Estate Planning for Freelancers and the Self-Employed

Freelancers and the self-employed operate without the safety nets provided by traditional employment. This independence brings freedom. However, it also adds complexity to financial and estate planning. From managing irregular income to protecting business assets, creating an estate plan ensures that your hard work is preserved and distributed according to your wishes.

Why Estate Planning Is Essential for Freelancers

Unlike salaried employees, freelancers often lack access to employer-sponsored benefits, such as life insurance, retirement plans, or disability coverage. Their business assets and personal finances are frequently intertwined, making careful planning essential to avoid unnecessary complications for heirs.

A well-crafted estate plan for freelancers addresses:

• Transfer of business assets or intellectual property.
• Continuity of income for dependents.
• Minimization of taxes and legal hurdles.

Freelancers and the self-employed must create a plan that considers their unique financial circumstances and provides long-term security for loved ones.

Key Considerations for Self-Employed Estate Planning

Freelancers often rely on their business as their primary source of income. Without a plan, the value of that business could be lost upon their death. Key steps include:

• Appointing a Successor: Identify someone to take over the business or handle its sale.
• Creating a Buy-Sell Agreement: Outline how ownership interests will be transferred for partnerships or joint ventures.
• Documenting Procedures: Maintain clear records and instructions to help successors understand ongoing operations or intellectual property management.

Managing Irregular Income

Freelancers often experience fluctuations in income, which can complicate traditional estate planning strategies. To account for this:

• Establish a rainy-day fund to provide a financial buffer for your estate.
• Work with an estate planning attorney to identify flexible asset protection strategies.
• Consider annuities or investments that provide steady income streams for beneficiaries.

Retirement Savings

Unlike traditional employees, freelancers must set up their own retirement savings plans. Options include:

• SEP IRAs or Solo 401(k)s: Tax-advantaged accounts tailored for self-employed individuals.
• Roth IRAs: Flexible savings accounts that grow tax-free, offering greater liquidity for heirs.

Ensuring that retirement savings are properly designated to beneficiaries avoids complications later.

Digital Assets

Freelancers often own valuable digital assets like intellectual property, domain names, or online portfolios. These assets must be included in your estate plan to ensure seamless transfer. Create an inventory of:

• Login credentials for key accounts.
• Ownership documentation for websites or digital products.
• Instructions for transferring or licensing intellectual property.

Protecting Intellectual Property

Many freelancers generate income from intellectual property, such as writing, artwork, or designs. An estate plan should specify how copyrights, patents, or trademarks are managed after death. This may include:

• Assigning ownership to heirs or beneficiaries.
• Creating trusts to manage royalty payments.
• Licensing or selling rights to preserve income streams.

Practical Steps for Freelancers to Create an Estate Plan

The first step to creating an estate plan is drafting a will that distributes assets, business interests and personal property according to your wishes. Without one, state laws determine asset distribution, which can result in unintended consequences. However, there’s much more to an estate plan than just making a will.

Establish Powers of Attorney

Freelancers should designate a trusted person to handle financial and healthcare decisions, if they become incapacitated. Powers of attorney ensure continuity in managing personal and business affairs during emergencies.

Consider a Living Trust

A living trust can help freelancers avoid probate and ensure that assets are distributed efficiently. Trusts are beneficial for managing complex assets, like intellectual property or business income.

Secure Life Insurance

Life insurance provides a safety net for freelancers with dependents by replacing lost income and covering future expenses. Policies should be aligned with your estate plan to ensure that benefits are directed appropriately.

Reach Out to an Estate Planning Attorney

Freelancers should consult estate planning attorneys and financial/tax advisors to create a plan that addresses their unique circumstances. Regular reviews ensure that the plan evolves alongside income, assets, or family structure changes.

Key Takeaways

• Secure Your Business: Freelancers must plan for business continuity, including successors and buy-sell agreements.
• Unique Solutions for Freelancers: Irregular income requires flexible estate planning strategies, such as emergency funds and tax-advantaged savings accounts.
• Digital assets and intellectual property should be inventoried and included in the estate plan.
• Support Loved Ones: Life insurance and retirement accounts can provide financial security for dependents.
• Consult a Lawyer: Skilled, experienced individuals can ensure that your estate plan reflects your needs and goals.

At The Werner Law Firm, we understand the unique challenges freelancers and self-employed individuals face when it comes to estate planning. Whether you’re managing irregular income, protecting intellectual property, or ensuring the continuity of your business, our probate attorneys are here to provide the expert guidance you need. We'll work with you to create an estate plan that secures your financial future and protects your legacy for the benefit of your loved ones.

If you have any questions, schedule a free appointment with us through our online appointment page.

You can also read reviews from some of the hundreds of clients we have helped over the years.

Reference: American College of Trust and Estate Counsel (ACTEC) (Oct. 19, 2023) “Estate Planning for Freelancers and the Gig Economy”