How to Manage the Fees and Costs of Estate Planning

How to Manage the Fees and Costs of Estate Planning

Estate planning is a vital step in not only ensuring that your assets are distributed according to your wishes upon your death, but it also prevents conflict that could arise among your survivors if they are left to make decisions about your estate themselves.

If the cost of estate planning has you thinking twice, consider the possible issues that could arise without it. Young children could be left without guardians, and irreparable rifts could develop between adult children trying to split assets themselves. You would leave a lifetime of assets in the hands of others with no say in where they go next. But if you have an estate plan, your survivors will not have to worry about making decisions about your estate while they are grieving.

Here’s a breakdown of fees associated with estate planning.

 

Online vs. In-person

While the Internet can be a great source of information, it’s not where you want to spend your money on estate planning. You’ll find plenty of do-it-yourself estate planning kits online (for a fee) that will allow you to create a simple will online, but don’t fall for their easy approach and low costs. This type of planning may work for someone with no beneficiaries and few assets, but everyone else should hire a professional.

The best use of the Internet in estate planning? Using it to do initial research into the field and come up with smart questions for your professional estate planner.

 

Costs

The costs of estate planning will vary according to the professional’s fee and how complex your property is. The cost for a simple, straightforward will could be a low as $150, while a complicated estate may require thousands of dollars.

Estate planning professionals, who can include attorneys and financial planners, typically will charge flat fees or an hourly rate.

 

Flat Fees

Estate planning professionals using this pricing system will charge a set price, often based on their experience and the work that they offer. If you are offered a flat fee, it’s important to ask the attorney or finance professional what that fee covers, as it may not include extras such as a notary fee, and how they expect payment. Some professionals require the entire flat fee up front, while others may ask for only part of the fee before they start on your plan.

 

Hourly Rate

Other professionals charge an hourly rate; this will cover all the time that the lawyer or planner spends working on your estate. In some cases, the professional also may ask for an initial retainer fee, which you will pay before work begins.

This fee schedule often applies to more complex estates that will require additional work.

 

Initial Consultation

Your first meeting with the professional, which can take place in-person or virtually, typically won’t include a consultation fee. During this meeting, which can last up to an hour, you’ll talk to them about your situation and figure out the extent of estate planning you will need. While this meeting may be free, expect to pay for future consultations.

As you meet with estate planning professionals to determine which one you will work with, be sure to ask each how much they charge, what fee schedule they use, and what services they provide for that cost. This information will help you choose both an affordable service and one that can handle your estate.

 

Can My Bill Increase?

Yes. Even if your financial professional has given you a rate and detailed list of services that rate covers, it’s still possible they will run into work outside of that scope once they delve into your estate. To offset any surprises, talk to them up front to understand when and how much they charge in extra fees.

 

Managing Your Estate Planning Costs

To keep your estate planning in your budget, you can take steps in advance to minimize the costs.

  • Prepare your questions: Before you start shopping for an estate planner, know what you need. Read up on basic estate plans, which documents are required, and what you need to know more about.
  • Shop around: Don’t work with the first person you talk to. Take time to learn about various firms, read their reviews, and compare what they offer. You also can schedule consultations with each one to gain more points of comparison.
  • Ask about costs: To avoid unexpected fees and costs, talk frankly about money during your consultation. Ask questions about their fees, rates, and scope of work so that you’ll know what you’re paying for and what could become an extra cost.
  • Sign a contract: This is not the time to take a business on its word. Have the firm draft a work agreement, including costs, that both of you sign.
This Is How to Preempt Conflict over an Unequal Estate Plan

This Is How to Preempt Conflict over an Unequal Estate Plan

The COVID-19 pandemic has caused many people take financial actions like postponing retirement and to re-evaluating their estate plans. When it comes to the latter, an issue many grapple with is how—and whether—to equally allocate their assets to their children.

