So You Don't Have an "Estate"? You Could Still Use an Estate Plan


When I hear the word “Estate”, I can’t help but think about British nobility, landed gentry, or Forbes’ list of America’s Richest Families.   Even Merriam-Webster uses “a large piece of land with a large house on it,” and “social standing or rank especially of a high order” in defining “Estate”.  It’s these notions that might make one think, “My assets don’t qualify as an Estate, so I probably don’t need to worry about estate planning.”

However, if you’re waiting until your possessions and properties qualify as an “Estate” before you consider and create an estate plan, you could be doing yourself and your heirs a disservice.  Estate planning for the young couple that is just starting out can be as important as it is for the well-to-do retiree who has amassed significant wealth. 

Here are a few things an estate plan can accomplish whether you have a $1,000 estate, or a multi-million dollar Estate

Determine a guardian for your minor children.

You may have already had this difficult conversation with your spouse.  You may have even talked about it with loved ones or your guardian nominee.  However, you probably haven’t reduced your decision to writing.  If it’s not in writing, there is always a chance that a disagreement could arise after it’s too late.

For example, imagine a young couple who has two small children.  Both parents are killed in a car accident and neither has left a will nominating a guardian.  Imagine the parents and siblings of the young couple each feel that they would be best suited to care for the small children.  Maybe they even feel an obligation to help raise the children.  Ultimately, a judge will determine who is best suited to be the guardian.  Imagine the effect a disagreement like that could have on the children and the families, not to mention the potential for the judge to make a poor decision.

An estate plan can not only designate the person who will raise the children, but it can (and should) also address a number of other factors related to raising the children, including finances.  Which brings us to:

Determine how property/assets will be managed until your children reach adulthood.

A couple without a large estate might think that there are not enough assets to bother with this step.  However, consider the value of your life insurance policies.  Parents without a currently-valuable estate might have life insurance policies worth a significant sum.  For example, our young couple who passed away in a car accident above may have had very little at this point in their lives, but let’s assume they had life insurance policies worth a total of $500,000.  Upon death, the estate is suddenly worth a half million dollars.  With two small children left behind, how should that money be used?  If an estate plan does not answer that question, a court will step in and act as a conservator to manage the property, leading to additional burden and unnecessary expense.

The best solution is generally to leave any assets (including life insurance proceeds) to minor children via trust.  The parents can determine who will manage the assets (the trustee), which can be the same person as the guardian or someone different.  The trust can set up rules and requirements for the use of trust assets, as well as provisions regarding the distribution of trust assets to the children when they reach a certain age. The trustee is under a legal obligation to manage the assets of the trust for the benefit of the children and in accordance with the requirements of the trust.

Determine who is responsible for managing the estate.

After someone’s death there are a number of responsibilities to attend to.  An estate plan determines who will be responsible for tending to those issues (the “personal representative” or “executor”).  If a personal representative is not appointed in a will, the court must appoint one.  This can lead to additional cost and delays in administering the estate.

A more sophisticated estate plan can also limit a court’s involvement entirely.  For example, the use of a trust will allow the estate to avoid the more costly aspects of a judicial administration (which is called “probate”).  Particularly, if you are a homeowner, the creation of a trust is a valuable aspect of an estate plan that will allow trust property to avoid probate and pass more efficiently to your heirs.

Plan for disability.

An often overlooked area of estate planning is deciding what will happen if you are disabled and otherwise unable to act on your own accord.  Disability planning includes designating an individual (or individuals) who will make financial and healthcare decisions on your behalf in the event that you are incapacitated.

An advance directive (healthcare) and power of attorney (financial and non-healthcare related issues) allow an individual to make decisions on your behalf in the event that you can’t make decisions for yourself.  From determining medical treatment, to paying your mortgage or other bills, your designee(s) can ensure that your affairs are in order while you recover.

Thinking about your estate plan probably isn’t the most fun thing to do on a Friday night.  It requires you to consider your own mortality.  It might require you to dissect your familial relationships to a certain extent.  Some decisions will be difficult.  However, an experienced estate planning attorney will be able to help you through the process and provide valuable guidance.

Estate planning is definitely not the most fun thing to spend money on, especially when funds are tight.  However, you can start with the most essential legal documents and term life insurance, then update and upgrade your plan as your financial situation improves. The most important thing is to avoid procrastinating.  A little bit of planning now will provide comfort and peace of mind in the future.