ZETA'S GUIDE TO ESTATE PLANNING

Life after death is a thing, especially for your money. As our generation settles down, gets married, and has kids, estate planning needs to be on your radar. But what is it exactly? It’s building a plan for your money for when you’re not around, especially if other people depend on you (or your assets) to help them thrive. So whether you’re just curious, overwhelmed, or loaded with cash, we break down how to get ahead of your estate plan below.

This guide was created with input from attorneys Sara Dorosti and Patrick Hicks.

If you don't know, now you know.

- Biggie Smalls

We’d also recommend that you read our disclaimers before consuming this information.

Estate Plan 101

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Get Started

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How do I create a will and/or a trust?

An executor or a trustee?

Where do I store these documents?

What is an estate plan?

Why do I need it?

What’s included in it?

When should I set it up?

How often should I update it?

Is naming my spouse as a beneficiary enough?

How should we plan for joint vs. separate assets?

The last will and testament.

How do I protect myself from probate?

Meet the Revocable Trust.

Wills, Trusts & Probate

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An estate plan helps you prepare for life after your death. During the planning process, you’ll cover everything from how your assets and/or liabilities are to be divided, to instructions on how to handle your care if you become disabled. 

The most common estate planning task people take is preparing a will, but estate planning is a lot more comprehensive than that. You’ll also want to plan for who takes care of your kids or parents, how medical decisions are made in the event of a disability, and even who’s responsible for paying your estate taxes (yes, that’s a thing) once you’re no longer able to on your own. Below we dive into the specifics of estate planning.

Guess what: everybody has an estate. Whether you’re rich or working-on-it, your estate is made up of everything you own, including your home, your car, your investments, your life insurance, and even your credit card debt. And as such, you’ll need a plan for what happens to that estate when you can no longer use it.

People who build estate plans do so for several reasons: 

• they want to preserve wealth;
• make sure their kids (or grandkids) are provided for;
• leave their assets to a cause or institution;
• avoid putting a burden on their families.

Without a plan in place, there are a few things that can go wrong:

Having your family make these decisions with no guidance can leave your loved ones with a lifetime of regrets, guilt, and second-guessing. Moreover, they’ll need to work with a judge to get conservatorship (or the ability to make decisions on your behalf). Why put them through that hassle if you can avoid it?

1. The burden of making medical and funeral decisions will fall on your immediate family.

2. Dying without a will (aka intestacy) leads to an intestate distribution.

Which is a fancy way of saying your money will be divided based on predetermined rules set forth by your state of residence. Usually, intestate leaves things to your immediate family (which is what most people want), but it can split your assets in a way that leads to conflict amongst your family and friends. For example, if you don’t clarify how your home asset should be split, your spouse and your child may get a share of each and have opposite ideas of how to manage those assets. In this case, the spouse might either be forced to buy out the child (possibly taking on a mortgage to do that), or be forced to sell and take part of the proceeds (possibly not being able to replace the residence).

3. Your state gets involved in your business, without consideration of your perspective.

If you become disabled, a court-appointee (typically an immediate family member) will make decisions on how your assets are used to care for you. And in death, this personal representation will be responsible for managing and distributing your assets. This means that if you don’t have immediate family, you could find your third-cousin’s uncle’s wife making decisions on your behalf even if you barely know each other. In some cases, the court might appoint multiple representatives, which could lead to disagreements on how to proceed and lifelong family feuds that aren’t fun for anyone.

4. Your estate will end up in probate. 

Probate is an intensive, court-supervised process to authenticate a will and determine when and how to distribute your estate. If no will exists, the process is relatively similar, taking somewhere between nine months to two years to work through. The process involves identifying, locating, and calculating the value of your assets and then paying any debts owed or taxes due. Probate can also be very expensive, easily reaching tens of thousands in costs.

EVERYTHING WAS NOT GONNA BE ALRIGHT FOR BOB MARLEY

Marley surprisingly left no will, even after battling cancer for 4+ years. After his death, things got ugly amongst his family, especially between his widow and his thirteen kids. Their story took some crazy twists and turns, including forged documents, family feuds, and infidelity. Marley’s estate continues to earn ~$10M per year.

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DID YOU KNOW

78%

 Caring.com 2017 Survey

of millennials don't
have an estate plan

Estate planning has multiple elements to it — we’ve highlighted some of the most important ones below:

• Will: Creating a will allows you to dictate how you would like your assets and liabilities to be divided in the event of your death or incapacitation.
• Guardianship: Identifying guardians to take over caring for your kids, pets, or parents will allow you to have a plan in place if you’re not able to see to their well-being yourself. This is usually a part of the will.
• Medical Directive: A medical directive (sometimes referred to as a living will) provides clear instructions for your care in the event that you’re incapacitated. It also identifies the person that you’d like to make decisions on your behalf.
• Durable Power-of-Attorney: A durable power-of-attorney has the authority to control legal, financial, and health-related decisions even after your death.
• Revocable Living Trust: A revocable living trust can help you avoid probate, reduce estate taxes, and give your family privacy during a tough time.
• Funeral Arrangements: Having a plan for how you’d like your family or friends to mourn your passing can be especially helpful during a time of stress and grieving.
  