While dividing one’s estate into equal parts seems fair, often children have made different life choices, have different characters, and aren’t in equal life circumstances. A survey conducted by Merrill Lynch Wealth Management and Age Wave in 2018 found that many Americans don’t want to distribute inheritances to their adult children equally.

For example, 25 percent of respondents said they believed an adult child with their own children should receive more of an inheritance than an adult child with no children. About two-thirds said they believed an adult child who provided care for them should get more that those who did not provide care.

“How do you define equity?” Lisa Hanks, a California-based estate planning lawyer, recently told the New York Times. “It is different for different families.” For many, equity and equally are two different things.

Sibling Discord

As you consider how you will divide your own estate, you may find that issues of equity are complex and sensitive. For example, you may have one child who you believe will always need extra help, while your other child has a high-paying job in a stable industry. Or, you may have an adult child with special needs who will need expensive care after your death.

However, even in cases where one child may clearly benefit from extra inheritance, other siblings may not always be on board. Unequal inheritances can lead to conflict between siblings when the estate is divided. Some fights become so unmanageable that siblings take each other to court. In some cases, siblings who receive less believe that siblings with a larger share of the inheritance must have manipulated or influenced the parent to leave them more. This can lead to bitterness, distrust, and broken relationships after a parent dies.

Estate planners suggest that when parents create unequal inheritances, they should have a conversation with each child to explain their reasoning. Families also can hire mediators to facilitate discussions about inheritances to help siblings understand their parents’ decisions.

For example, one mediator described to the New York Times a situation where she helped a father and two of his sons, who were financially successful, discuss the father’s desire to leave more money to his third son, who had issues with his finances and health. In the end, the two financially successful sons decided they would prefer for their brother to receive a larger inheritance because they wanted to have a good relationship with him and were concerned that they might otherwise become financially responsible for him later in life.

Navigating an Unequal Inheritance

Here are several situations a financial planner can help you work through if you are considering an unequal distribution of your estate between your children.

  1. Factoring in an “Early Inheritance”

Some parents provide one child with extra financial support early on, such as paying for graduate school or helping a child with a down payment on a house. To balance out their gifts, parents often want to factor in this type of “early inheritance” into their will.

Experts recommend that parents discuss the early inheritance with their children and document the gifts in their estate plan. If parents have loaned a child money, the will should include a promissory note outlining the amount and terms of the loan, how much has been repaid and whether the balance should be deducted from that child’s share of the estate.

While including past gifts may complicate your estate plan, not acknowledging them in your will can create resentment in children who did not receive substantial financial help from you while you were alive.

  1. Repaying a Care Provider

In some cases, one adult child served as their parents’ primary caregiver at the end of their life and parents want to reward this child. However, siblings may not be on board with the inequity it could cause in their parents’ estate.

To avoid real or perceived inequities, when the estate is drawn up to compensate a caregiving child, financial planners often advise families to create a personal caregiving agreement that defines the caregiving services and the value of their contribution in the estate, such as extra money to buy a house or more of the estate. As always, parents should also talk about these decisions with their children.

  1. Taking Care of Stepchildren

Blended families can create added complications when drawing up an estate, as research has found that parents with no stepchildren are much more likely to treat their children equally than families with stepchildren. To ensure assets are distributed as the deceased intended, financial planners recommend being specific in how the estate is set up.

For example, a husband with children from a previous marriage may want to create a trust that provides for his spouse and bequeaths his remaining assets to his biological children after she dies. Alternatively, the husband could specify that certain amounts of his estate should go directly to his children rather than leaving everything to his spouse or name his children beneficiaries of a life insurance policy.

Regardless of careful estate planning, however, inequities can creep in. To best preserve sibling relationships, parents should always lay out detailed estate plans in advance and talk to their adult children frankly about their estate and the reasoning behind their decisions.

