NerdWallet's Smart Money Podcast - Estate Planning Essentials: What to DIY and When to Lawyer Up

Episode Date: June 27, 2024

Learn why estate planning is important even if you don’t own a lot of assets, along with when to ask for professional help. Why is estate planning important?  What happens to your assets when you die without an estate plan?  Hosts Sean Pyles and Dalia Ramirez discuss the essential aspects of estate planning and the common misconceptions that often deter people from creating an estate plan. They begin with a discussion of the critical importance of having a will, with tips and tricks on keeping updated records, managing assets and understanding the role of a will in preventing lengthy probate processes. Then, RK Law PC Managing Attorney Regina Kiperman joins Dalia to discuss various tools and strategies available for effective estate planning. They discuss the importance of clearly identifying witnesses in a will, the scenarios where hiring an attorney is essential, and the necessity of advance directives, power of attorney and healthcare proxies. The conversation features actionable advice on managing your will and advance directives, highlights the emotional and financial relief that estate planning can offer surviving family members, and encourages proactive steps to ensure peace of mind for loved ones. In their conversation, the Nerds discuss: estate planning, securing your legacy, family future, will preparation, protecting assets, probate process, estate plan importance, managing assets, reverse mortgages, Medicaid trusts, key life events, baby estate plan, retiring estate plan, property multiple states, proper documentation, estate planning tips, DIY estate planning, getting professional legal help, emotional relief, financial relief, surviving family members, avoiding probate, asset distribution, wealth management, creating a will, updating records, healthcare proxies, power of attorney, advance directives, legal issues, estate planning misconceptions, affordable estate planning, tax planning, Medicaid planning, business succession planning, contesting a will, trust funding, self-proving affidavit, and witness identification. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Nobody wants to think about the worst case scenario. To put it more bluntly, nobody wants to think about dying. But if you don't think about it at all and don't plan for it, your entire financial life could end up in someone else's hands, from a distant family member to your state's court, making decisions about your money. Today, what to do to keep that from happening. Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles.

And I'm Dahlia Ramirez. Today, we're exploring the utterly thrilling world of estate planning. Doesn't get more exciting than this, Sean. Well, Dahlia, welcome to the host chair here at Smart Money. Thanks. I'm really glad we're tackling this topic. Yeah, it's something we talk about every so often on the show, sometimes in response to listener questions. But in this episode, we're going to go through why it's so important to have an estate plan, who needs one, and what happens if you don't have one. Yeah, that's really the key here. I think a lot of people don't realize what happens to their money and belongings, their estate, if they don't have a plan. And there are a lot of misconceptions about estate planning, that it only matters if you're rich, that you don't need one if you don't have kids,

that it's expensive and takes a lot of time to do this kind of planning, and that's not all true. And when we take a look at the numbers, we definitely see some concerning trends. Caring.com does an annual wills and estate planning survey, and in 2024, they found that only 32% of Americans even have a will. And that's down 6% from 2023. Yeah, for the first time since 2020, the number of Americans with a will

declined. And this is despite the fact that 64% say having a will is important. So we kind of know that this is something we should do, but then we don't do it. And I think some of what we've already cited makes sense. People are worried about cost. They think it's just for rich people. And I would imagine that in some cases, folks just don't want to think about their own death. But here's the thing.

The consequences of not doing any planning will fall on your surviving family members. If you don't have a plan, your family can end up having to deal with a long, expensive probate and all kinds of other legal issues, all while they're mourning your death, which is hard enough on its own. Yeah, Dahlia, this is not fun to talk about. No, it's not. But we're going to forge through anyway.

