Estate Planning Basics: Understanding The How & Why

While estate planning isn’t always the easiest topic to discuss, avoiding it tends to make it into a bigger, more dramatic deal than it needs to be.

If you haven’t looked into estate planning basics yet, now is a wonderful time to consider what kind of choices you want to make, as well as which responsibilities you’ll want to tie up yourself. The reality is, if you don’t plan your estate, someone you love may suffer for it.

Smart people make plans. Smart investors can't afford not to.

Why Estate Planning Is Essential

All too often investors and even ordinary entrepreneurs or W2 workers believe estate planning just isn’t something they need to worry about. They’re too young, the topic is boring, they just don’t have time ... 

Each and every single one of these excuses is wrong. If you fall in this camp, you are making a big mistake.

When you die, who calls the shots about your funeral, your real estate investments, paying your creditors, etc.? Do you even know? If not, this is the first reason you’ll want to get clear on your plan.

There are simply certain decisions you want to make with the help of your trusted attorney while you still can. Your spouse may be a wonderful life partner, but not the ideal person to be making nuanced business decisions about how to handle your investments. Even if they are, they may not exactly be in the mood if you suddenly pass.

The loved ones who shouldn’t have to make your decisions are who you’re looking out for when you learn about estate planning for real investors. Let’s get into why we’re so special, and what concerns to bring up with your professionals.

How Estate Planning for Real Estate Investors is Different

As an investor, you’ve got a few things to worry about that the average person does not. At the very least, they’ll include these basics:

• More assets to account and plan for than a non-investor.
• A business to worry about. Some people dissolve their businesses, but we find more and more investing families and clients are planning for secession. Controlling the transfer-of-power for your business is critical to keeping it alive beyond your own mortality.
• Money flowing in and out that your family members may not be privy to. It’s okay, your family doesn’t have to know all of your financials if it isn’t suitable to you, but somebody should. Your lawyer’s a primo choice.

There’s much more to consider, but the point is that none of the tasks are tough on their own. You’re better off sorting through them neatly now rather than letting them pile off and dumping the entire mangled mess on your family. Spare them the agony of probate court and all its trappings by crafting a real estate plan that addresses these issues sooner rather than later.

Estate Planning: The Difference Between a Portfolio and a Legacy

Here’s the quick and dirty for those of you looking for the shortest possible version. If you want to do any of these things, listen up: 

• Leave behind a business that will outlive you.
• Give your family the gift of a healthy, long-term real estate portfolio.
• Use your assets and wealth to create meaning upon your passing through charitable or philanthropic acts.
• Prevent Uncle Sam from getting his greedy paws on your life’s earnings and dividing them up as he fancies.

If you actually care about any single one these outcomes, a proper estate plan created by a competent estate planning attorney with real estate familiarity is the only truly smart way to go.

The Very Basics of Estate Planning for Real Estate Investors

When we’re talking strategy for real estate investors, there are two fundamental tools that are essential for planning an adequate estate that also protects assets in life. These are the pour-over will and the living trust.

You’d be wise to brush up on both for starters. The living trust is a much more effective vehicle for conveying your assets directly and tax-efficiently (or even free in certain situations) to your loved ones and other heirs than the traditional “last will and testament.” That’s movie stuff. If you want real protection, you need a living trust that contains all of your assets and a pour-over will to back it up in the event you acquire assets not yet in the trust. You can learn much more about how these tools work from our living trust explainer. 

There’s much more to estate planning than these two tools, but they are universal for most plans for investors with assets valued under $10  million. Those exceeding this limit have had good fortune, but must make additional plans to protect it. However much you end up with, remember that you can’t take it with you. Estate planning is how you control where the rewards of your life’s labor go and provide for the ones you love.