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The Importance Of Having A Plan

A few weeks ago, my wife and I traveled on our first significant trip without our 1 year old daughter, Teagan. I am aware that statistically air travel is far safer than getting in a car, and we have no qualms about doing that every day. Regardless, as we boarded the plane I couldn’t help but worry about what Teagan’s life would be like if something happened to us. Fortunately, I already knew the answer.

Shortly after we bought our first home and had our daughter, my wife and I executed an estate plan. Specifically, we executed wills, a trust, durable powers of attorney, and advance health care directives. The focus of this story is the importance of 1) naming guardians in your will, and 2) establishing a trust to hold your assets for the benefit of your children.

First, we have affirmatively and clearly stated in our wills who will raise our daughter. My wife and I were able to have this discussion open and honestly, and after careful consideration, we chose guardians (and alternate guardians) who we knew would provide a loving home for Teagan. If we did not do this and something happened to us, it would be up to a court to make that decision. I understand this is a tough and uncomfortable conversation to have with your partner, as well as with your nominated guardians. No one wants to imagine their child growing up without them. But in order to ensure your child has the best life possible, despite tragic circumstances, you must have these conversations and you need to capture your wishes in writing.

Next, we hold our assets, including our house, in a trust for Teagan’s benefit. The trust is an excellent and versatile testamentary instrument which gives us total control over who will serve as trustee to administer the assets of the trust for Teagan’s benefit. We were also able to give that trustee guidance on how and when to spend those assets. Basically, we have no idea how responsible our toddler is going to be in her twenties, so we gave the trustee discretion to spend for Teagan’s housing, education, etc. Ultimately, we put in protections so that our daughter will not receive a large sum of money at a young age.

Without getting too wonky in the probate weeds, I want to explain what would happen if that airplane went down and we had not established a trust: In California, all it takes is $150,000 in total assets for your estate to be subject to probate proceedings. It’s important to note that the probate code considers the gross value of any real estate owned. This means that if you own a home, regardless of how much equity you actually have, your estate will likely be subject to probate if you do not hold the house in trust.

Why should you care if your estate is subject to probate? It is entirely unnecessary, burdensome, and expensive for a person’s heirs to go through such a process. Typically, due to administration and legal fees, probate costs between 6 – 8% of the gross value of the ENTIRE probated estate and can take up to a year or more to complete. It is difficult for people to be proactive and to adopt a proper plan when all of that seems so far in the future. But life happens and people often wait until it’s too late. You’re doing your heirs a huge favor by putting a proper plan in place. Probate can be a nightmare. A proper estate plan can be a gift.

So, without the estate plan we put in place, our daughter would automatically be inheriting 6-8% less than she should. She would be put into the care of a guardian that we didn’t necessarily choose. Finally, she would inherit the entire estate at age 18! I don’t know about you, but I would have blown through every dollar you gave me at that age. A trust helps you protect your children from themselves in many ways.

Our estate plan gives me peace of mind every time I get into an airplane, or a car, or even when I’m just walking down the street. I know that Teagan will be taken care of. It is my professional and personal mission to give my clients the same peace of mind.

Thanks for reading and feel free to share and to reference this story whenever you come across people who are on the fence about investing in an estate plan.

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