7 Ways the American Rescue Plan Could Impact You

7 Ways the American Rescue Plan Could Impact You

The first major legislation of Joe Biden’s presidency could be a $1.9 trillion coronavirus relief package that Democrats are fast-tracking through Congress to get relief to Americans quickly. Called the American Rescue Plan, the bill could impact individual Americans far beyond relief checks.

Here’s how the legislation could affect you:

1. Another Round of Relief Checks

Sending money directly to individuals has been discussed in Congress throughout the pandemic, but in the past year only two rounds of stimulus checks have made it to Americans. Most recently, some Americans received $600 checks starting in late December.

The American Rescue Plan calls for a third stimulus payment at the set rate of $1,400. Not everyone will receive a check—the relief funding is aimed at low earners and could also include adult dependents and families with mixed-status citizenship. While the rules of who qualifies as a mixed-status family aren’t entirely clear, we do know that the bill could extend eligibility to millions of families where one person isn’t a U.S. citizen. Many of these families didn’t qualify for the first two stimulus checks.

For now, it’s unknown whether eligibility will be based on your 2019 tax return or if your 2020 tax filing also will be taken into account. Generally, stimulus check eligibility considers your age, marital status, tax status, and adjusted gross income. Current proposals end eligibility for single taxpayers earning $100,000 or more, a head of household making $150,000 or more and married couples filing jointly making $200,000 or more. This round of stimulus checks could set the government back more than $420 billion.

Democrats hope to have the bill on President Biden’s desk in mid-March, when unemployment benefits and other pandemic aid ends. Checks could be sent out within weeks.

2. Increased Tax Breaks for Families with Children

Now, taxpayers can deduct as much as $2,000 per dependent child from their federal income tax bill. The American Rescue Plan could raise that deduction to $3,000 for every dependent child age 6 to 17 and to $3,600 for every dependent child who is younger than 6.

All families would be eligible for the full credit, regardless of how low their annual income is. Columbia University’s Center on Poverty and Social Policy estimates that coupled with the individual stimulus checks, the increased child tax deduction could decrease the number of children living in poverty by more than 50 percent.

3. Extended Unemployment Benefits

President Biden wants $400 weekly federal payments for the unemployed that will continue through September. The bill originally called for $300 payments that would end in March.

Biden’s proposal would be extended to people who have been part of the Pandemic Emergency Unemployment Compensation program and have used up their state unemployment benefits as well as to people who have participated in the Pandemic Unemployment Assistance program, which benefits freelancers, gig workers and the self-employed.

4. More Generous Food Stamp Benefits

The bill would retain the 15 percent increase in food stamps, which was set to expire in June, until September. To alleviate hunger, the legislation also would authorize $3 billion in nutrition assistance for women, children and infants; $1 billion in nutrition assistance to US territories; and work with restaurants to find jobs for unemployed restaurant workers and get food to Americans in need.

5. A Minimum Wage Hike

One of the more controversial aspects of the proposed bill is legislation that would raise the federal minimum wage to $15 per hour by the middle of 2025, and then it would increase accordingly with median hourly wages. While it’s unknown at this time whether the minimum wage increase will stay in the bill, the Congressional Budget Office has estimated that the increase would raise about 900,000 people out of poverty. While about 17 million people would get an increase in pay, as many as 1.4 million jobs could be lost as businesses try to offset costs.

6. Additional Business Assistance

Several business sectors that have been hit hard by the pandemic would receive aid in the American Rescue Plan. Airlines would get their third stimulus boost. This time, the bill would inject $15 billion into the industry as long as airlines didn’t cut pay or furlough workers through September.

The popular Paycheck Protection Program, which provides assistance to businesses for payroll and operating costs, would be replenished with $7.25 billion. Restaurants and bars that need help could receive grants of up to $10 million to pay rent, utilities, payroll, and other operating costs.

