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Three Things I Learned From My Estate Planning Lawyer Everyone Should Do

Updated: 07/09/2022 by Financial Samurai 93 Comments

My estate planning lawyer said something interesting before I decided to hire her. “People who aren’t rich might need estate planning more than rich people because they might not be able to afford to pay probate fees in the case of an untimely death.“

Leave it to the US court system to make the distribution of your assets upon death, cumbersome and costly. Without a will or a Revocable Living Trust, beneficiaries will pay anywhere from 3% – 8% of the assets in fees in probate and could take potentially a year or longer for all assets to be properly distributed.

Probate fees include: personal representative fees, court fees, attorney’s fees, accounting fees, appraisal and business evaluation fees, bond fees, and other miscellaneous fees.

In comparison, settling a Revocable Living Trust on average “only” costs between 1% – 3% of assets. But in addition to a clear directive of where your assets are to go, another benefit of a Revocable Living Trust is privacy. As a Stealth Wealth practitioner, the last thing you want is everybody to see what you had and what you’re giving.

Think about the type of infighting that may happen amongst your beneficiaries if they deem your gifts unfair. Think about all the scrutiny your child might get if people find out she gets a large sum of money before adulthood. She just lost a parent or two for goodness sake. As a parent, the last thing you want is for your children to be judged by others.

Estate Planning Lawyer Takeaways

Once you have a child, creating a clear will, an advanced health care directive, and setting up a revocable living trust is the responsible thing to do. Privacy, clarity, cost savings and succession planning are all important benefits. You should visit an estate planning lawyer to help you get these important things done.

Here are three other realizations that came out of my estate planning session all of you should probably follow. I already paid the lawyer thousands of dollars in fees, so you might as well take advantage of my feedback.

1) You must forecast your death.

Time is our greatest asset. This truth is no more apparent than when you’re talking to a lawyer about death. In my 20s and 30s, I thought that if I could live a healthy life until 60, I’d die a satisfied man.

Leaving the workforce at age 34 was my way of maximizing the probability of living life with as little regret as possible. I kept thinking how horrible it would be to work at a job I no longer loved until 60 and then dying soon thereafter.

Now that I’m a father, I wish to prolong my mortality until at least 75. My new goal is to live long enough to see my 19-month-old son grow up to be a wonderful, independent man with a life partner.

Leaving this world knowing someone loves him as much as his mother and I do will let us die in peace. As a result, my wife and I are taking more action to live healthier lives.

The average life expectancy for those born in 2018 in the United States is 76 for males and 81 for females. Although we are living longer, you’ll soon find out that life is not nearly as long as you want it to be. At my age, I’ll be damned if I waste a single day doing something I don’t absolutely want to do.

Life expectancy in the United States, Canada, and the UK

Related: The Importance Of Having A Death File

2) You must forecast your wealth and estate tax laws.

Time is also our greatest asset for creating wealth due to the power of compounding. You will be pleasantly surprised by how much you can accumulate over an extended period of time through diligent savings and reasonable returns.

Once you’ve made your best assumptions on how much wealth you will have accumulated by the time you die, you must then forecast the lifetime gift tax exemption and the death tax rate at the time of your passing.

For example, in 2022 the lifetime gift tax exemption is $12,060,000 per person. The top marginal tax rate remains at 40%. If you die in 2022 with $24,000,000 in wealth to pass on, your tax bill will be $4,776,000 ($24M – $12.06M = $11.94M X 40%)!

On the other hand, if you die in 2030 with $20,000,000 when the lifetime gift tax exemption has declined to $5,000,000 and the death tax rate has risen to 50%, then your inheritor’s tax bill will be $7,500,000 ($20M – $5M = $15M X 50%). That is a shocking amount of taxes to pay on top of the taxes you already paid to accumulate such wealth.

Based on history, you can see from the chart that currently, we are at the highest estate tax exemption with the lowest death tax rate since 1997. It may be logical to assume a continued increase in the estate tax exemption and a continued decrease in the estate tax rate given the 22-year trend.

