An Estate Plan Is As Important As A Map On A Road Trip. Here’s Why.

Co-written by:
Frank McLaughlin, CFP®, CSRIC™ at Merriman
Liberty Upton: Estate Planning Attorney at KHBB Law

My wife Alli and I share a love for travel. We often take road trips with our two-year-old golden retriever Jet in the backseat, and I am here to tell you that a successful road trip has many parallels to a successful comprehensive financial plan.

Your vehicle is likely the first item you think about: Is our car the right size for everything we are bringing? Can it handle the terrain and obstacles along our trip? What will the cost be with all the gas station stops?

This correlates with selecting suitable investments, typically the first item to consider when crafting a financial plan. Choosing the right investments is crucial, but having a current estate plan is equally essential.

If an investment strategy represents having the proper vehicle for the trip, an estate plan represents having the appropriate road map. Just as a map helps you chart a custom course, estate planning enables you to navigate the uncertainties of life and avoid potential pitfalls when it comes to your assets and legacy.

Imagine going on a road trip without a map. You might make it to your destination eventually, but a lot could go wrong along the way. Estate planning is similar in that it helps you map out your financial and personal goals, anticipate challenges, and take steps to ensure that your wealth is distributed according to your wishes.

In working with Liberty Upton, Estate Planning attorney at KHBB Law, we have created this introductory guide to estate planning and some of the things you should consider as you craft an estate planning road map of your own.

ESTATE PLANNING – DEFINITION AND BENEFITS

As a Wealth Advisor, I consider estate planning as the process of creating a legal plan to arrange for the transfer of your assets (including properties, investments, and possessions) to your intended beneficiaries while minimizing tax liabilities and expenses. It is an essential aspect of a comprehensive financial plan, as it helps ensure that your wishes are carried out and loved ones are cared for.

Here are some of the main benefits of a well-done estate plan:

• Ease – The plan ensures the smooth transfer of assets to beneficiaries and provides for loved ones.
• Tax Minimization – Through various strategies, such as gifting assets during your lifetime, creating trusts, or taking advantage of certain tax exemptions, estate planning can reduce tax liabilities.
• Protection – Estate planning can help protect assets from creditors, predators, and divorce. One common approach is to create a trust for a surviving spouse or descendants. A trust can be structured to protect your legacy by limiting the rights of creditors and former spouses to seize or access assets in the trust.
• Fulfilling Wishes – Estate planning can ensure that healthcare and financial decisions are made according to your wishes. One of the key documents is a healthcare directive (a.k.a. a living will), which outlines your preferences for end-of-life medical care. Another vital document is a healthcare power of attorney, which designates a trusted person to make medical decisions on your behalf if you become incapacitated and unable to make decisions. A financial power of attorney plays a similar role in your finances and grants permissions, such as the right to pay bills and make gifts.

Just as wealth management is full of nuance, estate planning is too. Thankfully, we work with great estate planning attorneys like Liberty, who know the ins and outs of the process. Below, Liberty shares why estate planning is so critical and offers some of her expertise to get you started.

THE CONSEQUENCES OF NOT HAVING AN ESTATE PLAN

Liberty Upton is an attorney at KHHB Law, PLLC. She focuses her practice on estate planning and probate/trust administration. She loves helping people organize their estates. She received her Tax LL.M. from the University of Florida and her J.D. from Seattle University. She was admitted to the Washington State Bar in 2014. Prior to attending law school, Liberty worked at Columbia Bank as a financial analyst, underwriting loans for individuals and businesses.

People put off estate planning for many reasons. When I tell people I’m an estate planning attorney, I frequently get responses like the following: “I don’t own much, so I don’t need a plan”; “I will die if I have a plan” (spoiler alert: we all will); or “It is too expensive, I can just do it online.” Whatever the reason, most people don’t realize that by not creating a plan, they are essentially choosing to allow the state they reside in to create a plan for them. In Washington, these laws are set forth in the Revised Code of Washington (“RCW”). [1]

One of the first things I tell my clients is that I view estate planning as one of the most loving things you can do for the people you leave behind. Grief is hard enough to deal with. Without an estate plan, your loved ones are also left confused about what you want. It is much easier to follow a plan and know they are fulfilling your wishes.

Guardianship/Conservatorship

If you do not have an estate plan and something happens where you are alive but incapacitated, then RCW 11.130 determines who can manage your assets or financial affairs (“Conservator”) and who can make decisions with respect to your personal care/living decisions (“Guardian”). The court will be involved when determining if a Guardian/Conservator is necessary. This is a costly and time-consuming process. If it is necessary, the court issues an order, and the incapacitated person can lose all personal rights. This process can generally be avoided by creating Durable Powers of Attorney (“DPOA”) for finances and healthcare. One of the fundamental reasons for creating a DPOA is personal autonomy. These documents allow you to choose the individual to make decisions for you if you cannot and avoid court removal of your personal rights.