7. Help with Rent

The plan provides assistance for people who are struggling to pay rent or are facing eviction. About $5 billion is allocated to help renters pay their utility bills, and $25 billion (in addition to $25 billion allocated in December) would assist people with rent who make low or moderate incomes and are unemployed due to the pandemic. Federal eviction moratoriums, which were supposed to expire in late January, would be extended to the end of September. People who have federally backed mortgages would also have the same window to apply for forbearance.

Guarantee Retirement Income with a Deferred Income Annuity (DIA)

Guarantee Retirement Income with a Deferred Income Annuity (DIA)

Two key considerations in retirement planning are ensuring that you outlive your retirement income and that your financial plan can withstand changes in the market. Pensions used to provide this assurance, but as these types of savings plans become rarer, you may have to create your own guaranteed retirement income.

Deferred income annuities (DIAs) are a sometimes-overlooked financial tool that fortify retirement portfolios and guarantee that retirees will have a cash flow, regardless of market ups and downs. While financial advisers generally will not recommend investing the majority of your portfolio in a deferred income annuity, many do advise retirees to include them in their portfolios.

Why are these financial tools such a good idea? The main reason is they provide a guaranteed income for life, whether you live to 80 or 100. While the income they generate may not be enough to cover all your living expenses, they can provide peace of mind and a reliable source of income in your retirement years.

 

How Deferred Income Annuities Work

Unlike other investments that produce income, deferred income annuities guarantee income as long as you are alive—no matter how long your lifespan. This works because DIAs operate on the concept of the “mortality credit,” which means that the assets from annuities whose recipients live for shorter periods of time stay in the “mortality pool” to work for recipients who live longer. DIAs are managed by insurers, who can share risk with other clients.

To build a DIA, a buyer invests a one-time amount or makes incremental payments to an insurer, who invests the money and guarantees a regular income later on. The investor can choose when to start taking payments, although most begin at age 80 or later to ensure they have an income in the last year of life.

The key to maximizing income from DIAs, which convert part of your savings into regular income, is to invest before you retire. An early start can mean a higher stream of income after you stop working. Financial advisers generally recommend DIAs for everyone except those who can’t afford to commit their money to an investment, as DIAs are not liquid.

There are several good strategies for investing in a DIA. First, make a DIA part of a diversified portfolio, since it is not impacted by market conditions. A DIA can stabilize income projections and provide assurance that your basic bills will be covered in retirement (along with other guaranteed incomes from sources such as Social Security and work pensions). Investing in a DIA incrementally long before your retirement date also is an excellent way to build your own pension fund.

You and your spouse can each buy your own DIA, or you can buy one as a couple with a joint payout that guarantees the surviving spouse will continue receiving payments. For those concerned that they will die before they receive payouts or before payouts exceed the amount of the original deposit, ask your insurer about a return-of-premium option that will give beneficiaries the original deposit back. Be aware that this option will reduce the payout amount a little.

 

Why DIAs Are a Good Choice

The biggest advantage of DIAs is that you don’t use them until many years after you’ve invested. For example, if you buy a DIA when you are 50 years old, but don’t withdraw income until you are 80, you’re benefiting from annuities growth after 30 years of compounding interest.

Unlike an IRA or 401(k), which also grows over time and offers tax advantages, a DIA that’s not in a retirement plan (aka a nonqualified annuity) does not require you to begin withdrawals at age 72 to defer taxes. Additionally, DIAs do not have limits on how much you can contribute each year.

DIAs also provide more flexibility in how you distribute your retirement savings. For example, if you retire at age 70 and invest part of your savings in a DIA that you won’t use until you are 85, you can use the rest of your retirement money for income during the 15 years between 70 and 85. This will allow you more freedom with your money early in retirement, because you know you have a guaranteed income planned for your later years.

 

When Should You Buy a DIA?

The best time to buy a DIA is five to 10 years before you plan to retire, usually between ages 55 and 65. This will lengthen the duration of your deferral period and increase the size of your payouts.