However, the doubling from 2017 to 2018 is an outlier. Therefore, it is also reasonable to anticipate an estate tax exemption decline and/or estate tax rate increase after the Tax Cut And Jobs Act expires in 2025.

With Joe Biden wanting to increase taxes on households making more than $400,000, a lower estate tax exemption amount is a high certainty.

Historical Estate Tax Exemption Amounts 2020

3) You must give and spend more while living.

In the scenario above where your inheritor must pay a $4,000,000 tax bill, unless your inheritors are already wealthy, they may be forced to sell some of your assets to pay for the tax liability. If part of your estate is your business that you want to continue long after you’re gone, then you may have some problems.

Would you rather pay a $4,000,000 tax bill to the government on assets you already paid taxes on or donate the same $4,000,000 to charity while you’re still alive and see how much good your gift will do?

Would you rather pay a $4,000,000 tax bill or spend more money on yourself and loved ones? If there is a high likelihood your estate will be worth more than the lifetime tax exemption amount, it seems obviously better to utilize your wealth while living, rather than after death.

I strongly recommend you figure out the ideal age to decumulate and execute your plan. Dying with millions of dollars is a waste of time and money.

Let’s say it takes 20 years to get to a $21,400,000 estate from $5,000,000 currently using $200,000 annual contributions and a 5% compound annual growth rate. Let’s also assume in 20 years, the estate tax exemption is still $11,400,000 at a 40% death tax rate.

A better strategy would be to not save $200,000 a year, but spend $200,000 a year on charity and loved ones for the next 20 years. Without saving a single penny every year, you would still end up with $13,266,000 at a 5% compound annual growth rate. Therefore, your death tax would be a more reasonable $746,400.

Life Insurance To Cover Estate Taxes

One common strategy to utilize for estate tax liability is life insurance. You can even set up a life insurance revocable trust so it doesn’t count toward your estate exemption amount. If a large part of your estate includes a business you don’t want to sell to pay for estate taxes, then using life insurance or other liquid assets is a solution.

Think deeply about your retirement philosophy and what type of legacy you want to leave to your children and to other organizations after you are gone. Personally, I’ve adopted the Legacy retirement philosophy. Therefore, my plan is to accumulate up to the estimate estate tax threshold when I die.

Estate Planning And Consumption Smoothing

People who have been saving and investing for so long often overestimate how much they’ll need to feel comfortable. I firmly believe the vast majority of financially savvy people will die with too much. This lack of financial clarity is the reason why everyone needs to do a better job at forecasting their wealth so they can consume it more smoothly while still alive.

If the estate tax exemption amount decreases or the death tax rate increases or both, then there’s even more reason to spend your money now while living. Unless you’re incredibly stingy, hoarding much more than the estate tax exemption limit upon death makes zero sense.

My estate planning lawyer really opened my eyes to how overly frugal I am. From driving an economical car for 13 years to downsizing our home in 2014, our expenses are back to where they were in our 20s.

Yet, our income and net worth have grown. Based on our forecasts, there is a high likelihood that we will have to pay estate taxes at our current rate.

Related: Your Umbrella Policy Likely Needs to Be Updated Thanks To a bull Market

How To Spend More Efficiently Throughout Your Life

To figure out how much more we could spend today in order to avoid paying estate taxes, I simply logged onto Personal Capital (best free financial tool to track your wealth) and ran a Retirement Planning calculation after inputting some income and expense assumptions.

For illustrative purposes, the output shows that using a $1,225,000 investment portfolio, I have a 99% chance of reaching my planned monthly retirement spend of $12,500 starting at age 50. The portfolio has a projected spending ability of $18,416 a month based on its current asset allocation.

Personal Capital Retirement Planning Calculation For Estate Tax Planning

With almost a $6,000/month overage on how much I can spend starting at age 50 in retirement, I plan to up my spending by $1,500 a month starting next year, so long as the economy doesn’t go into a recession. If our wealth increases the following year, we’ll up our spending even more, but still maintain a comfortable buffer based on what the retirement planner spits out.