Arguably, it’s always important to have an estate plan, but there are some common motivators that spur people to action. Major life events such as changes in marital status, births and deaths, or buying a house (or other large asset) are all good moments to visit an estate plan.

Another proxy that is used to recommend when to get estate planning is the size of your estate. As you acquire more wealth, your estate plan will become more complex. 

• At lower assets levels ($0-$150k), many states have simplified probate options for smaller estates that are relatively easy (though still not pleasant). You’ll still want to create a will with clear guardianship provisions and a health directive so you’re covered in case of emergency.
• At more moderate levels ($150k - $2M), probate can be more complex, time-consuming, and expensive. At these levels, it is often worth considering a living trust for probate avoidance (we’ll explain what that is) in addition to the above documents.
• At higher levels ($2M - $10M), it is definitely worth considering a living trust to avoid or minimize probate and to give greater control over where and how assets are distributed. Some states may also have estate taxes that can be a factor in estate planning.
• Above $11M, the federal estate tax becomes a possibility, meaning it’s definitely worth getting some more complex planning in place to minimize estate tax burdens.

SECOND GO AROUND?
A FEW NOTES FOR YOU

Second marriages can complicate estate planning. If your widow is your sole heir and they later re-marry, it may lead different decisions than what you wanted.

A few scenarios to consider:

• Husband remarries, has kids with his new spouse, & doesn't leave anything to the 1st partner's family.
• Wife remarries, does not have an estate plan, and invariably passes on the assets to her new partner, without consideration for her 1st family.
• Husband marries a second partner with previous children and then has additional children with their new partner. There can be a lack of clarity on what each child gets.

It’s worth noting that an estate plan is a living document (pun intended). You should revisit your plan every time you have a major life event (marriage, kids, etc) or every 5 years. After 10 years, it’s worth getting a new plan in place in case of updated laws. You’d be surprised at how common it is to see plans that are decades old and still name ex-spouses, omit new spouses, or omit later-born children. These situations are typically resolved by state law interjecting to say what happens, despite what the plan says, and leads to the family drama you were trying to avoid in the first place.

In addition to reviewing your estate documents, you should always keep a running tally of all of your assets and liabilities for easy access. We do exactly that at Zeta, giving you one place to include all your accounts.

An important note: beneficiary designations typically trump estate plans. So for example, if your partner is named as the beneficiary on your investment account, this will override anything your estate plan says. And you’re both able to avoid probate.

A natural next question might be: then why not just make my spouse a beneficiary on everything and avoid the whole estate planning process?

Below are just a few reasons:

• The surviving spouse could change the beneficiaries. You might be of sound mind today, but we’ve heard countless stories of con men and women targeting a vulnerable older person. A living trust that bypasses probate can include language to prevent your children from being completely disinherited.
• Once you add someone to your accounts, their creditors can now try to lay a claim to that asset. This can be especially tricky for children who are prone to collecting debt or already have a lot.
• It can get messy in a divorce, especially if you have some jointly held and separate assets. For example, the spouse can try to claim the separate asset as part of their joint estate and demand a percentage of it.
• If you want to divide your estate across multiple people, it’s much easier and cleaner to do it within a living trust and will, versus via managing multiple beneficiary allocations.

*Pro-tip* - make sure you know how your beneficiary assignments are working in coordination (or not) with your estate plan. Having conflicting instructions can lead to real-life scenarios that look more like the Real Wives of Orange County.

As we describe in our Guide to Combining Finances, the division of your separate and joint property are subject to marriage law, which is more complex than we can cover in just a few paragraphs. That said, the most important factor in determining how your personal and shared assets are split is based on whether you live in a community property state or a separate property state. 

The high-level takeaway here is based on how you’d like to divide your assets. If you’re fine with your spouse getting everything in the event of a divorce or death, you can co-mingle your shared and personal property. But if you want to have strict control over how your shared and personal property is handled, you’re better off working with a professional and/or setting up a trust.

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A WIN FOR

SAME-SEX COUPLES

In 2015, the US Supreme Court upheld the right of same-sex couples to marry in all 50 states, bringing marriage equality to lesbian, gay, bisexual, and transgender (LGBT) couples no matter where they live. Since then, same-sex married couples no longer have to go to creative lengths to achieve similar rights that straight couples enjoy.

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A last will and testament is a legal document that provides instructions on how your assets and your minor children (if any) should be handled after death. Through this document, you’ll list out your instructions and name an executor (a person or an entity) to implement those wishes. Some wills will include additional documents, such as medical directives, healthcare instructions, and guardianships for your dependents.

Lastly, simply having a will does NOT mean you can avoid probate (we’ll talk more about that). Those assets listed in your name or directed by your will must still go through your state-specific probate process before they can be properly divided.

