Estate Planning: What It Is, What It Costs, Finding the Right Attorney & More

Posted Dec 1, 2024

People discussing estate planning

There’s one eventuality that no one can escape: death. As morbid as it may sound, you have to prepare for your ultimate passing, especially if you have assets that you want to protect or bequeath after you pass away. Planning for the future may be daunting, but there’s a practice that helps streamline this process: estate planning.

While usually associated with wealthy individuals, estate planning is actually for everyone. If you have assets, dependents, or specific wishes regarding financial decisions, having this plan in place safeguards your financial legacy and provides peace of mind. Plus, estate planning helps your family avoid legal hurdles and inheritance disputes. You can ensure that your heirs receive the appropriate assets after your passing.

Read on to learn more about estate planning and the associated steps, requirements, professionals, and other elements that can help ensure success. Whether you’re just starting or revisiting an existing plan, this resource will provide the knowledge you need.

What Is Estate Planning?

Estate planning is the process of preparing tasks and documentation for managing your finances and assets if you get incapacitated or pass away. These scenarios are not things that many people are comfortable thinking about, but estate planning is critical to ensure that your hard-earned legacy continues as you intended. As such, estate planning goes beyond creating a will. There are various types of legal documents and strategies you must take on to ensure that your wishes are followed.

Here are some of the key components that you’ll encounter during estate planning.

Wills

Your will serves as the foundation of your estate plan. In this document, you will outline how your assets should be distributed, who will serve as the executor, and who will serve as the guardians of your minor children (if any). Not having a will could lead to significant legal complications, which may put a burden on your relatives. The state may even step in to handle the distribution of assets, and their decisions may not always follow your wishes.

Estate Taxes

Another major component of estate planning is tax management. More specifically, you’ll want to employ strategies that help reduce or potentially avoid estate taxes. Without the right planning, you may be leaving your heirs with significant tax liability. Some strategies include setting up trusts or using investment strategies like 1031 exchanges.

Trusts

Trusts are a common part of estate planning. These legal arrangements help your heirs avoid the long process of probate. Plus, trusts provide some level of control over the distribution of your assets, especially if you don’t want an heir to access the full amount in one lump sum. Many types of trusts exist, such as revocable and irrevocable trusts. Choosing one depends on your financial goals and specific needs.

Executor

The executor is the legal personal representative who manages your estate after your death or if you become incapacitated. This individual plays many roles in estate planning, such as locating your assets, managing taxes, and distributing your assets to the beneficiaries. For these reasons, choosing the right executor during estate planning becomes a critical task.

Guardianship Designation

For those who have minor children, estate planning should include guardianship designation. Appointing a legal guardian ensures that your children are cared for by someone who you wholeheartedly trust if you pass away.

Beneficiary Designation

Some types of assets require you to designate a beneficiary. These include insurance policies and retirement accounts. During estate planning, you’ll need to update these designations regularly to avoid conflicts or outdated instructions.

Why Is Estate Planning Important?

The main purpose of estate planning is to ensure that your heirs receive your assets at your passing. As you take on this proactive approach, you’ll also encounter benefits like the following.

Asset Protection

Did you know that more than half of adult Americans don’t have will? The primary reason for this is the idea that they’re not going to die anytime soon. However, the unfortunate can always happen. People can pass away without any clear instructions on who inherits their wealth. In such cases, state laws will determine who gets how much of your assets. Your hard-earned money may end up in the hands of someone you didn’t intend to benefit. Estate planning can help ensure robust asset protection, allowing you to remain in control of who gets your assets after your death. That way, you pass on your legacy to your family, friends, and other entities.

Avoiding Family Disputes

It’s far too common for heirs to argue over inheritance. The grudges could last for years, creating emotional conflict that deteriorates relationships. You can avoid such scenarios through thorough and clear estate planning. By designating beneficiaries, naming the executor, and outlining specific distributions, you can remove most of the ambiguity and prevent misunderstandings.

Potential Tax Benefits

Strategic tax planning helps you minimize and potentially remove tax liabilities for your heirs. That way, you can reduce the taxable income and better protect your wealth throughout your lifetime.

Planning for Incapacity

As mentioned, estate planning is not just for death. Old age and other bodily issues can, unfortunately, make you mentally or physically incapacitated, preventing you from making sound decisions regarding your assets or finances. Having safeguards for such a scenario through estate planning helps ensure that your preferences are followed even if you aren’t able to communicate them.

Providing for Dependents

Stories where some conniving person steals away the inheritance of an heiress sound like they belong to a novel. However, these scenarios have happened in real life. There have been cases when executors take away funds with no intent of paying them back, resulting in heirs receiving less than what the benefactor wished.

