The two needs go hand-in-hand, and part of a Financial Planner’s job is to make sure clients have done the right estate planning for their assets.
My company offers comprehensive financial planning, which includes advice related to estate planning. Our office does not draft estate planning documents, or even provide specific legal advice, but for us to complete our obligation to clients, we must make them aware of their need to complete an estate plan, and specifically for their situation what that may entail.
If you have not completed an estate plan, or possibly you have an estate plan and it’s years or decades out of date, here is some critical information to consider when it comes to passing on your assets.
What is estate planning?
You can think of estate planning as planning for what happens in worst-case scenarios—mostly related to you or your spouse’s death. Common decisions codified in an estate plan:
Who will control and inherit your assets if you or your spouse (or you both) pass away. Notably, in an estate plan the person who controls the assets is not required to inherit or benefit from them.
What happens if you or your spouse are unable to care for your minor children. Whether that be to a disability or death, you decide who will be guardian of your most important bond and manage any monies left for their support.
Whether you or your spouse want to stay on life support, donate organs, keep the feeding tube, and other heartbreaking medical decisions. With an estate plan, you can consider these dreadful potential outcomes and determine the decisions you would like to put in place before they are left up to chance or a distraught family member. You also have the option to designate someone you trust to make the decisions for you, if you are confident that they’d act in your best interest.
There are countless scenarios of how tragic life events may play out, and an estate plan clarifies your wishes for your family who may not be capable of making such hard choices due to age or emotional distress.
How is estate planning different from financial planning?
Financial planning largely focuses on what happens with your assets now, while you are alive and in control of those monies. Though, it’s important to understand that there are areas where financial planning facilitates your estate planning goals. For instance, a financial plan will address things like life insurance needs, disability coverage, and long-term care options—mainly focusing on financial risk mitigation, but if passing on assets is a financial goal, we may structure life insurance in a manner to facilitate this desire.
A financial plan may also structure your assets to reflect any future gifting or inheritance goals you may have. For example, perhaps we implement an aggressive Roth conversion strategy so you can pass on tax-free monies to your children. Or, we structure your during-life gifting to your children to be tax efficient.
However, oftentimes, some of these long-term desires require more than just an account beneficiary or retitling of an asset, and financial planning does not create the requisite legal documentation required to dictate end-of-life financial, medical, and familial decisions. Financial planners often act to support your estate planning desires which are outlined in legal documents.
That being said, a financial planner should be giving you a broad idea what type of estate planning documents you may or may not need for your situation. Just as with financial planning, estate planning needs are dependent on your net worth, income, family makeup, health, and other personal desires and finances related to your situation.
This is why financial planning and estate planning go hand-in-hand. Oftentimes, how you want to pass on assets will require we structure your financial decisions now to accommodate your end-of-life desires. Without both a financial plan and estate plan, your personal and financial matters are not ordered properly.
What happens if you don’t plan?
Until law school, I had zero knowledge of several very scary realities tax-paying citizens should be aware of when it comes to their assets at death: probate, estate tax, and even your money escheating to the state (i.e. the government gets it all).
Here are some things that could happen if you don’t make estate planning decisions ahead of time.
Probate
Turns out, if you don’t make these estate planning decisions now, the state you live in will do it for you—and they will charge your assets a hefty fine to do it using a system called Probate. Probate is slow, costly, and public. Save your family and beneficiaries money and pain by planning ahead to avoid this process.
If you have avoided implementing an estate plan because of the out-of-pocket cost, just ask to see the Probate fees for your state—you may change your mind.
Estate Tax
Many of you have probably heard of the dreaded “death tax.” It is real, and while it is currently set fairly high, it is scheduled to drop down in 2026. But, if you live in a state with high costs of real estate, you would be surprised how quickly a family can approach the 40% tax threshold for their estate. Estate planning cannot eliminate taxes you are required to pay, but it can implement strategies that order your estate in a way that makes the calculation more favorable.
Assets Escheating to Your State
Even worse, in some limited cases, your money could even be inherited by the state. Meaning, rather than designate who you want to inherit your assets—whether a person or an organization—if you have no legal beneficiaries, the government coffers can declare themselves the beneficiary.
Family Decisions Should be In Your Hands
Even more important than avoiding probate, estate taxes, or giving the state your hard-earned money, is the control you will have over your family’s well-being by putting these plans into place now. An estate plan outlines what the financial situation for a surviving spouse looks like; it also designates who cares for any minor or disabled children in the event you and your spouse pass away. This is by far the most important decision parents can make.
The Ties that Bind
At the end of the day, you need both an estate plan and a financial plan. Implementing a comprehensive financial plan will set the course for how you may want to arrange your savings and investing for your long-term estate planning needs. An estate plan will help you and your family protect one another in worst-case scenarios, and it will also make sure all the assets you spent years building are allocated according to your wishes.
For more information about what you need to know about the importance of estate planning, catch my discussion with Estate Planning attorney Colleen Robinson last week.