The Importance of Estate PlanningRaise your hand if you’re planning on living forever?  I know I am, but I have a bad feeling that my odds aren’t real good on this one.  If you have any loved ones such as a spouse or especially any children, this post is very important.

First of all, let’s start this article by stating that I am by no means an attorney of any sort.  I’ll be discussing what my wife and I have personally put into place and what I know about the area of estate planning.

However, this is not something that you should take lightly and you should contact an attorney that specializes in this area to determine what would be best for your interests.

Most of you reading this are looking to build up your wealth to hopefully reach financial independence or maybe even early retirement one day.  But like anything else, you need to protect what you’ve built or the good fortune may end with you.  Or there’s the chance that your estate may not be passed onto others the way you had intended.

When most of us think of estate planning, we generally jump right to the concept of having a will.  However, there’s a lot more that needs to be put in place in order to ensure that your money and other important valuables (including any kids!) are taken care of.  Many years ago, I had created some estate planning documents through some Suze Orman software she had out.  However, once Mrs. R2R and I had our daughter, I decided that it would be a good idea to revisit this area of our lives.  I love Suze to death, but I didn’t want to just have boilerplate documents – I wanted to make sure everything was specific to our needs.

I talked to a friend of mine (a divorce attorney) and asked him for a referral in the estate planning area of expertise and he hooked me up.  I came to find out later that this guy is supposedly one of the best estate planning attorneys in the area.  I called him and setup an appointment and my wife and I went in to discuss everything with him.  After about an hour or so and a ton of questions from both him and from us, he came up with some ideas.  We left and then he created the documents and we went back for a second meeting to discuss the plan and sign (and get notarized) all the documents.

So here’s the basics of what we did…

We Created a Revocable Trust

So the biggest portion of this process was to create a revocable trust.  A revocable trust is an interesting concept.  You are basically creating an agreement as to what happens with your assets once you die.  The revocable trust (as opposed to an irrevocable trust) means that it can be changed or canceled at another point in time if you later need to.

One of the great things about a revocable trust is that your assets don’t go into the time-consuming probate process like a will causes.  Another perk is that there are some good ways estate tax savings benefits.  You can use the trust to help protect your assets against creditors.  And, you have a lot more flexibility to designate when certain assets will be passed on and how they will be passed on.  In other words, don’t give your kid all the money while they’re too young and going to blow it!

Sounds great, right?  Just add everything you want to pass on into the document and you’re done, right?  Not so fast grasshopper!!

This is where it gets fun!  In its own, the revocable trust doesn’t actually do anything.  In order to make it work, you need to transfer ownership of your property to be in the name of the trust (called funding the trust).  For example, we needed to re-title our house that we live in to no longer be under our names.  The title now reads something like “Mr. R2R Co Trustee & Mrs. R2R Co Trustee of the R2R Revocable Trust.”  In other words, we don’t own the property anymore – the trust does and we just manage it.  We had to do the same for several other accounts – bank accounts, investment accounts, etc.

This is kind of a pain in the butt, but it only needs to be done once to your existing assets (and of course done with new assets).  Some institutions won’t let you set a trust as the owner or beneficiary.  In those cases, we set a payable on death on them.  This is not as strong as a trust in all aspects, but it does offer some good protection for your assets.

So what happens if you forget to put an asset in the trust?

We Created a Pour Over Will

A pour over will is the safety net for your revocable trust.  Basically, if you forget to put anything in the trust, it’s covered by the pour over will.  And we have the trust listed as the beneficiary of the will.  So, it’s likely that these assets will still need to go through probate, but they should then be passed onto the trust designations.

On the revocable trust, we are both a part of it, so there is only one document.  However, a will is for an individual so we each have a pour over will.

Most importantly, each of our wills designated guardianship of our daughter.  This document ensures that our daughter will be taken care of should something happen to us.  That to me is more important than all the money in the world.

We Created a Durable General Power of Attorney

The durable general power of attorney allows you to authorize someone else to act on your behalf should you become incapacitated or even legally incompetent at some point.  It specifies exactly what the person has the decision-making power for as well.  My document specifies that Mrs. R2R is in charge should I become more incompetent than I already am!  And if she’s as screwed up as I am, then my brother is next in line.