Okay, so is there a specific reason that you wanted to come on and do an episode with us about this? I think in a weird way, it's comforting to make peace with things like death. It's a part of life. It happens to everyone. And there are some surprisingly simple ways to make it easier on your loved ones when it does happen. A document or two, which you can make inexpensively or even for free, can really spare your family from having to make painful decisions during an already difficult time. Well, I'm glad to know that I'm not the only person with somewhat morbid proclivities at NerdWallet. While thinking about death can be scary and grim, there is something about planning for the inevitable

that makes this part of our lives a little easier to grapple with. Well, we want to hear what you think too, listeners. Do you have an estate plan in place? If not, why not? If so, what prompted you to do it? Share your stories with us by leaving us a voicemail or texting the nerd hotline at 901-730-6373. That's 901-730-NERD or email a voice memo to podcast at nerdwallet.com. So Dahlia, who are we hearing from today? Today we're talking with Regina Kipperman. Regina is a managing attorney with the estate planning firm RK Law PC in New York. All right, we'll hear from Dahlia and Regina in just a moment. Stay with us. Regina Kipperman, nice to have you on Smart Money. Let's start with what might seem like an obvious question, but we're going to ask it anyway. Why is it important to have a will?

It's important to have a will because a will acts as an instruction manual to set forth your wishes in the event that you pass away. All states have typically provisions for what happens to your assets if you pass away. For example, New Jersey says if you pass away married, everything goes to your spouse. And if there's no spouse, then to your kids. New York, on the other hand, says if you pass away and you have a spouse and kids, $50,000 plus the first one half goes to your spouse and the rest goes to your kids. So some people want to deviate from the basic rules that are put forth by these different states. And they might want to create a will so that they can have their proposed and desired way

of distributing the estate assets. Sometimes you need to do it for tax planning. Sometimes you want to do it because you want to give to a friend or a charity or a different person than you would have to give if you just followed the strict laws of the state. So what are some of the things that can happen if you don't have an estate plan? Where could your estate end up? If your next of kin are your parents and they are on government benefits, not having a will could lead to those parents inheriting the estate assets and being kicked off their benefits. Actually, I have a case in point. One of my clients, his dad is his next of kin and his dad is a Russian immigrant and his dad is on danger of losing all of his benefits because he's now going to inherit this amount of money, and had the person who passed away actually had a will, then the dad could have had the benefits

and been able to use the money to supplement his care, which could have benefited him more. I have another client whose aunt passed away, and at the time she passed away, she had nine siblings. And some of the siblings had died before her. And because it took so long to administer the estate, some have now died after her. And when someone dies after and they have children, or even the ones that died before, they also had children. So now the court will require jurisdiction over all these different people, making the administration process a complete nightmare. And in that case, the person

has a house. That house has tax liens and other problems associated with it. And so if there was a will, even though there's all this different family over whom we have to get jurisdiction, it's easier to get something called preliminary letters to at least temporarily administer the estate. And it's easier to get that than temporary letters. What are the other tools that might be needed for these circumstances? Okay, so a will is fine. You can have trusts inside of wills. Trusts by themselves, they're just contracts. And a revocable trust is often perceived of as a will substitute. And for basic estate planning purposes, a will is perfectly fine.

And even sometimes for tax planning, a will is perfectly fine. The creation of the sub-trust could be done under the will, which is just another trust that's formed under the will with the spouse who had no will. Even if he had just said everything to my spouse, that is not the best tax planning, but that's something because that then defers all of the tax until the death of the second spouse and creates more flexibility and does not cause difficulty for the family who now has to raise money to pay the estate tax. Is it fair to say that in most circumstances or even all that something is better than nothing?

