Don’t Create a Caviar Estate Plan on a Ramen-Noodle Budget
The Internet often seems like a bottomless pit of advice and knowledge — which is not necessarily the same thing as expertise. Many people have become used to finding quick and convenient solutions to everyday problems online, from replacing a kitchen faucet to checking a car’s fluid levels. The trouble starts when these same people start Googling for legal advice. This often occurs with estate planning advice obtained online.
One common problem that stems from this misguided self-education involves the pursuit of unnecessarily grandiose estate planning structures and strategies when a more realistic (and simper) estate plan is more than sufficient for their needs. Many individuals with relatively modest estates try to establish and maintain estate plans that might prove more suitable for one of the Rockefellers. These “caviar” estate plans include all kinds of unrealistic payout restrictions and time-frames. I have personally seen instances in which individuals wished to extend payouts on $1 million estates or less for 20-30+ years past their deaths. This untenable scenario would likely quickly just consume the funds of the Trust Estate with administrative fees and costs until the estate plan finally financially collapses on itself. It frequently occurs when outside institutions or financial planners are involved in the management beyond a quick and efficient distribution if and when the beneficiaries have reached adulthood.
In reality, most long-term, complex, and expensive estate plans are created to manage several millions of dollars and to avoid the impact of federal (and sometimes state) estate taxes. The impact of estate taxes does not occur until asset levels reach a very high threshold. The current reasonable minimum threshold for that kind of extensive estate plan would be approximately $11 million for an individual and $22 million for a married couple.
I often recommend that you should also take the advice of your financial planner as you create your estate plan — within reason. If your financial planner is guiding you toward that unrealistic “caviar” estate plan, stop and ask yourself whether that financial planner actually has your best interest in mind — especially if that financial planner stands to make money off of your estate for years to come. For example, some financial planners will recommend distribution schemes (spanning several years after the death of the individual) in order to spare adult beneficiaries’ “taxes” on assets that have accrued pre-tax. However, the tax “savings” is either non-existent or less than if the beneficiary just receives the total inheritance outright, pays a one-time tax, but then has the assets to utilize and invest immediately. As a result, the beneficiaries avoid the administrative costs and expenses of maintaining an estate plan for years, which often would be substantially higher than the amount of the potential tax.
Keep in mind that some financial companies and planners charge several thousand dollars per year to a trust simply to review the occasional document and distribute the occasional check on a “caviar” estate plan. These debilitating charges might eat up most or all of the funds you had intended to leave for your heirs.
These are examples of what I mean by “creating a caviar estate plan on a ramen-noodle budget.” The scale of your estate plan should suit your asset level if you want your heirs to enjoy the maximum benefits of the plan while avoiding needless, self-inflicted financial burdens and complications. The easiest and most reliable way to achieve this goal is by listening to an experienced estate planning attorney and letting that attorney craft the proper instruments to help you achieve your goals realistically and cost-effectively.
It’s also worth remembering that, regardless of the scale of your assets and estate plan, all financial planners or advisors are not created equal. Don’t just turn to the first specialist you find through a casual Google search. Perform due diligence, conduct those in-person consultations, and make absolutely sure that you feel comfortable with (and confident of) that specialist as a trusted advisor for this critical area of your life.
Even if you have previous experience in working with financial planners and estate planning attorneys, bear in mind that estate law and estate planning documents can vary widely from state to state. A plan that may have made sense for you outside of Arizona may require considerable adjustment once you’ve relocated to this state. Any first-hand knowledge that you may have gleaned from that experience — and any guidance that a previous attorney or financial advisor may have offered — may no longer prove valid.
Most importantly, much of the estate planning information and advice that appears on Web searches will have little to no bearing on your specific needs and circumstances. Individuals who take this hodgepodge of data and try to base their financial life decisions from what they have “researched” can cause serious trouble for themselves and their loved ones. To ensure that your estate plan accommodates your new situation, you must consult an estate planning attorney and take that individual’s advice.
For more information thoughts from the Harrison Law Blog on Estate Planning here are some more ideas. Click HERE for more thoughts on using a financial planner, HERE on how a move can mean changing your Estate Plan, and for some ideas about when to re-evaluate your Estate Plan click HERE.
© 2020 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
