Magazine

Estate Planning: What It Is, And Why You Should Start Now

By Ellevest Team

Estate planning is one of those things that most people don’t even consider until later in their lives. It makes sense; the term itself tends to evoke certain cultural ideas about what an “estate” is — rolling green lawns, a centuries-old mansion, a Rolls Royce and a couple purebred hunting hounds in the driveway all come to mind.

A pie chart and a cluster of stacked dollar bills and coins with a little house, a bar chart, and picture frames hanging above and around them. Illustration.

But everyone owns … well, stuff in life, which means you probably have opinions on how you want that stuff to support the people you love when you’re gone. And it’s not just about what happens after you pass; there are plenty of life events where having an estate plan in place can protect you and your family — chosen or otherwise.

As the political environment in the US continues to change quickly, impacting the potential futures of many vulnerable communities, this especially applies to LGBTQIA+ folks, whose status and rights have been repeatedly and continuously challenged in recent years. 

To that end, Ellevest Financial Advisor Ashley Bleckner recently sat down for a webinar with Danielle Barger, a certified specialist in estate planning, trust, and probate law. Danielle's estate planning practice advises those planning for themselves and their families, particularly members of the LGBTQIA+ community. Below is a recap of the salient points of their conversation — which can help you get your head around estate planning no matter who you are.  (You can also watch the full webinar here.)

What is estate planning?

Estate planning is the creation, usually with the help of a lawyer and a financial advisor, of an estate plan — a set of documents that legally dictate and ensure that your affairs will be managed by the person you choose to manage them, in the event that you can't do it for yourself (not just after you die). 

What those documents look like will be different depending on where you live — each state has its own local legal code (and its own specific license for attorneys) that dictates what kind of estate plan will best protect you and your loved ones there.

In western states, for example — Danielle practices in California — the “gold standard” for estate plans is known as a living trust (it’s also known as a family trust or an inter vivos trust). There are two main kinds of living trusts: 

  • A revocable trust, which lets you assign beneficiaries (aka heirs or recipients) for your assets when you pass away, while still allowing you to maintain 100% control over all of your assets today. “I like to explain it like a box,” says Danielle. “I put all my assets in the box and I have the key. That key is in my possession unless I turn the key over to somebody else — when I die, if I become incapacitated, or maybe when I just don't want to do it anymore.”

  • And an irrevocable trust, which, once you make those beneficiary decisions, requires you to give up some control in exchange for some tax benefits. “There are some reasons to do one of these, but most of the time you're going to have a revocable trust,” says Danielle. “If you do add an irrevocable one later, it's going to be with the recommendation from your trusted advisers, including your attorney.”

But it’s not just about who gets what when you’re gone — as mentioned above, it’s a set of documents, a collection of directives indicating who gets to act on your behalf. 

What decisions do I make when estate planning?

Your ideal tax situation

Whether or not you’re legally able to (and regardless of your orientation), marriage isn’t always the most advantageous option, tax-wise, Danielle explains. If you’re about the same age, making about the same amount of money, whether you get married or not might not make a huge difference. 

But say you and your partner have a significant income gap. An estate planning lawyer might suggest you talk to your accountant about filing as individuals in a domestic partnership, where you can divide your household reported income 50/50, rather than getting married and then filing jointly with the combined total.

“I don't want people to decide if they're going to get married or not based on taxes,” says Danielle, “but it's one of many considerations.”

Who gets power of attorney in your stead

Let’s put it this way: Who knows you best? Who could order for you at a restaurant in case the server comes when you’re in the restroom? Who could get the closest right now to predicting your preferences and desires, the decisions you would make for yourself — and actually advocating for you and those choices if you weren’t in the room?

If that person isn’t a legal spouse (and let’s face it, a heteronormative one), an estate plan — specifically an advanced medical directive, with HIPAA authorization — can put them in charge of making those huge medical decisions for you in the event that you’re incapacitated. Making these decisions now can determine who can even see you or know details about your status in the event you’re hospitalized. 

“I had a couple maybe ten years ago who were registered domestic partners, and unfortunately their parents were not accepting of this,” says Danielle. “One of these ladies had a heart attack and was hospitalized for weeks. Her mom was successfully able to keep her partner out of the hospital and out of the loop completely because she didn't have any health care documents in place. Forget about the money and the assets — you want your loved ones to be able to get access to that information.”