This additional spending budget may help us get over our reluctance to pay for private school tuition if our son doesn’t win the SF public school lottery. Just doing this estate planning exercise makes me feel much better about spending more money overall. I’m confident that once you run your numbers, you’ll be able to start spending more freely as well.

If you have dependents, please write out a will, create a revocable living trust, and have an advanced healthcare directive. Not only will you better protect your loved ones and make the transfer of assets simpler, you’ll also learn a lot more about yourself in the process.

Recommendation For Estate Planners

Life insurance should be an integral part of your estate planning process. A life insurance payout is usually tax-free and serves to financially support your loved ones after you are gone.

Check out PolicyGenius, the best online marketplace for life insurance where you can get customized quotes all in one place competing for your business. My wife recently doubled her life insurance amount for less money with PolicyGenius. All these years, she thought she was getting a good deal, but wasn’t.

If there’s one thing the pandemic has taught us, it’s that tomorrow is not guaranteed. Once you get affordable life insurance set up for you and your spouse, you will feel a tremendous sigh of relief. If you don’t want to listen to me, listen to your estate planning lawyer. They deal with life and death all the time!

Check online to compare life insurance rates today. My wife was able to double her coverage from $500,000 to $1 million and pay less in premiums thanks to PolicyGenius.

In the past, we had mismatched life insurance coverage amounts, which made no sense. I also got a new affordable 20-year term policy through 2041 thanks to PolicyGenius.

Three Things I Learned From My Estate Planning Lawyer Everyone Should Do is a FS original post.

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Filed Under: Family Finances, Retirement

Author Bio: I started Financial Samurai in 2009 to help people achieve financial freedom sooner. Financial Samurai is now one of the largest independently run personal finance sites with about one million visitors a month.

I spent 13 years working at Goldman Sachs and Credit Suisse. In 1999, I earned my BA from William & Mary and in 2006, I received my MBA from UC Berkeley.

In 2012, I left banking after negotiating a severance package worth over five years of living expenses. Today, I enjoy being a stay-at-home dad to two young children, playing tennis, and writing.

Order a hardcopy of my new WSJ bestselling book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. Not only will you build more wealth by reading my book, you’ll also make better choices when faced with some of life’s biggest decisions.

Current Recommendations:

1) Check out Fundrise, my favorite real estate investing platform. I’ve personally invested $810,000 in private real estate to take advantage of lower valuations and higher cap rates in the Sunbelt. Roughly $160,000 of my annual passive income comes from real estate. And passive income is the key to being free.

2) If you have debt and/or children, life insurance is a must. PolicyGenius is the easiest way to find affordable life insurance in minutes. My wife was able to double her life insurance coverage for less with PolicyGenius. I also just got a new affordable 20-year term policy with them.

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Comments

  1. Beverly Minyard says

    July 27, 2021 at 11:53 am

    It’s crazy that if you don’t have a will that the court will charge 3-8% of the assets in fees! My wife is pregnant at the moment so we decided we need to get some kind of will in place because we have a dependent now. Thank you so much for all the tips they have been really helpful in getting our estate plan set up!

    Reply
  2. Rachel says

    November 22, 2020 at 8:00 pm

    Thanks for this article, Sam. Everyone needs to plan their estate, we don’t know what will happen tomorrow. And this tomorrow may be the reason why our families separated because we stay aside the important of estate planning. We always want the best for out family, of course. And I think this can secure their future once we’re gone.

    Reply
  3. Steller says

    August 6, 2020 at 5:33 am

    It’s good to know that people who aren’t rich needs estate planning more than rich people due to the cost and messiness of probate court. This article was informative. Thank you for sharing.

    Reply
    • MH says

      February 17, 2021 at 8:03 pm

      Yeah. Damn right. Who’s got $20,000,000 to be making will arrangements. They talk about it as if this was an every day easy matter.

      Reply
      • Financial Samurai says

        February 18, 2021 at 6:18 am

        People with $20 million are likely making even more will and revocable living trust arrangements for estate planning purposes.