Or are there any types of people who really need something specific or nothing is better? How do you know which tools are necessary? Okay. So typically when a family calls and they say, oh, we're newlyweds, we want to make sure everything goes to each other, right? If that's their only thinking, I'll say, well, you don't really need a will because if you die, everything will go to the survivor anyway. So that's an example where you don't necessarily need one. Although if they think three steps ahead and they say, well, what happens if we both die? And we want to give everything to, you know, again, a charity or our cousin or our friend, then you would need a will. So anytime you want to override the default state law, you need a will. Anytime you're just thinking, I just wanted to go to my spouse, you don't necessarily need a will. Anytime you're just thinking, I just wanted to go to my spouse,

you don't necessarily need a will. Anytime you have two children or one child, okay, and that's your only child and you don't have a spouse, you don't necessarily need a will because everything's going to go to that person anyway. If you want to build in more foresight and more planning, so for example, I have only one child, but they're not super trustworthy. I have only one child, but they have creditors. I have only one child, but I don't trust their spouse. Then you want to do planning. But if it's like, I have one child, they get everything and I don't care what happens when I pass away. You don't really need a will in that situation. Okay. That helps. I mean, there's a lot, people have a lot of different circumstances. So there would be different tools that then there's a trust. And then a trust is a contract between quote unquote parties. And sometimes if it's a revocable trust, it could be a contract between yourself and yourself,

because in a revocable trust, typically you're the one that creates the trust and you're the manager of the trust, also known as the trustee. There's various types of irrevocable trusts, which are trusts that you set up with a different type of purpose. For a revocable trust, you usually set it up for privacy or because your heirs are unknown or because you want to treat people differently or because your assets are volatile. It's a different type of planning. It's like probate avoidance planning. That's a revocable trust. An irrevocable trust, which is another estate planning tool, is where you're starting to think more about not just probate avoidance, but specific purpose. So there's a qualified personal residence trust where you're gifting

your property away, but being able to take advantage of the present value of it. There's a Medicaid trust, where you're giving away your assets in order to qualify for Medicaid. There's a credit shelter trust, where you're essentially trying to figure out what goes into the trust to reduce your taxable estate. So the irrevocable trusts get broken down into a number of different trusts that depend on what your purposes are and what your facts and circumstances are. And then another estate planning tool is advanced directives, which is power of attorney, healthcare proxy, living will, HIPAA, appointment of agent to control remains. And that is, in my opinion,

everybody needs those documents. Those are like the most basic documents you can get and everybody needs them because everybody is gonna go through a process where they become sick and where they need help and where they need someone to make decisions for them. And in the absence of these types of documents, which are very simple and easy to get, people find themselves in guardianship or

more complex processes that then require a lot of time to have someone appointed to make the right decision for you on a medical or a financial level. So these medical estate planning tools are fairly straightforward, right? They're extremely straightforward. For the most part, you can get them online. Like a healthcare proxy, you can just download it online. Every state has its own form. A HIPAA, download it online. Every state has its own form and also federal has its own form.

A power of attorney can be more complex, but the most basic version is typically available online. An appointment of agent to control remains also available online. A living will, and this is, most people think a living will is a will. It's actually not. A living will is the document that says we authorize our agent to pull the plug. And it's not a will. And that living will is not really available online. It's not just a statutory formula, but you could have somebody create it for you.

Or if you go to, I think, CaringKind or one of these kind of organizations, they usually have some version of a living will. So most people can pretty easily get the medical estate planning together. The financial stuff could be a little more complicated, right? Do you have to change the name on your accounts? Your bank accounts become accounts under the trust.

Do you need new checks? What are the steps after you create something like a trust on the financial side? Okay, so for a will, obviously you don't have to retitle anything. For a trust, after you create the trust, you have to fund the trust. I have countless examples of people who created the trust. Not me, not me. We fund all of our trusts, but they've come to me because they've created a trust. And I say, okay, what's in it?

