usually eliminated when a knowledgeable attorney is involved. In fact, a lot of what I do involves redoing poorly constructed or unenforceable wills.
Michelle: Makes sense. I want to get back to some terms you’ve used earlier: what makes a good estate plan vs. a basic estate plan?
Rob: One important consideration is that the estate plan needs to be both flexible and concrete at the same time. It needs to be super specific with regards to certain details, people, and triggers. For example, a clear trigger would be something like,” When I die, this person gets X.” On the other hand, complicated if/then statements in wills is nightmarish, because that requires lots of maintenance and interpretation. If you want something to go to someone, make sure it goes to that person. If you want it to a group, make it clear. As another example,
“I want my sons to split my gun collection,” is too ambiguous. Be clear which guns should go to which sons; don’t make them fight over it.
On the other hand, you don’t want your will to be so concrete that it’s rendered meaningless five years into the future. To be honest, I see a lot of older law firms do this—it’s a form of planned obsolesce to keep the clients coming back every five years to make a codicil to the will—updates that cost money. For example, if you make a will and it says, “I give my property located at 123 Evergreen Court to my spouse,” when you die, if you don’t still own that property, your spouse doesn’t get it. On the other hand, something like, “My primary residence, wherever it is, goes to my spouse,” is far more flexible. Another great example of this is bank accounts. Many people want to put their specific account numbers in there, but in general, I don’t recommend including them since those can change. You might distinguish between bank accounts vs. property vs. investments in your will, but don’t go into so much detail that you have to update your will every time you change banks or move or acquire new property.
Michelle: What is not included in an estate plan?
Rob:There are two main things that transfer outside of probate: insurance and retirement. The reason is, these things both have beneficiaries. You can’t bequeath something that you don’t own, and when you have a beneficiary on a life insurance plan, the beneficiary owns the proceeds of the insurance when you die. As a result, the insurance money would not be considered a part of your estate; the money would go to that person outside of the probate process. Retirement is almost always the same way. Those accounts almost always have beneficiaries who will receive the benefits outside of the probate process.
The exception is if you don’t add beneficiaries to those accounts, or if you only name primary beneficiaries and not secondary beneficiaries, that could also mean those accounts go to your estate. For example, if you name your spouse as your sole beneficiary and you die simultaneously, the money would go to your estate. For this reason, many people might list their children as secondary beneficiaries, or in some cases, a trust.
Michelle: Can you touch briefly on what estate planning looks like for LGBTQ+ families and blended families?
Rob: Until Obergefell, people in same sex relationships had to rely on estate planning for their partnership rights. Now that it’s the law of the land, spousal benefits confer, though they’re not as robust as people think, especially when kids are involved.
Now more than ever, we’re seeing situations where the definition of the word “family” is super broad. This doesn’t just include LGBTQ+ folks, we’re seeing multiple partners in committed polyamorous relationships, blended traditional families, unmarried people who are in long-term relationships, people who have foster kids, or any alternative non-nuclear family. Morally, we know that these families are just as legitimate as any other. Unfortunately, the law hasn’t quite caught up to this new definition of family, such that most non-nuclear families are a legal cluster***.
Let’s use the hypothetical example of the Brady Bunch, where you’ve got three kids on each side. Now let’s say the mother dies, and the father inherits everything. In theory, things would split six ways when he then dies. The issue is that if he secretly hates the mom’s kids, he can tear up the will and create one for his own biological kids. It’s actually not illegal to disinherit her kids after her death. That’s a great example of why you need a will whenever kids are involved, especially with minor kids or blended families.
The more complicated the relationship, or the more it strays away from the nuclear family paradigm, the more important it is to work with an attorney who 1: Is sensitive to these types of relationships and 2: Has done nontraditional estate planning in the past. A good attorney will help you address those other cases and craft you something that actually meets your family’s distinct needs.
Michelle: The other question I get all the time is about estate taxes. Is that a big concern for most people?
Rob: As of October 9, 2018, the federal death tax doesn’t kick in until you have $10.5M for a married couple. When you hit $5M in assets, you may want to start thinking about alternative estate options rather than just transferring wealth through an inheritance. There are plenty of other tax considerations, but those are best discussed with a CPA.
Michelle: At this point, I’ll close with one more frequent question: why would I want to pay someone for estate planning?
Rob: Yes. We all know that there are websites out there that offer these services at a very reduced rate… but just because something is cheap or affordable, doesn’t mean it’s good.
The main problem with these websites is that they offer very little customization. By necessity, it assumes that most families and people’s circumstances are identical. It might as well be a website teaching you to do your own medical procedure. Going to LegalZoom for your legal needs is as recommended as using WebMD to diagnose your illness. If you want basic, useful information, it’s great. But I wouldn’t use it to do the complicated legal work.
By getting a will on the cheap from these websites, you’re gambling that what you’ve created is good enough to actually handle your estate without legal issues when you die. To be honest, if it’s not perfect, it will cost your family thousands of dollars to fix, to the point that it may be better to not have any will at all. If you have nothing, you at least enter straight to intestate. If you have a bad will, you have to try to process that and THEN you have to go through the process—double the efforts, double the price. It’s just a crap shoot. Maybe you’ll get lucky and do it right, but you’ll always have that sinking, uneasy feeling wondering whether it was good enough.
I’ve also seen some alternative websites that give wills that aren’t enforceable in the state of Georgia, usually religious websites preying on religious people. Those wills are rarely enforceable and can be super problematic. If you have devout religious beliefs, and you want your will to reflect that, you need to see an expert if you have those kinds of highly specific needs out of your will to make sure your will does exactly what you want it to.
The other thing I’d note is that if you’re paying an attorney to review a LegalZoom will, you may as well just pay them to create it from scratch. I find a competent estate plan costs $900-1500 in the state of GA, but even reviewing a Legal Zoom document can be 2-3 hours of billable work. It won’t even save you that much money if you want to pay Legal Zoom for a rough draft, then work with an attorney to polish it.
In my experience, people get the wakeup call about proper estate planning the hard way—when a loved one dies. At the end of the day, most estate planning is an affordable form of insurance. You pay $1200 once, and it’s good for a decade. As with anything in life, you get what you pay for.
Thanks again to Rob for his time and assistance in drafting this useful article! If you want to read more about Rob’s work, you can check out his website and get his contact information at https://www.bexleylawfirm.com.