Estate Planning: The FAQs

Estate planning is confusing enough for the average person. But as real estate investors, we have a host of unique concerns on top of the Average Joe/Jane. It’s true that estate planning may be stressful for anyone, but understanding estate planning for REIs is too important to ignore. Luckily, this article’s a stress-free way to learn about the topic.

Death sucks, but let’s just accept it and take a few minutes to get hip to the basics. We’ve even got an educational piece to help you out: “Estate Planning: The How the Why and The Basics” handy for you. Check it out if you feel lost at any point here. We’ll wait for you to re-join us.

Back or already familiar? Great. Let’s dive into our most common estate planning FAQs.

1. Don’t I Have to Be Really Rich to Need an Estate Plan? 

Definitely not. Everyone should create an estate plan for one simple reason. Dying without an estate plan is always more expensive (financially and emotionally) than creating a suitable, appropriate one.. 

Dying alone is expensive. Funerals are costly, any unpaid debts have to be handled, and of course, there’s your grieving family. They’re paying emotionally, spiritually, and with their time. If their time and money matters to you, creating an estate plan will at least give them a roadmap and fewer responsibilities. 

Estate planning is more humane on families and loved ones, as they’re typically the ones having to round up your credit cards, make sure bank accounts get closed, worry about life insurance and the hundreds of other details that accompany death. When you really think about all of these costs together, the amount of money spent on estate planning begins to look like nothing. 

2. Everyone Needs an Estate Plan, So Why Do Investors Have to Do Anything Different? 

Don’t forget that your business is an asset with the ability to literally outlive you, possibly indefinitely depending on its structure. But the reality is simple. Estate planning is how we can direct where anything that matters to us goes when we pass. If you have properties and asset protection structures like liability-limiting entities (LLCs, Series LLCs, Delaware Statutory Trusts, etc.), estate planning just becomes more important.

3. Isn’t a Last Will and Testament Good Enough for Estate Planning?

Again, not at all.  A full estate plan is not the same as a simple “Last Will and Testament.” Lord knows enough misinformation persists in popular culture about these documents. Those cinematic scenes we’ve all scene of some character hand-writing a last will, often upon deathbed or battlefield for dramatic flair are hilariously wrong. First of all, DIY estate planning is a bad idea. Tempting as it is to point out the many problems with these scenes, the most misleading aspect is that it glamorizes the will and makes people think that’s all there is to it.

Here’s the real deal: a will can be part of your estate plan. But you can’t rely on it alone. If you do, you’re likely to have to pass through this unfortunate soul-sucking spot called probate court.

5. What is Probate Court?

Probate Court’s a real drag. Basically, your heirs get to sit around and watch the riveting legal conversations that only the true dorks like us at Royal Legal like. During this process, you’ll be racking up fees for the Court, any attorneys or accountants needed, etc. It’s better to just avoid the whole mess altogether. And presumably to add insult to injury, the pros get paid out long before your heirs do, particularly if you attempt to DIY a will and miss a critical part. Sadly people do this because they see dramatic movie scenes of people penning Wills, etc. That’s a great way to get yourself a one-way ticket to Probate Court.

But you can avoid probate court with a real estate investor-tailored estate plan.

6. What Do Proper Estate Plans for Real Estate Investors Look LIke?

For real estate investors with under $10 Million in assets to defend, there are two fundamental tools that are essential for planning an adequate estate plan that also protects assets in life. These are the pour-over will and living trust. Let’s review both.

The living trust is a much more effective vehicle for conveying your assets directly and tax-efficiently (or even free, occasionally) to your loved ones and other heirs than the traditional “last will and testament.” Remember? 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. Learn more from our living trust explainer. 

There’s much more to estate planning than these two tools, but they are universal for most plans for the majority of investors. Take the time you need to research. After all, estate planning is how you control where the rewards of your life’s labor go and provide for the ones you love. They’re worth it. 

Disinheriting Your Heirs: Your Legal Options

Disinheriting an heir is something most of us hope we never have to do. It’s sad, but it happens. Sometimes you grow estranged from an heir. Other times, the heir may be on a path to self-destruction that you don't want to aid and abet. 
Not all circumstances are this dire. Occasionally, an heir surpasses you financially so they won’t benefit as much from an inheritance as the family artist who is still paying off his American Studies degree.
Whatever your hilarious or tragic reason might be, removing an heir from your estate is fairly straightforward. Emotionally, this move can be devastating to your personal life and tear your family apart. But legally it’s a piece of cake. The following will outline the disinheriting process, but also present legal alternatives to disinheriting.

Why You Will Need to Legally Disinherit An Heir

Unless you specifically state otherwise in a legally binding document, the state is going to assume that you intended your spouse, and then your children to be your heirs. You know, because they assume you love your family. If you think about it, that is the appropriate default setting.
So, if you want to cut an heir out of an inheritance you’ve got to really mean it. You can't undo this move from beyond the grave.
It is important to complete an entire list of your children in the estate plan and to specify any child who will not be an heir. This will make for a wonderful and dramatic moment suitable for a movie:
The estranged youngest son shows up on the day of his father’s death. After comforting his mother and arguing with his brother, his father’s will is read aloud in father’s study.  As the grieving family gathers around, the executor reads in a loud, authoritative voice: “…and to my youngest son Samuel, I leave nothing.”
The son lowers his head. His sister tries to comfort him. He dashes from the room. It’s the sweetest revenge of all: revenge from beyond the grave!
In all seriousness, I know what a tragic situation disinheriting can be. That's why I'm going to share another, less final option below.

What To Do If You Don't Want to Disinherit Your Heir: Use Stipulations in Your Will

If you want to leave something for a lost or wayward child, you can always attach a few strings to an inheritance. In this way, you take a family tragedy and turn it into a hilarious, heart-warming comedy.
Now, you cannot just attach any stipulation you can think of to an inheritance. Everything has its limits. For instance, you cannot ask an heir to commit a crime. You cannot subject them to anything torturous, no matter how personally entertaining you might find those posibilities. If you want to make your heir miserable, you’ll have to double up on the emotional torture while you’re still alive. Disinheriting isn't the best option for haunting beyond the grave. Not that we recommend a life spent in resentment for anyone.
You also cannot ask an heir to divorce their partner. This topic is kind of a "fan-favorite," and comes up all the time. Most of us tolerate our children, but you may not relish the prospect of sharing your money with your money-grubbing in-laws. Nonetheless, most courts view such a request as a violation of public policy because it promotes divorce.
We'e previously covered how to use wills and trusts instead of disinheriting your heirs. I recommend you read that as well if you're considering this process.

Why You Need a Lawyer's Help With Estate Planning for Your Heirs

You should talk to a lawyer about what kinds of stipulations you can place on an inheritance. You might demand that your heirs do something with their lives, from maintaining stable employment to educating themselves, before they can access what you leave behind. This will teach them to fish for themselves before you give them all of your catch.
If you need help disinheriting, adding stipulations to your will, or otherwise planning your estate, contact us today. At Royal Legal Solutions, our experts can help with all phases of the estate planning process.