This issue is particularly concerning for minor heirs. Since they don’t have the capacity to earn yet, minors may end up experiencing undue financial hardship upon your passing. Estate planning helps safeguard your assets so that you can continue providing for your minor children even after death. By designating guardians and setting up trusts, you can help your children’s future security and well-being.

How Much Does Estate Planning Cost?

Putting a definitive value on estate planning is difficult. Plenty of factors affect the range, such as the complexity of the estate and your chosen attorney’s fee structure. As such, if you want to get a general idea before you begin your estate planning journey, you’ll want to consider these factors.

Attorney Fees

There are two popular fee structures for estate planning attorneys: flat fees or an hourly rate. For the latter, the most typical range is $200 to $400 per hour. The more experienced the lawyer is, the higher their fees.

On the other hand, you might encounter flat fees for estate planning packages. These all-inclusive services typically include drafting wills and powers of attorney documents. A basic estate plan might cost between $1,000 and $3,000. More complex plans involving trusts or tax planning strategies can exceed $5,000.

Estate Complexity

The size and complexity of your estate are major determining factors for the total estate planning costs. Of course, a simple estate with few assets and straightforward wishes is less expensive. On the contrary, more complex estates with multiple assets like properties and businesses will cost a lot more. Other factors that add to the complexity of estate planning are the tax situation and specific inheritance plans, like trusts for minor children. Establishing and managing these processes can significantly increase estate planning costs, primarily because of the specialized knowledge needed.

Trust Creation

Among the various legal arrangements involved in estate planning, trusts are one of the most common. Even so, these agreements are complex and may significantly impact the final costs of your estate planning. For example, creating a revocable living trust may cost between $2,000 and $6,000 depending on the complexity of the trust and the assets being managed. A more specialized trust, such as a charitable trust or special needs trust, may reach up to $10,000. The additional legwork involved, plus the complexity, contributes to the higher fees.

Additional Processing Costs

Attorney fees are not the only professional fee you’re going to pay during estate planning. There are plenty of other processing costs to keep in mind, such as filing and appraisal fees. The former is a requirement for certain documents like deeds transferring a property into a trust.

If you do need to appraise any asset to find its market value, you will need to pay for the service. Depending on the asset’s value, this fee could be anywhere between a few hundred dollars to thousands.

Estate Maintenance

Another consideration that affects the costs of estate planning is its maintenance and updates. Life circumstances can change after you’ve set your initial plans, such as marriage, divorce, or new tax laws. These events may require you to update your estate plan to maintain its effectiveness and ensure that your wishes will be carried out as intended. Some attorneys include the maintenance package as part of their service, but you can expect to pay between $300 to $1,000 for this additional work.

Despite the expenses, the estate planning process is still a worthwhile expense thanks to the tax savings and protection of your assets after your death.

What Does an Estate Planning Attorney Do?

We’ve mentioned several times that estate planning attorneys are involved in many aspects of the process. So, what exactly are their roles? Most people may think that they’re simply there to draft wills, but the scope of an attorney’s work is comprehensive. These professionals play a part in almost every aspect of estate planning.

1. Drafting Legal Documents

Among the core responsibilities of an estate planning attorney is drafting numerous legal documents. These include wills, trusts, and power of attorney files. Precision and clarity are necessary in these documents because of how they dictate the eventual fate of your assets. Working with an attorney knowledgeable in drafting such documents helps you ensure that your wishes are accurately expressed and legally enforceable.

2. Advice on Tax Strategies

Most property owners, and even seasoned investors, have limited ideas about the tax management strategies they can employ during estate planning. Together with the help of financial advisors or accountants, attorneys can provide guidance on tax strategies that help reduce estate taxes. With these strategies, you can add one more level of protection for your heirs so they can receive your assets with minimal financial burden.

3. Trust Creation

Even though trusts are useful when avoiding probate or protecting specific assets, they’re complicated legal arrangements. Creating an enforceable one requires an attorney who can create the right structure and comply with legal requirements.

4. Guidance During Probate

Upon your passing, some assets may still undergo probate. An attorney who worked with you during estate planning can help the executor navigate the probate process. Plus, the lawyer can ensure that the executor is able to fulfill their duties and manage your estate as you intended.

5. Updating Estate Plans

As mentioned above, life events may necessitate updates on your estate plans. An attorney can help with these updates to ensure that your documents remain relevant or in compliance with current laws.

