Maybe not. Maybe you think that estate planning for the middle class means avoiding probate when you can. Maybe you think it is your beneficiaries’ job to best use what they inherit. If that is your position, then you are not alone. Most lawyers, bankers, and financial advisors agree with you. But that thinking is short-sighted and based on a lack of knowledge. In some situations, I might characterize it as irresponsible.
Personal responsibility is important. There are many situations in which my influence on my children’s success is based solely on parenting decisions that were made many years ago. But that does not apply to protecting their inheritance. I am comfortable with the fact that my children are one bad decision away from losing their assets. The same goes for me. And you. So we should all be careful and insure against known risks. But it is unnecessary to subject assets that I worked for to the consequences of my children’s bad luck or bad decisions.
Management of inherited assets is different from other management decisions. You have the ability to give your children protections that they can’t give themselves. You can protect your assets from your children’s divorce, business failure, exploitation, or split-second bad decisions. They can’t do that after they inherit.
In May 2018, the price of one year of the “ultimate” level of cable, internet, and home phone in Wilson, North Carolina is $1,978.80. If paying this amount every year for 200 channels is a wise use of your funds, would it be worth paying that amount one time to protect your $1M IRA from being lost to creditors, predators, or bad decisions?
If you are paying your financial advisor 1% per year to increase your investment returns, is it worth paying 1% one time to protect those assets from the threats that your family faces?
Our clients are not opposed to protecting their children. But there are several hurdles that they have to overcome before embracing that idea. First, they don’t understand what might go wrong. Almost every day someone answers one of my questions with “I never thought about that.” Our clients also don’t understand their options. They assume that their only choice is making an outright gift. They also don’t like to write checks. Your cable bill is probably an automatic payment. The management fees on your 401(k) are deducted from your account. It’s still real money. But you don’t feel it. Finally, our clients do what their friends and family do. All of your neighbors have HGTV and ESPN. If all of your neighbors had retirement Trusts, you would want one too. But your neighbors probably haven’t ever thought about these issues either.
You are not guaranteed tomorrow. You have an opportunity right now to set up your estate in a way that it will be a benefit to your descendants for many years to come no matter what their circumstances. Everyone has a different tolerance for risk. It is not my goal to convince you to plan a certain way or to spend a lot of money on an estate plan. But it is my goal to get you to think about it.