Intestate Succession

If you do not have an estate plan, then the laws in your state will determine what happens to your assets upon your death. If a person dies intestate (i.e., without a will), then RCW 11.28.120 determines who will administer the decedent’s estate (the “Administrator”), and RCW 11.04.015 determines how the decedent’s estate will be distributed.

The following individuals, in order, are entitled to administer the intestate decedent’s estate:
(1) spouse (or registered domestic partner); (2) child or children; (3) parents; (4) siblings;
(5) grandchildren; (6) nephews/nieces. If none of these people are able or willing to serve, then state law will continue to try to find someone to serve in this role. Eventually, even a decedent’s creditors could serve in this role if no one else steps up.

How an intestate decedent’s estate is distributed depends on if they are single or married (or in a registered domestic partnership). If the decedent was single, then their estate will be distributed in the following order: (1) their descendants (children, grandchildren, etc.); (2) their parents; (3) their siblings; (4) their nieces and nephews, or further downstream from there. If none of these people are living, then in the following order: (1) their grandparents; (2) their aunts and uncles; (3) their first cousins, or further downstream from there. Basically, going up and then down the family tree to find someone to inherit.

If the decedent was married (or in a registered domestic partnership), then all of the decedent’s community property will be distributed to their spouse (or registered domestic partner). How their separate property is allocated depends on whether they have any surviving children, parents, or siblings. If they have surviving children, then 50% of the separate property will be distributed to the surviving spouse, and 50% will be distributed to surviving children. If they don’t have any surviving children but they do have surviving parents or siblings, then 75% of the separate property will be distributed to the surviving spouse, and 25% will be distributed to the surviving parents or siblings. If the decedent does not have a surviving parent or sibling, then 100% of the separate property will be distributed to the spouse.

Even if the law is exactly what you want, confirming that with a complete estate plan is still a good idea.

Estate Taxes and Creditor Protection

Many people approach estate planning with the mindset that they want it to be as simple as possible, which usually translates to everything outright to their spouse and then to their kids. While this type of plan is simple (and essentially mimics Washington state law with respect to community property), it is generally not advisable for people with minor children, disabled beneficiaries (who are receiving government benefits), blended families, or estates that exceed the Washington Estate Tax Exemption (currently $2.193M).

Without a will (or Revocable Living Trust (“RLT”)), assets can only be distributed outright to your heirs at law (the individuals under intestate succession). When someone receives assets outright, they can do whatever they want with them, and the assets are completely exposed to their creditors. When you create an estate plan, you can choose to set up a testamentary trust (a trust created upon your death) for those same individuals. A testamentary trust provides several benefits: (1) the assets in the trust are creditor protected (the beneficiary doesn’t own them, the trust does); (2) if proper elections are made, the assets in the trust can pass to the next generation without being subject to additional taxes; and (3) the decedent can have some manner of control over how/when assets are used and what happens to the remainder of the trust upon the beneficiary’s death.

Probate Process

Probate is the court-supervised legal process of settling a decedent’s estate and transferring their property. This occurs if you have a will (when a Personal Representative or Executor is appointed) or if you die intestate (when an Administrator is appointed). You may have heard horror stories about probate and believe it should be avoided. While that is true in some states (like California), we have a fairly simple probate process in Washington. With a properly drafted will, the process in Washington is as follows: (1) the will is filed with the court; (2) the court appoints the Personal Representative designated in the will; (3) the Personal Representative (with the help of an attorney/CPA) creates an inventory of the assets, pays off all creditors, files the decedent’s final income and estate tax return (if required), and ultimately distributes the assets of the estate; and (4) reports back to the court that probate is complete.

If there aren’t any issues (fights amongst family/friends), the court is really only involved at the beginning and the end of probate. In other states, that is not the case, and the court may be involved in the entire process. Therefore, if you are thinking about creating an estate plan and doing any research on your own, you will likely see recommendations to create an RLT. An RLT is a substitute. Assets that are in the RLT are not subject to probate. So, if all assets are transferred to the RLT, probate is not necessary to administer your estate. Some people prefer an RLT because it is private since it is not filed with the court and therefore isn’t public record. Following the death of a celebrity, if you don’t see any information about what they owned and who received what, they likely had an RLT.

In Washington, you have the option to use a will or an RLT to dispose of your estate. The overall time to administer your estate will be roughly the same. An RLT will not have the same court filing costs, but those are usually not significant enough to be the only reason to create an RLT. Whichever option you choose is the correct option for you because it records your wishes.

Family Disputes

Family disputes occur for various reasons during the probate (or RLT administration) process. Disputes tend to be more frequent when the decedent did not have a Will (or RLT) or when they created their own plan online and the plan is unclear. The same types of disputes that occur during probate can also occur during the administration of an RLT. Therefore, in Washington, I find that these disputes are generally due to the particular circumstances surrounding the estate plan (or lack thereof) or the family dynamics and not because of the probate process itself.

