No, Estate Planning Is Not Just for the Rich

In the minds of most people, estate planning is an exclusive luxury to the wealthy, built by expensive lawyers explicitly to minimize the cost of generational wealth transfer. But this common belief misunderstands the purpose and usefulness of estate planning in general, as well as its applicability to the average middle-class American family.

To explain why estate planning is not just for the rich, we need to understand why a family might want to invest in a piece of paper that declares how one’s assets are to be split. The median net worth of the average US household is $97,300, and it’s over double that for homeowners.

While estate plans provide a way for the nation’s super-rich to better manage the complexities of transferring millions, many middle-class families still struggle with how best to split and transfer their own assets - be it a car, a home, a modest rental property, bonds, life insurance policies, the remnants of their bank accounts, and so on.

An estate plan allows you to not only designate a beneficiary for each asset, controlling who in the family gets what, but it allows you to protect your assets from property ownership issues that might arise from remarriage, it allows you to protect and designate a guardian for your young children, and it allows you to protect certain assets from debt.

Why Estate Planning Concerns Everybody

The transfer of assets and property is not very straightforward. Assets must pass through the probate process, which is a lengthy process by which a court oversees the distribution of an estate. Probate costs can be immense, not to mention the headache of any complications, or the tragedy of misunderstanding one’s ownership over a property (i.e. tangled titles).

When a person dies without a will or estate plan of some sort, anything they own will be distributed based on intestacy law, which usually dictates that roughly half of everything goes to the spouse, and the other half goes to the next of kin. This can lead to complications if the decedent was in the middle of a divorce but hadn’t fully separated yet, or if they had an unmarried partner.

There are countless cases where poor planning or lack of any planning whatsoever has cost a family additional grief on top of the stress and pain of losing a loved one, in the form of exorbitant costs and complex legal issues surrounding the transfer of one’s assets. Intestacy law also does not account for the context of a familial relationship – kinship is kinship, even when said family members have not been on speaking terms for decades.

For middle-class American families, estate planning tools can be a simple and relatively inexpensive way to avoid additional costs and grief at a vulnerable moment in their lives. Through a comprehensive estate plan, a young couple can protect their children, elderly couples can ensure that their life’s work is properly distributed to the right beneficiaries, and complex familial relationships can be worked out and made right on paper.

Estate Planning in the Early 21^st Century

Estate planning may be more relevant now than ever. Middle class families must be more careful about managing their assets and ensuring that their loved ones receive as much of them as possible in the event of their death.

Meanwhile, the aging of many baby boomers over the next 25 years is slated to lead to the largest nationwide generational wealth transfer since the formation of the United States, with an estimated $68 trillion changing hands between the older and younger generations.

Careful planning will be needed to help struggling families make the most of this money, and help aging retirees protect their properties and retirement funds for transfer – not just through wills, but by managing the finer details in their IRAs and 401(k)s.

As many find themselves in steeper debts than ever before, estate plans are also uniquely necessary as a form of asset protection to help shield certain properties and sentimental or critical assets (that are not already counted as exempt) from creditors.

More Than Wealth Management and Tax Avoidance

An estate plan can also play a vital role in protecting someone from cognitive decline or ensuring that a young child’s guardians are carefully picked out. Guardianship rights are always decided by a court, but a will can be used to propose and choose a guardian, which affects the court’s decision.

Proxy documents, such as a power of attorney, are especially useful estate planning documents for aging individuals who want to ensure that someone they love and trust will be around to make critical financial and healthcare decisions, should the day come that they can no longer make those decisions on their own.

Via a power of attorney, a person anticipating cognitive decline (or disability) can decide exactly who they want as their proxy and instruct them on how they wish to be taken care of, rather than relying on a court’s choice.

Making Healthcare Decisions Through an Estate Plan

Aside from a power of attorney, an estate plan may include a living will. Also known as an advance care directive, a living will is unrelated to a normal will, and instead describes what an individual does and does not allow in regards to medical treatment and healthcare, based on different hypotheticals.

Living wills are especially useful if you are anticipating a specific illness or condition or are living with a degenerative and/or chronic disease and want to avoid life-saving measures for personal or religious reasons.

Expecting the Unexpected Through Estate Planning

Estate plans are not solely relevant to the elderly. Especially now, given the threat posed by a global pandemic, it’s important for all of us to consider how our deaths might impact our loved ones emotionally and financially.

An estate plan is purely anticipatory, and it concerns itself with a topic none of us ever want to broach – our own death – but it’s an important topic with special relevance today, and should be talked about more frequently and in earnest.

How do you want your finances and assets to be settled and distributed? What can you do to ensure your children are taken care of properly when you’re gone? Are you sure your assets will fall in the right hands if something should happen to you? These are important questions we must all face right now.