My wife has her own separate durable general power of attorney – I hope she listed me to take charge because boy do I have some great ideas on running the show!! 🙂

Health Care Power of Attorney

Mrs. R2R and I both have separate health care power of attorney docs in place.  A health care power of attorney is specific to the aspects of health care obviously.  So this document specifies that Mrs. R2R makes the decision about my care if I can’t do it… and hopefully she doesn’t pull the plug on me if I just have a cold.  I also list a couple of backup people as well in case we’re both in bad shape.

Assignment of LLC Interest

I have two LLCs in place – one for my publishing company and one for my real estate investments.  The assignment of LLC interest documents gives the LLCs to the revocable trust.  These were done as part of my estate planning documents to ensure that anything that the LLC owns (my rental houses for instance are in the name of one LLC) are then covered by the trust.  This ensures that we still have the legal protection of the LLC, but we also have the trust should something happen to us.


As you can see, there’s really a lot involved with estate planning.  Naming conventions for all the titling and beneficiaries of the documents is very important and can mean the difference on whether an asset goes where you want it to or not.  Because of this, I once again highly recommend using an attorney who specializes in estate planning to help you do this correctly.

So, of course, you’re probably wondering how much this costs to get an attorney involved.  I’ll tell ya – it definitely ain’t cheap!  We did all of this a few years ago and it ran us a little over $2,000.  Hoofa!!  On top of that, it takes a lot of time on your part to get things re-titled and new beneficiaries setup.  It was a good chunk of money and time, but with it came a lot of *hopefully* good advice and a much better understanding of everything involved.

All in all, I’m very glad we did all this.  It makes me sleep a little better at night knowing that we’ve done everything we can to protect our daughter as well as everything we are building together.

Have you done any estate planning or are you planning to?

Thanks for reading!!

— Jim

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The Importance of Estate Planning

12 thoughts on “The Importance of Estate Planning

  • June 7, 2016 at 12:27 pm
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    We went through much of the same planning process when our kids were born.

    But now that they are older and we’ve moved states and our estate has changed (increased), we need to revisit everything. I have a family friend who is an estate lawyer who has been after me to get into his office and get everything looked at again.

    Thanks for the motivation!

    Reply
    • June 7, 2016 at 3:48 pm
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      Smart move – this is definitely one of those things you need to review periodically to make sure your needs haven’t changed.

      — Jim

      Reply
  • June 8, 2016 at 3:40 am
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    Good reminder Jim. I need to get this done. I’ve been neglecting it ever since we had kids.

    Fortunately for us, we don’t have the big bucks that famous bloggers like yourself have to deal with, so our situation should be pretty simple. 😉

    Reply
    • June 8, 2016 at 9:22 am
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      Haha, if I recall, you’re the one that’s already FI and living the dream! 🙂

      But you’re right that it is a good reminder, especially when you have kids. One helicopter crash into your vault of bazillions of dollars and it could be over! 😉

      — Jim

      Reply
  • June 8, 2016 at 3:58 am
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    Sounds like you’ve got everything under control Jim. The only current legal structure we have is if I’m no longer around, everything goes to my wife.

    When we are finally successful with our IVF treatments, we will sort something out for our children.

    Tristan

    Reply
    • June 8, 2016 at 9:27 am
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      It took some doing, but I’m glad we got everything done.

      Good luck on the IVF!!!

      — Jim

      Reply
  • June 13, 2016 at 9:42 pm
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    A good reminder that we have some documentation to,update as it relate to guardianship of kids. In the event of our demise. More form filling and signatures but very very necessary.

    Reply
    • June 13, 2016 at 10:10 pm
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      Welcome to the site, Mr. PIE!

      It’s definitely something no one looks forward to doing, but something that needs to be updated periodically… particularly when kids are involved.

      — Jim

      Reply
  • June 19, 2016 at 6:25 pm
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    Medical POAs are so important. The recent problems for my elderly relative are partially because the person with Medical POA over him does not actually have his current best interests at heart and is not able to attend to him due to her own mobility limitations. But she has the power and the hospital cannot listen to anyone else.

    Reply
    • June 19, 2016 at 9:34 pm
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      I’m so sorry to hear that – that’s a really tough situation. And that definitely does show how important the power of attorney can be. I hope things work out for your relative in this somehow.

      — Jim

      Reply
      • June 19, 2016 at 10:31 pm
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        Thank you. Things are looking up, but we have to sit down as a family and decide what needs to be drafted next to correct this.

        Reply

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