FACTORS TO CONSIDER WHEN CREATING AN ESTATE PLAN

Identifying Goals and Objectives

I usually start estate planning meetings by asking my clients to tell me a little bit about their families and why they are interested in creating an estate plan at this time. Sometimes it is because they have had their first child and realize that they are responsible for someone else in this world; they want to make sure their child is protected and cared for if they die. For others, they have realized their estate exceeds the Washington Estate Tax Exemption (currently $2.193M), and they want to minimize taxes. Some people may not know their goals and objectives; they just know that it is important to have a plan and want to learn what options are available. Each person is different, and it is essential to understand why they want to create an estate plan.

Identifying Assets and Beneficiaries – Choosing the Right Estate Planning Tools

To create an estate plan, you must provide at least a rough estimate of all your assets and liabilities. While the total net value is an important figure, it is also important to know what the assets are. Different estate planning tools exist for life insurance, retirement assets, businesses, real estate, and liquid assets. A complete overview of your assets will help your attorney determine which tools may be appropriate for your estate.

When determining the beneficiaries of your estate, you should think through the people and the organizations (charities) you want to benefit. But you should also think about the needs of those beneficiaries. Young children, aging parents, a spouse that is not a US citizen, or a niece with autism who receives government benefits all have different needs. While your ultimate goal may be to support those you love, how you give them assets may differ depending on their unique circumstances. When you meet with an attorney, it will be important to tell them about family dynamics and any circumstances unique to a beneficiary of your estate.

Once your estate planning attorney understands what assets make up your estate, who your beneficiaries are, and what your estate planning goals are, they can suggest proper estate planning tools to meet those goals.

Working with a Professional Estate Planning Attorney

Some people think estate planning with an attorney is too expensive. Their estate is simple, and they think they can just do it online. It is rare that this actually saves money in the long run, especially if their estate exceeds the Washington Estate Tax Exemption (currently $2.193M). Self-created wills usually end up costing more money by the end of probate because they either have issues that will necessitate court intervention to administer the estate or because they do not minimize estate taxes.

For example, if a couple has an estate of $4,000,000 and upon the first death, everything is left to the surviving spouse outright (either because they died intestate or because they wanted a simple online plan and wanted to leave their entire estate to their spouse), then upon the second death, everything is distributed to their two children equally, and estate taxes of $212,980[2] will be due to the Washington Department of Revenue.

If, instead of giving assets outright to the surviving spouse, a testamentary trust is created for the surviving spouse, no estate taxes would be due to the Washington Department of Revenue upon the second death. Spending a few thousand dollars now could ultimately save hundreds of thousands in the future, allowing more to pass to your intended beneficiaries.

You have an opinion about what you want to have happen in the following circumstances: (1) you are alive but incapacitated, and you need someone to manage your finances and make healthcare decisions on your behalf; (2) you have a terminal illness or are in a permanent unconscious condition, and a decision regarding the termination or continuation of life support is needed; (3) how your remains are disposed of upon your death (e.g., you want to be buried at a specific cemetery or cremated and have your ashes scattered in Puget Sound via a ferry); and (4) what happens to your assets upon your death. Work with an attorney, learn what options are available, and record your wishes!

Conclusion

 As you can see from Liberty’s summary above, estate planning is a crucial component of a comprehensive financial plan. Just as a well-equipped vehicle is necessary for a successful road trip, a current estate plan serves as the appropriate roadmap for navigating the uncertainties of life and ensuring your assets and legacy are handled according to your wishes.

The benefits of a well-done estate plan are numerous; the consequences of not having one can be significant. Working with a professional is highly recommended to ensure your plan is comprehensive, legally sound, and tailored to your unique circumstances.

Ultimately, estate planning is an act of love toward those you care about, providing them with clarity, protection, and peace of mind during difficult times. Creating a well-crafted estate plan can secure your financial and personal goals, protect your assets, and leave a legacy for generations.

Liberty Upton
Attorney at KHBB Law, PLLC

Liberty focuses her practice on estate planning and probate/trust administration. She loves helping people get their estates organized. She received her Tax LL.M. from the University of Florida and her J.D. from Seattle University. She was admitted to the Washington State Bar in 2014. Prior to attending law school, Liberty worked at Columbia Bank as a financial analyst underwriting loans for individuals and businesses.

[1] I’m focusing on Washington because that is where I’m licensed to practice. Each state will have its own laws that apply when a person does not have an estate plan.

[2] Based on 2023 tax brackets.

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable; however, Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal, or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always, please remember that investing involves risk and possible loss of principal capital, and past performance does not guarantee future returns; please seek advice from a licensed professional.