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Estate Planning from a Financial Planner’s Perspective

Have a question about estate planning? Learn from our expert on 7 ways to protect your legacy.

By Michelle Muhammed, CFP

Ben Franklin famously said, “In this world, nothing is certain except death and taxes.” It’s a phrase that’s often repeated for a reason. And, while death is eventually unavoidable, with appropriate estate and tax planning strategies, it is possible to reduce or eliminate the resulting estate taxes and probate fees associated with your estate plan.

Michelle Muhammed is a CERTIFIED FINANCIAL PLANNER™ and director of Financial Planning at Edelman Financial Engines. Michelle’s specialties include developing comprehensive financial planning and retirement strategies that enable clients to build, grow, protect and preserve their wealth. Michelle is a financial planner with over 20 years of experience who has had the privilege of helping her clients and their families achieve their financial, retirement and investing goals.

Michelle Muhammed

In my 21 years as a financial planner, it’s surprised me how many people are often confused about estate planning, even the most financially savvy.

Below I’ve compiled some of the more common questions and concerns I’ve encountered over the years. I hope some of these lessons will help you protect yourself and your legacy.

I’m not wealthy, I don’t need an estate plan

I have heard this statement from people with $3,000, people worth $3 million, and everyone in between. Everything is relative. Some folks are comparing themselves to their friends or family who have a lot more than them.

There are many challenges with this statement. For example, as a retiree, if you spend less than you have coming in from fixed income sources (such as pensions and Social Security), your retirement accounts and other investments have the opportunity to grow and compound over time. Therefore, even if you don’t view yourself as “wealthy,” the wealth you accumulate in these accounts may be subject to estate taxes if you have not planned correctly. If you own a business, it may grow beyond your expectations, and you may end up being worth a lot more than you expected.

If you have a minimal amount of liquid assets, but you own hard assets such as real estate worth hundreds of thousands of dollars, your estate may undergo unnecessary probate costs even though you did not consider yourself to be wealthy.

Surprising fact: There are a number of famous and “wealthy” people who died without a will. Prince, Pablo Picasso, Jimi Hendrix, Kurt Cobain, Bob Marley, Amy Winehouse, and James Brown, to name a few. Some of them even had surprisingly little assets five to 10 years before their deaths.

It’s easy to wonder why they didn’t have a will, when they had so much wealth to protect. But, it’s human nature to put off the unpleasant – especially when facing your own mortality, which is a necessary part of your financial preparation. This is not a fun task even during the easiest of times, so it’s only exacerbated when you have an illness or other difficult period in your life. That’s why it’s so important to address estate planning when you are healthy and thinking at your clearest.

Finally, it’s not just about money. There are other important decisions at stake – such as those regarding your health care if you aren’t able to make your own decisions. Who do you want in charge? A power of attorney and health care power of attorney is wise to have in place well before this becomes an issue. Talk to your financial planner about options. There are institutions that can act as trustees if you truly have no individuals you can trust. If you don’t, a court will appoint a guardian or conservator who will make decisions for you, which is not typically what most people really want.

I have a will from 20 years ago. Why should I spend money to update it?

Has anything changed in your life in the last five, 10, 15, 20 years, or more? For many people, I would wager the answer is “yes.” People who you were close to a few years ago may be gone or may not be as important to you anymore. Regularly reviewing your estate plan every three to five years is wise even if you feel not much has changed. Many of my clients are surprised when they see what they wrote years ago and recognize that it no longer applies.

Why do I need an estate plan? When I die, the money will go to my spouse or my children.

I know a situation where someone went into the hospital shortly after they had a draft of an estate plan drawn up. This person was a lawyer and planned to review the draft documents when she got back from the hospital. Unfortunately, she never came home.

Because they lived in Texas, her spouse paid several thousands of dollars in probate costs. Yes, the money may go to your loved ones, but they may get less than intended. Don’t waste time. Do your estate planning now, while you are healthy.

Also, even if your main asset is your 401(k) where you have a beneficiary named, there are many other considerations, such as property and personal belongings, that you should account for in your will and estate planning.

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I put my kids, who are minors, as beneficiaries on my estate plan because I want them to be taken care of if I die before they’re adults.

While well-intentioned, this can have unfavorable consequences. Most likely a court-appointed conservator will manage and disburse the money for the children. This may be expensive and erode the value of the funds. It may also not be the person or entity you would have chosen to make financial decisions for your children.

Estate planning vehicles like trusts can be a more cost-effective way to ensure that the children receive the money for the purposes you intended (health, education, maintenance, and eventually for purchases like a house).

I’m single with no kids. Why should I worry about what happens to the money after I die?

I find that many of my clients, regardless of whether or not they have children, have lifelong friends, a house of worship, a charity, or a cause they are passionate about. If that is the case, it makes sense to do estate planning to ensure that your money goes where you would want it to. Your money can have a positive impact even when you are gone.

I can get a will off the internet and that is fine.

This can be penny wise and pound foolish. While these “Do It Yourself” wills seem easy, the reality is that many people have no idea what they want or need. Once you get into the complexities of family dynamics and specifics to your state and situation, DIY estate planning can cause more challenges than working with a team of professionals. I recommend using an estate planning attorney who specializes in this topic.

So, what should your next steps be to help ensure you have your bases covered? I recommend the following seven steps to help you protect your legacy:

  1. Speak with a financial adviser and your estate planning attorney 
  2. Explore the differences between wills, trusts, and beneficiary designations and the pros and cons of each to help protect your finances 
  3. At a minimum, create a will and name a guardian for your minor children (if applicable) 
  4. Create an advance medical directive and name a medical and financial power of attorney 
  5. Talk to your family and heirs about your estate plan 
  6. Regularly review your estate plan every three to five years and after major life events 
  7. For some high-net-worth families, a market downturn might be an opportunity to examine certain estate planning opportunities, such as:
  • Making large gifts (either directly to family members or into irrevocable trusts) with assets that have lost value but might rebound in the future 
  • Gifting with depressed values can reduce the gift tax implications associated with making such gifts.

About the author: Michelle Muhammed

Michelle Muhammed, CFP®, is the director of Financial Planning at Edelman Financial Engines. Michelle’s specialties include developing comprehensive financial planning and retirement strategies that enable clients to build, grow, protect and preserve their wealth. Michelle is a financial planner with over 20 years of experience who has had the privilege of helping her clients and their families achieve their financial, retirement, and investing goals. Outside of work, Michelle gives back by helping women and underrepresented groups find their paths in the financial services industry.

Neither Financial Engines Advisors L.L.C. nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from qualified tax and/or legal experts regarding the best options for your particular circumstances.

All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. See for patent information.

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