How To Find an Estate Planning Attorney

Given the importance of an estate planning attorney, it’s critical to find one who has the right expertise to address your needs. Here are some best practices to help you in this process.

  • Ask for Referrals or Recommendations: You can ask family, friends, and even financial advisors about estate planning attorneys they’ve worked with in the past. The best referrals come from those who’ve already done some level of estate planning. If they recommend a lawyer, they’ve likely had a good experience with them.
  • Check for Specialization: Even if someone refers you to an attorney, the lawyer may not be an expert in estate planning. Make sure to consult with one who has extensive experience in estate planning.
  • Check Their Experience With Complex Estates: For individuals who have many assets, you’ll need to work with an attorney who has experience in complex estates. These lawyers already have the systems and resources to handle such complicated estates.
  • Take Advantage of Free Consultations: Most law firms offer free initial consultations. You can leverage this to assess their experience, fee structure, and communication style. With this information, you can assess if the lawyer is a good fit for your needs.
  • Reviews and Testimonials: One other area you can assess is the reviews from past clients. These testimonials shed light on the past experiences of clients, including the things they liked or hated while working with the law firm.

How To Start Estate Planning

While estate planning may seem daunting at first, knowing the steps can help you navigate the process.

1. Take Inventory of Your Assets and Liabilities

With the help of your accountant, real estate appraiser, or financial advisor, you can begin estate planning by creating a catalog of your assets and liabilities. Examples of assets include the following.

  • Real estate properties
  • Retirement accounts
  • Bank accounts
  • Valuable personal items
  • Stocks
  • Bonds
  • Businesses

You should also write down your liabilities, which can include loans, mortgages, and other types of debt. With this inventory, you can gain a clear picture of your entire estate.

2. Define Your Estate Planning Goals

What will the process ultimately result in? In most cases, estate planners want to secure their assets so that their heirs can inherit them. Others want to outline their medical and financial decisions if they become incapacitated. Clearly defining the objectives helps you create a more deliberate and well-designed estate plan.

3. Choose Beneficiaries and Designate Guardians

After you’ve established your goals, the next step is to decide who will receive your assets and, if you have minor children, designate a trusted guardian. This step is essential to ensure your children are cared for according to your wishes.

4. Consult With an Attorney

While you can work with an estate planning lawyer at any point in the process, engaging with one after you’ve defined your objectives helps streamline the planning. You’ll have a general idea of your needs and preferences, allowing for more productive and focused conversations.

5. Creating the Key Documents

With the help of your attorney, you can draft and approve the key documents such as wills and trusts. You can also include powers of attorney that help establish your wishes for health care and finances.

6. Review and Update

Once you’ve set up your estate plan, the next step is to update it regularly as life events happen. Revisit the documents after marriages, childbirth, or divorce to ensure that the plan remains relevant.

Requirements for Estate Planning

We mentioned that anyone can do estate planning, not just the wealthy. However, there are certain requirements you must satisfy before you can start the process.

  • Legal Capacity: While there’s no age limit for when an individual may start estate planning, most attorneys will only take on clients above the legal age. By this point, you should already have at least a basic understanding of your assets and the implications of estate planning. Younger than 18 and you might need a guardian to assist in the process.
  • Clear Documents: The drafted will, trust, or any other legal arrangement like 1031 exchanges should be clear and accurate to be enforceable.
  • State-Specific Requirements: Each state has its own rules regarding witnesses and notaries for signing legal documents. Make sure to follow local laws to avoid invalidating your estate plan.

Final Thoughts on the Basics of Estate Planning

Any person who owns an asset can do will and estate planning. It’s the process of defining how your assets will be distributed after your death. Plus, estate planning helps you make arrangements regarding your wealth in case you become too physically or mentally incapacitated to make decisions. With the right documents in place, you can avoid familial disputes, potentially lower taxes, and ensure the continuation of your legacy.

If you want to learn more, including using 1031 exchanges for estate planning, we can help. Contact Realized 1031 today to schedule an initial consultation.

The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Sources:

https://www.investopedia.com/terms/e/estateplanning.asp

https://www.abc12.com/news/regional/the-majority-of-adult-americans-dont-have-a-will-but-they-should/article_8e775bac-e0c1-11ee-a760-cb21c23330c2.html

https://hoplerwilms.com/blog/2024/04/05/examples-of-executor-misconduct/

https://bluenotary.us/estate-planning-attorney-fees/#:~:text=Hourly%20rates%20are%20common%20for,a%20will%20or%20a%20trust.

https://www.consumerfinance.gov/ask-cfpb/what-is-a-fiduciary-en-1769/

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