One of the most popular reasons why families contact me for estate planning is that they have small children at home. Often, the conversations go like this:
“We just had a baby, do you do trusts? I think that’s what I need, right?”
“I wrote my will and left everything to my husband and kids. That’s all I need, right?”
“My friend told me he did his estate planning on Legal Zoom and I should just do the same. That’s ok, right?”
So here’s the deal.
Most parents of young kids know that they need to do something, but most of them do not know why. And most do not know that there are many options when it comes to estate planning. The most important thing is to stay educated.
So, let’s start with the basics.
What exactly is an estate plan and why do I need it?
As a general rule, when you die in California, your loved ones likely will owe money to the government in the form of taxes and fees – both to the state and federal government. Until they do, the government gets to keep all of your assets. This general process is known as probate.
So what kind of taxes and fees are we talking about? Things like an estate tax (40%-55%). Things like probate fees (5%-15% minimum on total probate assets). Things like capital gains taxes (15%-20%). Gift taxes. Income taxes. Transfer taxes. The list goes on and on.
Now here’s the thing. If you have young kids, and if you die without proper planning, your money and your assets will get stuck in probate for a lot longer time than usual. And instead of passing to your children, your assets can be lost in probate.
Even worse, a foster parent, the Dept. of Children & Family Services, or even a stranger can end up taking custody of your children – temporarily or even permanently. It all depends.
An “estate plan” therefore refers to the planning you do with your lawyer in order to come up with the best strategies to prevent these things from happening, or minimizing them from happening. Some people do estate planning because they just bought a house, some because they just had a kid, some because they are retiring, some because they are worried about lawsuits, and some because of their citizenship status. An estate plan therefore is made up of several different kinds of documents and plans. No two estate plans are identical.
Rule #1. An estate plan should be customizable. There is no such thing as a standard estate plan.
This is where Legal Zoom and your DIY options fail instantly. There are very limited options offered. Other than changing your name and the name of your trustees and beneficiaries, that’s really all they do. This doesn’t sound like a problem until you hear what other options are out there. And when you start to find out that some of these options can play a very major role when someone passes away, you begin to wonder why people even do their estate plans this way.
The answer is easy. It’s because it’s convenient and super cheap. But like most things in life, you get what you pay for.
Have you ever read the footer or the disclaimer on these online DIY legal programs?
“We are not a law firm or a substitute for an attorney or law firm…we cannot provide any kind of advice.”
Consider that. With a lawyer, if he/she messes up, you get to go after him. There is accountability. But with DIY, if there is a screw up, you can only blame yourself. So what are they really providing you with, if not advice?
The answer is, they are providing you with standard boilerplate documents. These things do not get changed to match your specific needs.
To use an analogy — this is like buying a car with a seat that cannot be adjusted. Yes, the car will still drive, but it increases the chances pretty quickly that you will end in a very terrible accident.
And here’s an inside secret among many lawyers: lawyers love Legal Zoom and online legal planning software. Any idea why?
Because most people who use it at some point will regret it. Then they need someone to put out the fire. Guess who they call? Hint: it’s not Legal Zoom.
Rule #2. Your estate plan needs to be updated as your assets change, as your family changes, and as the law changes.
This is a big point and perhaps the most important reason why every family should have a lawyer they can count on. Just like your doctor, you should keep tabs with your lawyer and update him or her with changes in your life that can affect your planning. Like your regular physician, the more frequently you see your lawyer, the more likely you will not end up in tough straits down the line. We encourage all of our estate planning clients to stay in touch with us, and for most of them, we bring them back once every three years to review their plans.
An estate plan is not something you put in a drawer and forget about for ten years. It is a living, breathing representation of you and your family. It must change as things change. If you don’t update your plan, you will end up paying more money in the long run.
Rule #3. Your minor children require special attention.
In California, a probate must last at least 12 months but usually the minimum is closer to 18 months.
But when your children are minors, and if you have no estate plan, a probate case can last until the child reaches age 18. It is like a nightmare that you can never awaken from. Thus, when you have young children, it is imperative, extremely important, almost critical that you immediately take steps to avoid probate for them. If you do not, your children and their caretakers will suffer through a notoriously broken system fraught with red-tape, inefficiencies, distrust, and waste. It will cost thousands and thousands of dollars, which all could have been avoided had you taken the time to create an estate plan while you were alive.
Guardianship is a big issue for parents. The truth is most estate plans deal with guardianship only in a will, which is a terrible idea. In fact, we spend time fully educating our clients why a will is an old and insufficient form of planning so that they fully understand the consequences. It is scary how many DIY plans (and even attorneys!) still recommend a will-based approach to estate planning.
Rule #4. A trust by itself is usually insufficient to protect your minor children.
There is so much more to proper planning. With our clients, we obtain all kinds of information related to the care and custody of minor children, including updating pediatricians and their contact information. We create identification cards for our parents, and we contact all sorts of short and long-term guardians to put a plan in place that is guaranteed to work if the time ever comes. We prepare medical powers of attorney for each of our minors, fully compliant with HIPAA, and we make sure all guardians have copies, even when our parents go on vacation. Estate planning should not be limited only for when you die, but also while you are alive!
Rule #5. Leaving money for your children is your job – not the job of your guardians.
Perhaps the worst mistake we see when it comes to naming guardians – and there are many – is believing that the best guardians for your children are the families with the most money. Nothing could be more false. In fact, making decisions like this probably mean you need to spend more time with a legal counselor who has seen what happens in these situations and can provide more practical insight. The reality is your trust must work alongside your guardianship nominations, so that the focus of your guardians isn’t raising money to support your children but, rather, focusing on being the best parent for your son or daughter in your absence. It is your job to handle your finances for your children, not the job of their guardians.
If you need assistance figuring out what you need to get done, give us a call and we’ll be happy to educate you. Ask to schedule a Family Wealth Planning Session.