And they blank stare me like, what do you mean what's in it? I have a trust. And I'm like, that's great. What'd you put inside? And then there's silence, just absolute silence. For a trust to have any, I don't want to use the word legitimacy. That's not right. For a trust to have value and make any sense, you should fund it. Here's how you fund the trust. Statute requires you to fund the trust by re-registering assets into the trust. If you

have a deed, you need to do a new deed to transfer ownership of the property into the trust. If you have a deed, you need to do a new deed to transfer ownership of the property into the trust. If you have retirement accounts, you can either transfer ownership, just get the forms to either transfer ownership or transfer the beneficiary designation. For a retirement account, you don't have to necessarily say, oh, the trust is the owner. In fact, because it's a retirement account, you may not even be able to do that. But you can designate the trust potentially as a beneficiary. If you have stocks, you might want to re-register those stocks. If you have life insurance, you might, depending on the type of trust, either transfer ownership

of the life insurance or change beneficiaries on the life insurance to be the trust. And there's always forms that every financial institution has to help you re-register the asset into the trust. And I always tell people you should have the spreadsheet and then you should continue to update it as you get new assets because everything you put into the trust, you should have a record of. I actually have stories where people have put almost everything into the trust, you should have a record of. I actually have stories where people have put almost everything into the trust and then they left out an account. Otherwise, if you have everything in the trust and you've left an asset out, when you pass away, now you have to probate your will, which might not have been your goal in the first place. If you were trying to avoid

probate, you just failed. Right. And some of this sounds like it's for people with a lot of money, a lot of assets. And I think a lot of people assume that you need to be really wealthy to need an estate plan. Is that true? It's more about tax planning. If you have a lot of assets, estate planning is just an orderly way to distribute what you do have. So some people just have maybe a house and maybe some cash in the bank and maybe some retirement accounts. You just want to make sure that when something happens to you, those assets are distributed in the way that you want them to be. Here, I have a great example. A woman recently came to my office with

her niece and she actually does not have a lot of assets. She has a co-op in New York City and one bank account. And really she was older and needed care. And she was struggling with how to finance that care. And she has a son. When I asked about the son, she said, I don't have a relationship with my son. So in her case, she wanted to make sure that she gave everything that's left to her niece. And also they wanted to make sure that there was a way to finance her cost of care.

So we talked about setting up maybe a reverse mortgage, which by the way, is also an estate planning technique. We talked about transferring the co-op into a Medicaid trust. And then we talked about just doing a will, leaving her whole asset to her niece, because that was the one person who took care of her during her lifetime. And that's the one person she wanted to make sure everything went to. So she doesn't have a lot of assets, but she just wants to make sure it doesn't go to her son who she hadn't seen in like 20 years. I have a sort of separate question now on a different note. What kind of life events should trigger people to think about their estate plan? Anything that could happen in someone's life where you would say now is the time?

People call us for the following. We just had a baby. And if they just had a baby, they want to make sure that there's a guardian who could be charged with taking care of the baby in the event something happens to them. People call us because they want to potentially shift their assets because they are afraid of creditors. People call us because they

want to pass their businesses down to their children when they're ready to retire. People call for retirement planning. People call because they've bought property in multiple states and they want to avoid probate in multiple states. And then people call because a family member has fallen or the spouse has fallen and they're in rehab and they need to figure out what to do to shift assets for government benefits. Gotcha. Once you get married, would you want to create estate planning documents together? A will, a joint will, a trust together? That one's a little different because if you're just married, you don't necessarily need the type of basic estate planning because everything goes to that spouse anyway. But if you are married and have a lot of assets, or if you're married and

have disparate assets and you want tax planning, or you want to deviate, again, you don't want everything to go to the spouse, then you would want estate planning. So it really depends on the facts and circumstances. But just being married by itself isn't necessarily enough reason. I was wondering how people can make sure their wills, trusts, any estate planning document is valid. Because having a will is one thing, but having a will that actually passes through probate court successfully and quickly is another thing. And I know this might vary by state, but what can we tell people to make sure they know what they need to do to get their will

certified? Okay. In most places to have a will, you need a person, two witnesses, and a document. And the person can say, this is my will. This is what I wanted. Will you guys be my witnesses? Yes, yes. Okay, everyone sign. And for the most part, most wills are not contested.