To protect themselves from probate, many families choose to utilize a trust. A trust can be used to minimize estate taxes, put a financial structure in place for your wishes, and maintain privacy around your finances. While they’re more expensive to set up initially, they can end up saving you time, court fees, and taxes over the long run.

While there are many different types of trusts, the main difference between them is whether they’re revocable or irrevocable. The big difference between the two is whether the trust can be altered after it’s been created (revocable can be altered; irrevocable cannot). As such, many families chose to deploy a revocable trust over their lives to house their estate and constantly update that trust as their lives evolve.

Sometimes referred to as a living trust, a revocable trust is a flexible tool that you can use to avoid probate and manage your after-death intentions. During your lifetime, managing a revocable trust is pretty straight-forward. The only big change in your lifestyle will be making sure all your assets and liabilities are placed in the trust. This is especially important for checking and savings accounts, real-property like homes or cars, or any investments you might hold. Said another way, your trust becomes the “beneficiary” for all your accounts so that your estate plan can dictate exactly how to divide those assets.

Just as in a will, a revocable trust has a trustee (usually you and/or your spouse). In this role, you will retain control over the trust and its assets, and you'll name a successor to manage your trust in the event of your death.

An important note: while a revocable trust helps you avoid the costs of probate, it will still likely be subject to estate taxes. If you want help figuring out how to minimize estate taxes, you’re better off sitting down with an estate planning attorney (with experience in estate tax issues) to discuss your options.

THE LONGEST WILL

EVER MADE WAS...

Or 1,066 pages! The English woman, Frederica Evelyn Stilwell Cook, also made sure that her age was not inscribed on her tombstone.

95,940 words

AND THE SHORTEST

ONE WAS...

And read "all to son" and
"all to wife".

3 words

There are a handful of ways you can go about creating estate plans.
Disclaimer: we might make money from some of these links below.

You technically could pull out a piece of paper, write your own will, and have two witnesses sign it — but that can be difficult to authenticate or too vague to serve its purpose. You’re better off starting with a template or using an online service to ensure that it’s legally valid and clear-cut. You can find one such template here.

There are multiple online services that have been built to help you with your will. Below are a few of our favorites:

• FreeWill - in 20 minutes, you can create a legally-valid last will and testament entirely for free. They’ll provide you with a PDF that you can print and have signed by yourself and your witnesses.
• Trust & Will - in 10 minutes, they’ll guide you through a customized and state-specific will and medical directive that reflects your wishes (you can even include your spouse). They also offer living trusts and guardianships for added protection. Prices start at $39.

Working with an estate attorney can give you an extra layer of customization and peace of mind. While attorney fees can add up, you might benefit from more oversight if you have significant assets, expect heavy estate taxes, or are dealing with complex life circumstances. Find an attorney by asking friends, family, or related professionals (accountants or financial planners) for recommendations. If you have nowhere else to start, your local Bar Association may have a list of referrals and estate planning membership groups you can leverage. Rough pricing for an estate plan is about $5,000.

An executor is a person or entity whom you’ve selected to implement the instructions in your will. And a trustee has essentially the same role, just for a trust. In the movies, this is usually the person who reads the will out loud as everyone gasps (high drama!).

You might be inclined to choose a spouse or family member as your executor or trustee, but they might not always be the best choice. An ideal executor is someone who is:

• Financially savvy and/or detailed-oriented: this person will be responsible for tracking down your assets, paying your bills, submitting court documents, and paying your personal and estate taxes.
• Patient: s/he will need to interface with multiple entities (lawyers, courts) and people (family members and friends).
• Trustworthy: your executor will know the ins and outs of your finances. If you’d prefer to keep those private, it’s important to select someone who will respect your wishes.

In the event that you don’t have a will, the court will appoint an executor for you — typically a next of kin. This person isn't obligated to serve in that role — s/he can decline and the court will then appoint someone else.

Lastly, you can also appoint more than one executor or trustee. For example, if you have a financial advisor and an accountant in your network, that could be a powerful all-star team for your will or trust!

This is really important. Even though our world has gone digital, the courts have not. And as a result, the original will is VERY IMPORTANT.

• Create a fire-proof, water-proof, and disaster-proof place for your will and trust documents. Digital copies of these documents don’t have the same legal effect as having the originals. A safe or a secret drawer, which are easy to access in an emergency, are good options.
• Have a back-up digital copy in case you need to re-create your will or if you’d like to move assets into your trust. These are considered back-ups but do not have the same legal rights as the original document. For healthcare documents, you can include a copy in your medical records and even give a copy to people named within.
• In addition to storing your documents, you should have explicit instructions on who and how the appropriate people should access these documents in case of an emergency. Typically, giving a digital copy and instructions to your Executor or Trustee is considered good practice.

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Disclaimer

This guide is for general informational purposes only. Please don’t see this as legal or investment advice; we aren’t lawyers or registered financial advisors, nor do we pretend to be. We’ve relied on information from various sources believed to be reliable but cannot swear by the accuracy and completeness of that information. By using this website, you recognize that the content being presented is provided for informational purposes only and agree to our Terms of Use and Privacy Policy.

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