        I used $20 million as an example for what may happen if you are over the estate tax threshold. Broaden your mind.

        Related: $10 Million: The Ideal Net Worth Amount To Retire

        Reply
  4. James says

    May 29, 2020 at 12:44 pm

    Probate lawyers might be needed for preparation of legal documents like disclaimers or deeds, in case there is a business involved assets are mostly complex, thereby demanding guidance from a professional attorney. Probate attorney can ensure that correct legal documents are in place for either dissolving or transferring the ownership. If you are required to go in-front of the judge during estate proceedings then you will need a probate lawyer to guide you and defend you.

    Reply
  5. Ivy Baker says

    March 10, 2020 at 9:26 pm

    My parents want to set up their estate plan on how they are about to turn sixty. It is good to know to they they will want to think about death taxes and preparing for that. It seems like they should talk to an estate planning attorney.

    Reply
  6. KM says

    January 27, 2020 at 8:44 am

    I recently served as the executor of a sizeable estate in California. If you are in a situation where you are likely to be subject to estate tax, life insurance benefits are counted toward the value of the estate / lifetime gift allowance. The assertion at the bottom of the article is a bit misleading.

    Reply
  7. Alan says

    January 27, 2020 at 2:22 am

    I want to create inter-generational wealth. I don’t want to give any of my wealth to charities. Instead I want my family to have my wealth and let it grow over time. I have not seen many articles on this topic. Any references or examples would be helpful.

    Reply
  8. Excel says

    January 26, 2020 at 9:41 pm

    Pay on Death (PoD) beneficiaries are another way to handle estate distributions that avoids probate and do not require a trust. They are not sufficient for real property, guardians, or other more complex issues. You can also use PoD in conjunction with a trust. The advantage is that you can often change the terms on line at any time without a lawyer. Thus they are easier to keep current as situations change.

    Reply
  9. Marceen says

    January 26, 2020 at 4:13 pm

    Don’t forget that best laid plans can go askew…My mom and dad were married for 65 years and a sweetheart in his retirement apt chatted him up……Beneficiaries lost 300,000 instantly. He was 97 years old and she was about 70.

    Think about talking to an attorney about having a trust that activates if an event happens…..called a springing trust and most often for kids that are wild, etc.

    Men’s brains go back when they get dementia……sure I was hot when I was 30 years old and sure, I am the same today……Enter the sweetheart compliments and chat-up dates. Dad’s own doctor said “Do NOT let the significant other manage your money”…..well she did.

    Be aware…….your assets could go to “her kids and leave yours out in the cold”

    Reply
    • John G says

      January 26, 2020 at 5:54 pm

      a lot of places have a law that says that marriage revokes a will, except a will made in contemplation of that marriage. This protects the new spouse against previous commitments, so generally a good rule EXCEPT when it is a mature-age marriage and the will benefits children of an earlier marriage. Be sure if you (or your parent) are getting married again, provision is made – if necessary by a new will – for the earlier beneficiaries, unless the person remarrying intends to cut them out.

      Reply
  10. Vivian Black says

    December 23, 2019 at 6:44 pm

    You made a great point about forecasting death to make sure you can predict when you will need a certain level of wealth. My husband and I are looking for help getting our parent’s estate liquidated and we wanted to find tips on why it’s important. We will keep these tips in mind as we search for a professional that fits our needs best.

    Reply
  11. Eli Richardson says

    December 23, 2019 at 6:23 am

    I liked what you said about making the most consideration for the result of the wealth you will be accumulating. This is something my godfather should consider so he can get his will done. With that set, I will recommend him hiring a lawyer to get the best out of his will.

    Reply
  12. Larry Weaver says

    August 12, 2019 at 9:07 am

    Thanks for explaining how the average life expectancy of those in the United States is between 76 to 81 years. My wife and I just found out that we are going to be having a child, so our future has been in consideration quite a bit lately. I think speaking with an estate planning attorney would help us plan out our future better so we can be better prepared for when we reach our senior years.

    Reply
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