There are nuances and some specific requirements that people need to meet in order for their will to be admitted to probing. So the names of the witnesses should be really clearly spelled out. I have now a case where I cannot for the life of me figure out the name of the second witness and the law firm where the person had the will done is now closed. It's literally a squiggle. Like the signature is a squiggle. It could be like John Doe and I don't know what to write. And so I actually called the court and trying to figure it out. But that's a really very small thing

that could turn into a big thing. Like just legibly write very neatly the names of the witnesses. Oh, I'm wondering on that note, when is it necessary to hire an attorney for estate planning? Who is in a position to DIY it and who really needs the professional help? Again, this is personal. This is just because the law is some part art, part

science. Okay. And so I think that if you have a house, a couple of bucks, a retirement account, and you've got a wife and a couple of kids, and there's nothing. You're not setting up any trusts. It's just a will that says to my spouse, and if not to my children, you can DIY it. You don't need a fancy lawyer. You don't even need a lawyer at all. You can go on LegalZoom, Rocket Lawyer, Trust.com, whatever site you want. And if that's your specific situation, you do not need a lawyer. If your situation is more substantive, and it's not necessarily that you have more assets, it's more substantive. So for example, your wife is sick. You don't trust one of your children. You're going to treat your children unequally. You need to create a subtrust. You want to do

Medicaid planning. You want to do Medicaid planning. You want to do tax planning. You want to do business succession planning. If you want something more substantive, you want to give to a charity because there's different rules on charities, then you might want to speak with an attorney because they can help guide you on the nuances. If you believe your will will be contested, you should go see an attorney. Not only that, you should do like 10 versions of your will, not 10 of the same. Like you might strategically want to execute multiple wills saying the same thing, because if you set aside one, you haven't set aside the other. Those are probably some times where you

DIY versus not. Some more examples. You should staple your will. And once you've stapled your will, if you want probate to go simple, don't unstable the will. You should not keep your will in a safe deposit box. Because if you do, then someone's got to go search the box because the bank will seal the box. So don't keep your will in the box. Don't unstable your will.

And even by the way, staple it. Don't like leave it unbound because then the court wants to know why is it unbound? Make your witnesses really clear. Have a self-proving affidavit. A lot of wills from these other like online DIY, the thing is they don't always have a proper self-proving affidavit. And if they don't have a proper self-proving affidavit,

you have to hunt down the witnesses, which sometimes is a problem. I'm sure for some people, cost is a factor here. They're going the DIY route because it might be cheaper. Could you ballpark estimate how much an estate plan would cost people with an attorney? You know, people ask me all the time when right before they hire me how much I'm going to charge them. And you know, it's hard to quantify. It really depends on your facts and circumstances. It could be anywhere from $2,500 to $25,000, depending on the complexity.

If it's a basic will with some trust for the minors and some powers of attorney, all that stuff, or maybe $2,500. If you're getting into trusts, trust funding, deeds, transfers of assets, re-registration of assets, I mean, or transferring your co-op into a trust, that becomes a pricier venture. So cost can be a factor depending on your circumstances. I also though read a survey by caring.com that found that only 32% of Americans have an estate plan. So what do you think are the other factors that keep people from doing estate planning? The fact that people think, okay, well, I don't have a lot of money, therefore I don't need it. That people say, okay, I'll do it, I'll do it. And then they don't get around to doing it because that's just not a priority.

Some people are superstition about doing it. They think that if they're going to do it, that means they're going to die. For some people, they can't even talk about it, again, because it's superstition. And some people start the process and don't finish it. And then there's the people who don't have anyone to leave it to. And they say, well, whatever, the state will figure it out. Are there any warnings that you would say to encourage someone who you think really could benefit from estate planning, but is hesitant for any number of reasons? So again, my opinion, the most, like the most important thing that you absolutely 100% need to do is advanced directives.

