Info/Recommendations on Estate Planning?

[EngineerOurFI]

My first post to the forums, but I'm a long-time lurker.  I found MMM in late 2017 when my wife was pregnant with our first child.  Since then, I've gone from only saving ~$7-10k per year in 401k + company match to a new higher paying position that, along with spending cuts, has allowed me to:

• Max 401k @ $19k/year + 6.5% company match will kick in after 1 year of service later this year
• Max HSA @ $7k/year - don't intend to use it for medical expenses until retirement (yes I'll start saving big receipts along the way)
• Pay extra $222/mo towards house payment (I understand cost/benefit of paying house off early, but I want house note gone before I turn ~41
• Pre-fund Kid #1 with $3k in his 529 as starter money and fund additional $500/mo to 529 (I understand differing views on this, but I want to plan to fund 100% of college costs)
• Max Backdoor ROTH IRA for both myself and spouse, yearly
• Both cars fully paid off.  Putting money away monthly to pay for next car or any other large, unexpected expenses in cash - will start investing this money in taxable account next year
• With reduced spending, no longer plan to blow bonuses and stock grants on just "extra" spending - plan to put towards savings/house/long-term financial goals
• Finished transition from wife working high-paying career job to a lower-paying nonprofit job that allows her to balance work and caring for our kids without daycare (for now)

I've definitely got some work to do in order to really get on Mint, track spending, cut spending further and also really track my savings rate and so on - but for now my largest concern is my lack of a will, estate planning, and life insurance.....especially now that my wife is pregnant with Kid #2.

I'm working on losing a bit of weight in order to make a 30 year term life policy much cheaper.  My company provides 2 year annual salary as base life insurance policy, but I'd like to take out a 30 year term life @ ~10x my salary to make sure wife and kids would be fully taken care of with college costs, paid off house, and essentially pre-fund my wife's full retirement.  Pretty much planning on dropping some weight and before end of the year checking with USAA (my auto/home insurance provider) on life insurance policy of this magnitude.  So the life insurance part is pretty well understood/planned on, unless anyone has tips on that.

Again, with the background out of the way, my primary pain point/confusion right now is estate planning. If I die, it's simple - everything goes to wife and I need to leave her detailed instructions on accounts and what to do in order to best manage the taxes and continue to backdoor Roth, etc.  She doesn't like talking about this stuff, so I'll pretty much just have to have everything written down/recorded in a detailed way for her in the safe, etc.

However, if we both pass - I've been struggling to find a non-charlatan resource for estate planning with two kids.  If I set contingency beneficiary designations to Kid #1, those would go to him/her and not be evenly split between the kids.  Seems like I would need a revokable trust or something of that nature in order to properly carry out my wishes of everything being 50/50 between the kids.  I know I also need to get a Will in order in order to designate desired guardianship (my brother), etc.  Any recommendations on resources to learn about best options and cost/benefit/details for this type of estate planning?  I figured it would be more widely discussed on personal finance forums - but I just haven't found a lot of good info.  I'd really like to be much better informed on my options before sitting in front of a lawyer and wasting $$.

For right now, I feel like my requirements are pretty simple, although I'm struggling to find best way to set it up....However, in 10-15 years if I'm still enjoying working at current pace and estate is larger, then I might have much more detailed requirements about how to split things up, etc.

In terms of assets, for now it's around $220k liquid/retirement, 2 paid off cars, house title jointly in wife's name with $100k equity.  Goal is to be $1M liquid in less than 10 years with paid off house and $3M liquid in 20 years.  Figuring I'll want to redo estate plan in ~10-15 years depending on how things go to help my niece with college, etc.

[TVRodriguez]

First, congratulations on the pregnancy!  And congrats on the work done so far with your finances.  You are doing great.

Second, I'm an estate planning attorney.  Here are some immediate thoughts.

1. Your jurisdiction matters.  You must be in the US based on your retirement accounts, so we're talking about what state you live in.  State law controls a lot of transfer-at-death title issues.  State law also controls probate law.  In some states, a revocable trust is a necessity (in addition to a last will) and in other states a last will is sufficient.

