THINK ESTATE PLANNING IS JUST FOR THE WEALTHY? THINK AGAIN!

There is a rumor that has been floating around that only the rich need estate planning. That is extremely false. Everyone needs an estate plan, but the wealthy don’t need estate planning as much as the middle-class and working-class folks. If this contradicts everything you’ve ever thought about estate planning allow me to explain.

THE CASE OF WILLIAM JONES

Suppose William Jones (a completely fictious character for purposes of this story) a wealthy Massachusetts resident, decides he doesn’t need a qualified and experienced estate planner, he can do it himself, or use an online, one-size-fits-all service. Hey, Jones figures, this way he’s saving both time and money. Also, nothing is going to happen to him for a while, he can get around to doing a proper estate plan with a proper estate planning professional “someday.”

Of course, “someday” never comes, but Jones’ death does. His three daughters are aghast that Jones has no real estate plan. The template resembling an estate plan is completely inadequate for the size and complexity of Jones’ assets.

A MATTER OF TRUSTS

Jones could have easily, with the help of a professional advisor, set up a trust (even a plain, “vanilla” revocable living trust would have worked) to avoid probate. But, the online service he used didn’t even explain the difference between wills and trusts. So, Jones’ assets all must go through probate. This means that the time and money Jones thought he was saving is gone in a flash.

PROBATE COSTS AND FEES, IF YOU PLEASE

Probate fees are going to equate to at least 2% cut of Jones’s estate. Remember, Jones’s estate is large and complex and, let’s say valued at $10 million, so the actual figure is probably going to be more like 4%.

Using 4% as the figure for probate fees means a loss of $400,000. This is $400,000 that could have been passed down to his daughters through a trust, or split generously between his heirs and charitable organizations near and dear to Jones’ heart.

ESTATE TAXES, OH MY

The Federal Estate Tax Exemption today is $11.58 million dollars.  That means, we can own up to $11.58 million dollars before we are taxed.  (Hot tip:  This is a political number.  It is Trump’s number; Obama’s number was $5.2M and Biden has suggested he would agree to a number as low as $3.5M.)  The Federal Estate Tax Exemption is hugely important because if you hit that number, you are paying approximately 40% in estate taxes.  Ouch.  Our friend Jones, thanks to Trump, has escaped Federal Estate Taxes.  He HAS NOT ESCAPED Massachusetts estate tax because the online platform didn’t teach him about estate taxes and how they could impact his Estate.

Jones’ family will pay approximately $1,000,000 to the Massachusetts Department of Revenue.

LOSS OF PRIVACY

Another major benefit of a trust—again, not explained to Jones because didn’t seek any individualized advice—is privacy. A will (or most any document that goes through probate, absent very special circumstances) is simply a public document. Anyone can read, copy, share, and write about it.

Consider one of Jones’ major assets was an ongoing business—a Shakespearean-themed jousting complex, where families could have fun practicing jousting.

Unfortunately, in some of the probate papers, it was disclosed that there had been numerous complaints by the Massachusetts Horse Association about the treatment of horses. It isn’t long until this hits the blogs, and some of the more sensational aspects of the report (though hotly disputed) goes viral. The jousting park, which had been quite profitable, is now eschewed by all the good people of the area. The daughters are forced to sell the business asset to preserve the family’s good name (or what’s left of it) and sell at a loss. While the jousting park had been worth as much as $1 million, the daughters have to sell, so there’s a “paper loss,” but nonetheless less a loss, of another $900,000.

LOSS OF FUTURE PROFITS

The $900,000 is a conservative figure; it doesn’t include lost future profits. If not for the scandal becoming public, who knows how long the jousting park could have remained really popular and this profitable. Years? Decades? It’s quite difficult to quantify, but it’s certainly probable that there are some lost profits. The question is: how much?

COSTS OF CASES

Because Jones’ will wasn’t drafted by professional, there are many ambiguities and loopholes. It’s not long before the three daughters begin fighting and, with Jones’ second spouse who wind up suing each other.

Taking a court case all the way to trial can easily mean $20,000 in attorney’s fees, plus each daughter will want and need her own attorney. So, another $60,000 is lost to attorney’s fees!

TOTAL LOSSES EQUAL?

Jones could have had his estate plan done by a Massachusetts professional for a few thousand dollars. Instead, he lost a total far greater than that:

Probate Fees: $400,000

Loss on Sale of Jousting Park: $900,000

Estate Taxes: $1,000,000

Loss of Future Profits of Jousting Park: Incalculable?

Attorney’s Fees for Daughters’ Litigation $60,000

This is a hit for the inheritance of $2.36 million, leaving $7.64 million, or about $2.55 million per daughter. But you know what? That still a nice inheritance!

 THE RICH CAN AFFORD BAD ESTATE PLANNING

Jones acted unwisely, arguably recklessly! But, for all his foolishness, Jones’s daughters still end up with $2.55 million each.

That’s the rub; the rich can afford to make big (and small) estate planning mistakes

YOU CAN’T AFFORD POOR QUALITY ESTATE PLANNING

Let’s look at this from a normal Massachusetts resident’s perspective. At least 2% in probate costs and fees, estate taxes, a huge drop in value in a key asset, attorney’s fees for litigation…can a middle-class estate merely shrug these kinds of losses off? Not a chance.

The rich aren’t like William Jones who can afford to badly botch estate planning. You may not be able to afford to make mistakes with your estates; there’s no room (and not enough money!) for error.

This article is a service of 20West Legal, LLC, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.