Deferring the payout also allows you to make additional investments in your DIA over a long period of time, taking advantage of potentially lower interest rates as rates fluctuate. Investing in an asset that provides guaranteed income also reduces the need to take on riskier investments or to sell your investments in a down market to generate cash flow.

Should You Make a Will or an Estate Plan? Here’s What You Need to Know

Should You Make a Will or an Estate Plan? Here’s What You Need to Know

Creating a last will and testament is a key part of end-of-life planning. However, to clearly articulate your wishes for your assets and dependents upon your death, you must engage in the larger process of estate planning. A will is an excellent starting point, but it’s only one piece of managing one’s estate.

The terms will and estate plan are often (incorrectly) used interchangeably. Here’s how they’re different.

 

What Is a Will?

A will is a legally binding document that outlines how your property should be distributed after you die. Wills can be made quickly and easily—you simply need to put your wishes in writing or dictate them to someone else. You can include everything from who will receive your assets to who will take guardianship of your children to who will manage your business. A will also can include information about who will serve as its executor and make sure all of the instructions in your will are followed.

Wills are important because detailing your wishes can avert conflicts between family members over your property and about who should make important legal decisions following your death. Without a will, your family also would have to pay a lawyer or work with a public trustee to deal with your property.

 

What Is an Estate Plan? The

A broader approach, estate planning is a more involved process that ensures your beneficiaries receive the maximum benefit from your estate and that taxes and other fees and expenses are minimized. Estate planning allows you to provide input into matters that go beyond a will, such as trusts and property transfer.

Estate plans also can address issues such as power of attorney, superannuation, and transfer of financial assets. As with wills, you can appoint a guardian or trustee who will make sure that your beneficiaries are protected and your assets are transferred according to your desires. An estate plan can have numerous features, outlined below.

Designated Beneficiaries

These designations outline who will receive what from your estate, including who will receive your retirement account, your savings, your home, and your life insurance policies. This aspect of estate planning allows you to carefully and strategically appoint who will receive which pieces of your estate. Designating beneficiaries helps prevent posthumous conflicts between family and friends over your assets and ensuring that you maximize your estate among your beneficiaries.

A Trust

If someone does not leave a will or designate an executor, the estate can be turned over to a probate court, which will distribute it. This can be a lengthy and costly process that also can be made public. The easiest way to avoid probate is to move your assets into a living trust, which will distribute your assets and property in the trust to your beneficiaries upon your death.

Because your property has already been distributed to the trust, you can avoid probate altogether. Owning properly jointly (it will go to the surviving co-owner) and designating beneficiaries for major assets such as bank and retirement accounts can also can help avoid the probate process.

Powers of Attorney

This important designation allows a person or people you trust to act on your behalf—including in legal matters—if you are incapacitated or if you die. You can appoint as many people as you’d like, and you can designate different powers of attorney for different situations.

Letter of Intent

Working with a financial professional to draw up an estate plan can be a timely process in which you discuss your plans—and the motivations behind them—at length. Together, you can draft a letter of intent for the executor of your estate that outlines everything from the details of your funeral to an overview of how and why you want your estate executed.

While a letter of intent is not a legally binding document, it offers an opportunity for you to share your heart and your values with your beneficiaries. As they make significant decisions about your estate, the letter will give you a guiding voice.

 

Where Do I Start?

The popular stereotype that wills and estate planning are for the rich is wrong. Anyone who has assets, no matter how modest or how many, can write a will or plan their estate to ensure that their property is handled how they want after their death.

Some end-of-life documents, such as a living will, also allow you to legally establish your end-of-life wishes in the case that you are unable to make decisions yourself. Estate planning can be an involved process, but the peace of mind you will gain, for yourself and your beneficiaries, will be invaluable.

If your estate is small, you can find guidance online for making an estate plan. However, if you have a large or complicated estate, a qualified financial professional can assist with this process. They will spend time getting to know you and your wishes for your estate and then incorporate that knowledge into the plan they craft with you.