2. Whose name is on an asset matters.  Anything owned jointly by you and your wife MAY automatically be owned by the survivor at the first spouse's death.  In some states, there is the presumption that anything owned jointly by spouses is owned as Tenants By the Entirety (TBE), which has the survivorship built in.  In other states, there is no TBE property and any title must state "Joint Owners with Right of Survivorship," so your state law matters.

3. Wills only apply to some assets--those are assets in your individual name at death that have no named at-death beneficiary or joint owner with right of survivorship.  You rightly point out that a guardian will be named in a Will.  Wills can also be used to create testamentary trusts (that's just a way to say a trust that is created at your death) for your children.  Also, the guardianship can be split between a guardian of the property (who holds the purse strings) and a guardian of the person (who gets to live with the children and raise them).  They may be the same person or may not.

4. Do NOT, for the love of all things holy, please, name your minor children as direct beneficiaries of anything.  That is what trusts are for.  That is what trustees are for.  Minor children cannot own anything, and it would have to go into a guardianship, which in some states requires annual accounting and annual plans and several thousand dollars in legal fees annually.  A regular guardianship (of the person) may be necessary, but if the money is in trust that was properly drafted, then the annual plan for the guardianship of the person is simpler and cheaper.  Also, any minor child who inherits will receive the property outright on reaching age of majority (check your state laws--18 or 21).  It's a better idea to name a trustee who will hold the purse strings until the child is a little bit older, maybe serving as a co-trustee together until he or she is 25 or 35 (or whenever the 'adult' trustee feels the child is ready).  Things to think about.

5. Also do NOT name one child when you want to benefit both, which you also rightly point out.  Even with adult kids, I prefer to refer to descendants or issue rather than name names.  I name names in the "family identification" provision.  Also do NOT name your sister/brother/best friend/whomever as the beneficiary of your life insurance in the *fingers crossed* hope that they will know that you want them to "hold" that money for your kids.  Even if they are well-intentioned, they might have creditors or get hit by a bus and then where will your money go?  Not to your kids.  I think you get this, but at the risk of restating the obvious, there it is.

6. Resources . . . depends on what state you are in, but you may check with your state bar association to see if they have any handouts or pamphlets about estate planning.

7. The typical documents that I include in an estate plan are:
-Last Will and Testament
-Revocable Trust
-General Durable Power of Attorney
-Living Will
-Designation of Health Care Surrogate (called a Proxy in some states)
-Declaration of Preneed Guardian
-Declaration of Final Instructions (burial or cremation instructions)
-Tangible Personal Property Memorandum
-Deed into Revocable Trust (for single people who own real estate here)
Not everyone in every state needs every one of these documents, but their attorney should cover all the bases and discuss each asset class separately.

Hope that's helpful.

[EngineerOurFI]

First, congratulations on the pregnancy!  And congrats on the work done so far with your finances.  You are doing great.

Second, I'm an estate planning attorney.  Here are some immediate thoughts.

1. Your jurisdiction matters.  You must be in the US based on your retirement accounts, so we're talking about what state you live in.  State law controls a lot of transfer-at-death title issues.  State law also controls probate law.  In some states, a revocable trust is a necessity (in addition to a last will) and in other states a last will is sufficient.

2. Whose name is on an asset matters.  Anything owned jointly by you and your wife MAY automatically be owned by the survivor at the first spouse's death.  In some states, there is the presumption that anything owned jointly by spouses is owned as Tenants By the Entirety (TBE), which has the survivorship built in.  In other states, there is no TBE property and any title must state "Joint Owners with Right of Survivorship," so your state law matters.

3. Wills only apply to some assets--those are assets in your individual name at death that have no named at-death beneficiary or joint owner with right of survivorship.  You rightly point out that a guardian will be named in a Will.  Wills can also be used to create testamentary trusts (that's just a way to say a trust that is created at your death) for your children.  Also, the guardianship can be split between a guardian of the property (who holds the purse strings) and a guardian of the person (who gets to live with the children and raise them).  They may be the same person or may not.

