How do I do Estate Planning?
Completing your Estate Planning falls into four general categories: 1) Do It Yourself; 2) online generated forms; 3) paralegals and lawyers with a general legal practice; and 4) Estate Planning Specialists. As you can imagine, the initial cost increases as the level of expertise goes up. The total cost to you and your family has an inverse relationship.
I often describe doing your estate planning like building or buying your house, as explained below.
Do It Yourself Estate Planning
One option to do your estate planning is to do it yourself. You might be surprised to hear that this is not the worst option. On the upside, it’s relatively cheap. You will have to pay notary fees and recording fees, but other than that, you’re only using human capital. You could ask some family members to see their estate plan, ask a friend that has a law degree, download some free forms online, and try to piece something together that works.
The downside to this option is that you’ll have no idea if your estate plan works or not. It will all play out after you and/or your spouse pass away. At that point, it’s too late to fix.
Let’s discuss the building your house analogy. If you built your house yourself, you would hopefully be able to check things along the way. Make sure the rough plumbing works, check the electrical etc. In five years, something breaks, you fix it. But what happens if there is an earthquake? How comfortable do you feel at that point? Do you think your children are protected?
Estate planning is that earthquake. You will not know if your estate plan is properly built until after you death and at that point there is nothing your family can do to fix it.
So why is this not the worst option? Because with the next option you’ll likely pay more for equally poor results.
Online Generated Forms
The LegalZooms and Rocket Lawyers of the world are an enticing sell. Customized plans at a much cheaper price point. Let the robots do the work! I’ve got a house, married, three children, hit enter! And voilà, you have an estate plan. You say to yourself, your situation is simple, you feel confident that this estate plan has been vetted by the computer programmers, and you put it away. Side note, I’ve never had a client tell me his or her situation wasn’t simple.
So let’s go back to our house example. You decide building your house is too much work and you frankly don’t feel confident in your building skills. Instead, you go to Redfin and revise your Redfin filters based upon your budget and the number of bedrooms you need. Imagine if Redfin produced one result and you were required to buy it sight unseen. Confident? Maybe it’s perfect . . . but more likely it’s a disaster.
That’s online estate planning. You give some basic information, you get something that resembles what the robots think you need. Again you’ll never know. Save the $500.
Paralegals and Lawyers with a General Legal Practice
You decide to do the responsible thing and hire someone to do your estate planning. You still want to save money, but want to find quality work. So you go to a general practitioner.
You ask: What type of law do you practice? General Practitioner responds: What type of problem do you have? You: I need estate planning: General Practitioner responds: Yes, I’ve done many estate plans! Your situation is simple, we can handle it.
We have all heard “jack-of-all trades, master of none.” Estate planning does require a level of mastery. Even for “simple” situations.
These types of attorneys call our office regularly and ask: “Do you have a form I can use to draft a Trust?” We politely say no (because we don’t use “forms”). Some will try to customize a form to the extent they know they need to. Others are happy with putting your name at the top and bottom.
Our firm sees these estate plans all the time. Most of the time we see them after someone has passed away and the family is quickly realizing there are problems. If we’re lucky, we’ll be able to amend the trust before it’s too late.
I do not want to speak too poorly of this type of attorney. The jack-of-all-trades attorney has a place in the legal world. He or she can help with a traffic ticket or send a letter to your neighbor that keeps having loud parties. In those cases, the problem is fixed, you move on. However, the jack-of-all-trades attorney should not be drafting your estate plan.
Back to your house. You’ve changed your mind again and decided to hire someone to build your house. You call the guy that previously fixed your leak and drywall damage. He says he has his contractor’s license and can build it for you. You give him your thoughts on the house and he says, sure, he can build it. Fast forward a year and you have your house exactly the way you explained it. However, you quickly realize the house is not functional. There is not enough space in the kitchen to open the drawers, the door blocks the hallway and there is a huge support beam running across the entire length of the house. Who’s to blame? The guy built the house as you asked.
Your estate planning lawyer should not simply be a transcriber of your thoughts and the gate keeper to some “forms.” Your estate planning lawyer needs to be able to accomplish your goals, but also explain to you how your plan can be improved based upon the tax laws and the court’s interpretation of the probate code.
Estate Planning Specialists
Less than 1% of all lawyers are Certified Specialists in Estate Planning by the California State Bar. In order to become a Certified Specialist, you must pass a rigorous all day exam, have certain amount of experience in estate planning and be referred by other specialists in the area of estate planning.
Working with a Certified Specialist in Estate Planning ensures that 1) the attorney devotes his or her practice to this area; and 2) the attorney has a core understanding of the myriad of estate planning issues. Let me be clear, choosing an estate planning specialist does not automatically mean he or she will be a good attorney or the right fit. There is a wide spectrum of Certified Specialists in Estate Planning, from cost to experience to personality. However, it should be the bare minimum when choosing to work with an attorney to do your estate planning.
Working with an estate planning specialist often comes at a higher initial cost. This is probably the main reason some people choose not to use a Certified Specialist. But the initial higher cost often comes with much greater savings later. The savings are real. We often see estate plans that could have saved beneficiaries hundreds of thousands of dollars in income taxes, and for larger estates, millions of dollars in estate tax.
Do I need a Certified Specialist in Estate Planning if I have a simple estate? What is simple? Is simple one marriage, two kids, a house and some investment or retirement accounts? Let’s assume that is the case. Let’s also assume you want to treat your kids equally and divide everything between them. The DIYer or the jack-of-all-trades attorney drafts your plan exactly that way. But what happens with a distribution like this? First problem is one of your children will likely buy out the other from the house (either to live in or keep as an investment property). This will trigger an unnecessary property tax reassessment in California. Second, the retirement accounts may also have to be distributed prematurely which will cause greater income tax to the other child. Third, once the distribution is accomplished, each child’s inheritance is exposed to potential creditors, future ex-spouses or estate taxes. Long story short: a simple family does not mean a simple estate plan. Not unless you want your children to incur significantly more taxes and turmoil in the family.
There are still several factors beyond choosing an estate planning specialist that must be considered when doing your estate planning. Personality, knowledge, price point and sub-specialties, all play a role in choosing the proper attorney.
Our final analogy regarding building a house. You decide to work with a general contractor that has years of experience building custom homes. You come to the contractor and provide your wish list. The contractor works with an architect and designer to make sure that not only are your requirements met, but also ensures that the floor plan is functional for your family needs. The contractor also explains the planning concepts so you can be more involved in the final product. Ultimately, you end up with a family that is happy to be together in the kitchen, instead of yelling at each other as they bump into drawers and cabinets.
In the end, your home is much like your estate plan. Just like any random home is not sufficient for your family, either is any random estate planning template. The difference in cost is far outweighed by the value you get from having family harmony and saving several tax problems later.
Modern Wealth Law is a full service estate planning and probate law firm with its principal offices located in Irvine, California. Each Orange County estate planning lawyer at Modern Wealth Law practices exclusively in the areas of estate planning, asset protection, probate administration and trust administration. Each estate planning lawyer brings a sophisticated level of understanding to these complex and technical areas of the law. We are dedicated to providing you and your family with the finest legal representation throughout Orange County and Los Angeles County.
John Wong advises on all aspects of estate planning, probate, asset protection and trust administration. He believes that estate planning is about planning for life; while having protections in place should the unexpected occur.