Everyone hears me say this. Power of attorney, healthcare proxy, the most, most, most important thing, because I am telling you, these documents are extremely cheap to do. And if you don't do them, and if something happens to you, there's going to be a hundred times more dollars spent on reacting to the consequences of not having a simple power of attorney. As for a will, I personally think that it's important to do it, to set forth your wishes, but the will is just one piece. The thing that I think is the most important is to have a conversation about what do I want to happen if I'm sick or if I pass away, okay? Where do I want my stuff to go? That conversation is the most important one to have.

Even if you're superstitious, you have to face it. You have to face that conversation. And if you don't, unfortunately, you'll wind up with a mess. And it'll be a bigger mess if it happens while you're alive. Because if you've passed away, the mess is on your kids. But if you haven't taken care of estate planning while you're alive, then the mess is on you. And I've got countless examples of that where the person's alive, got sick, is incapacitated, can't sign a power of attorney, and their kids are both grieving, dealing with the mental difficulties and anxiety of their sick parent, and scrambling to try to figure out where everything is and properly structure a plan where their parents can be taken care of.

You know, I've had those and I have countless examples of the same set of facts, but the parent has now passed away and the kids have a bunch of property, but no way to pay the estate tax. That's a big problem as well. And that leads to fighting. And the thing that most parents don't want

is they don't want their kids to fight. Or here's a great one. A person passes away. They have three kids. They have a house. They didn't do a plan. One kid lives in the house. What's going to happen now?

The parent should have been more proactive to think about what will I really do with my house? Who do I really want it to go to so that my children don't fight? Which, by the way, as a parent, I hate when my children fight. I will do anything for them not to fight. And that should be motivation enough to call up the lawyer. Those are such great examples. Thank you. And thank you for helping us out today with all of these questions. I really appreciate it. No problem. Anyone who knows me knows that estate planning is my favorite morbid hobby horse. People really don't want to think about or engage with this stuff, and I get it.

It can be scary, but I think about it a little bit differently. I see estate planning as an act of love and generosity. Spending a few hours sorting out how you want to be cared for when you get sick or injured and what you want done with your stuff after you die can bring tremendous peace of mind and solace to your family in the middle of a very stressful time.

So please give this gift to your loved ones. Absolutely, Sean. And I think it's important to remember that no one can read your mind about what you want the end of your life to look like. Taking the time in advance to reflect on what matters to you and get it into writing makes it a lot more likely that your wishes will be respected and that your family might even have the pleasure of fulfilling them instead of the burden of guessing. Well, I hope our listeners have a better feel now for why it's important to do this,

even if you don't think you want to or you don't want to think about your own demise. If you're having trouble with that, just remember, the aftermath is hardest on the people that you leave behind. So if nothing else, think about them. And I really hope listeners come away with the knowledge that this doesn't have to be complicated or complex, and it doesn't have to cost much money. In fact, you can DIY it if you want to. But if you don't want people who aren't you to decide where all of your money and belongings end up, it's really important to get this done. Do you have one, Sean? I do. My partner and I both have our estate plans and advance directive sorted.

We did this a few years back after we got engaged because we knew it would be a number of years until we got married. But we wanted to ensure that we were taking care of each other now before we were legally bound together. What about you, Dahlia? Well, it feels silly because I don't have a spouse or kids or much in the way of property, but I spend a lot of time reviewing estate planning software, so I've helped my whole family draft wills, and I did mine for good measure.

Hopefully at some point I'll have some more things to put on there. I like that. You are practicing what you preach. Well, Dahlia, thanks for coming on Smart Money and doing this episode with us. Thank you, Sean. For now, that's all we have for this episode. Do you have a money question of your own?

Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Visit nerdwallet.com for more info on this episode. And remember to follow, rate, and review us wherever you're getting this podcast. This episode was produced by Tess Figlin. Sean helped with editing. Claire Soce helped with fact-checking. Sarah Brink mixed our audio. And a big thank you to NerdWallet's editors for all their help. Here's our brief

disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.