The types of investment accounts you need (or want)

Of course, beyond the standard trust, there are plenty of other, more complex accounts and documents you can set up with an estate attorney. Among them: 

But as Danielle puts it, the most important elements are the trust and those critical power-of-attorney documents. “If you're going to add a second story to your house, you want to make sure your foundation is going to support it,” she says. “I will get calls from people, ‘Hey, I heard about this ILIT. I want to do it.’ I can help you, but if you're going to focus on one thing, make sure your foundation is in order, because those little things can be big things if you don't have them.”

Why do I need an estate plan? 

You might as well ask, “Why do I need insurance?” Here are the biggest reasons: 

They matter even when you’re young, safe, and healthy

The easiest argument for putting off estate planning is that you’re not going to be dying any time soon. But even if you’re in your absolute prime, there are plenty more scenarios than you think — from an unexpected hospital stay to a mental health crisis — where having an estate plan in place can make all the difference.

Danielle’s example: Britney Spears’ conservatorship

“Back in 2008, she had some mental health issues that caused her to lose capacity, but she didn't have documents in place,” she says. “Her father was able to petition the court to get a conservatorship to make decisions for her, both financially and health-wise. So even people who are young and don’t expect to have any issues should really be thinking about estate planning.”

It can eliminate paperwork and stress from the grief process

If you don’t have any documents in place that say how and between whom your assets should be divided, your estate will go into probate, a complicated, expensive, and time-consuming process involving the courts. Your would-be heirs would have to file a petition — a sort of lawsuit that, Danielle says, usually costs “about 3–4% of the fair market value of your estate” — in order to access anything from bank accounts to property. 

Even if there are no special circumstances — say a widowed mother with no siblings dies without a trust that dictates her estate should go to her only daughter — “it still takes about three to four months to get that kid authority on a piece of paper that will allow them to do [anything with it],” Danielle says. After that, the assets must be gathered and then distributed under supervision by the courts. “My record of the quickest probate I've ever done is 11 and a half months,” she adds. “My longest one was nine and a half years.”

It’s even more complicated if, for example, you die with the deed to the house you share with your spouse in your name only: They’d need to enter probate to maintain ownership — and stay living in — their own home. Even when your loved ones are all getting along, adding court dates on top of losing you can be emotionally harrowing. To top it all off, the details of a probate court case are entered into the public record. With an estate plan in place, you save them added grief.

Family is complicated — and the law still defaults to patriarchal standards

Let’s be frank: Family relationships can be … complicated. Especially for LGBTQIA+ folks. And the letter of the law, by itself, rarely takes that reality into account. Think of it like this: If you don’t have an estate plan, the law will make one for you. And the law, as we’ve seen in the past few years, can change — radically and overnight. An estate plan can protect your chosen family and ensure the people you care about most are in charge of your affairs, no matter what.

When it comes to estate planning, intentionality is key

Because estate planning is one of those topics that deal in what-ifs, many people end up pushing it down our to-do lists, accepting the gamble of being subject to default rules if we never get around to it. But consider this: By not actively getting an estate plan in order, we’re still making the choice not to make that decision. In order to take care of our loved ones, we need to be intentional about the things that count. 

That doesn’t just apply to your own estate plans, either. Talk about it with family, too — especially family members whose estates you expect to manage when the time comes. If you get your own in order, Danielle says, sharing that experience can be a great starting point for the conversation. However you do it, you’ll be glad you did.

Speak to an Ellevest financial advisor today to see how we can help you get started.

Disclosures

© 2022 Ellevest, Inc. All Rights Reserved.

Ellevest, Inc. and Barger & Battiest Law, APC are not affiliated with one another. Barger & Battiest’s opinions are their own. The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

All opinions and views expressed by Ellevest are current as of the date of this writing, for informational purposes only, and do not constitute or imply an endorsement of any third party’s products or services.

The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. Investing entails risk, including the possible loss of principal, and there is no assurance that the investment will provide positive performance over any period of time.

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Ellevest Team

The Ellevest team is working to help women reach their financial and professional goals.