4. Do NOT, for the love of all things holy, please, name your minor children as direct beneficiaries of anything.  That is what trusts are for.  That is what trustees are for.  Minor children cannot own anything, and it would have to go into a guardianship, which in some states requires annual accounting and annual plans and several thousand dollars in legal fees annually.  A regular guardianship (of the person) may be necessary, but if the money is in trust that was properly drafted, then the annual plan for the guardianship of the person is simpler and cheaper.  Also, any minor child who inherits will receive the property outright on reaching age of majority (check your state laws--18 or 21).  It's a better idea to name a trustee who will hold the purse strings until the child is a little bit older, maybe serving as a co-trustee together until he or she is 25 or 35 (or whenever the 'adult' trustee feels the child is ready).  Things to think about.

5. Also do NOT name one child when you want to benefit both, which you also rightly point out.  Even with adult kids, I prefer to refer to descendants or issue rather than name names.  I name names in the "family identification" provision.  Also do NOT name your sister/brother/best friend/whomever as the beneficiary of your life insurance in the *fingers crossed* hope that they will know that you want them to "hold" that money for your kids.  Even if they are well-intentioned, they might have creditors or get hit by a bus and then where will your money go?  Not to your kids.  I think you get this, but at the risk of restating the obvious, there it is.

6. Resources . . . depends on what state you are in, but you may check with your state bar association to see if they have any handouts or pamphlets about estate planning.

7. The typical documents that I include in an estate plan are:
-Last Will and Testament
-Revocable Trust
-General Durable Power of Attorney
-Living Will
-Designation of Health Care Surrogate (called a Proxy in some states)
-Declaration of Preneed Guardian
-Declaration of Final Instructions (burial or cremation instructions)
-Tangible Personal Property Memorandum
-Deed into Revocable Trust (for single people who own real estate here)
Not everyone in every state needs every one of these documents, but their attorney should cover all the bases and discuss each asset class separately.

Hope that's helpful.

Thank you very much for the detailed response!  I think you hit on a pretty obvious reason for, perhaps, the lack of clear universal guides across the US - the laws vary by state.  I'm in Texas, for what it's worth.  I'll definitely check out state bar association for any info.  I'm kind of thinking I'll need to go the route of a testamentary trust or a revocable trust inclusive of life insurance benefits. Assuming my wife does not survive me, I definitely would like to set it up for my brother to be guardian of kids + assets and then co-guardian of assets until kids are ~30.

Thanks for emphasizing Point #4 above - this is what I started to understand as I looked into things - I could easily wind up creating an unintended lopsided situation.

Thanks for the list of documents to consider and start researching.  I'm trying to educate myself and nail down a general plan before I sit with an attorney to avoid extra $$ and setting things up one way without fully educating myself on alternate options.

[TVRodriguez]

Yes, I often name the trust as the beneficiary of life insurance.  I don't always name it as the bene for IRAs if there are kids of wildly differing ages, but it can work for kids who are within a few years of each other.  If I have adult children, I'm going to name them directly as benes of the IRAs to allow them to stretch the IRAs themselves, but with minors and young adults I prefer to value safety and security over maximizing every tax deferral opportunity.  A 21 year old with access to hundreds of thousands of dollars who has just lost both his parents is not likely to make the best money decisions and is ripe for bad advice from shady "friends."

I'm not barred in Texas and can't tell you much about how it works there, so the bar association is where I would start.  You can also try www.martindale.com (or lawyers.com, which is the same company), which can also tell you if someone is AV rated, which generally is a good sign (I'm AV rated on Martindale, and to get that, I had to ask something like 20 other lawyers to say that I know what I'm talking about and rate my ethical standards anonymously--even then it's no guarantee that it's AV).  Online ratings from clients may or may not be real, but the martindale ratings from other attorneys are usually pretty legit.

[CaseyR01]

Another Estate Planning Attorney here! I agree with everything TVRodriguez said, but I also wanted to add that you should contact several lawyers before you decide on one, as I have found there to be a large discrepancy in what attorneys charge for basic estate planning documents. I have heard from more than one client that they were charged $10,000 for a set of documents that I would normally charge $1,500 for (!!!).

Also, not all attorneys charge hourly, and many (myself included) offer free initial consultations. You can learn a lot during those meetings, not just about what an attorney advises in your specific circumstance but also about the attorney's style and how well you get along. Just sitting in front of an attorney shouldn't automatically cost $$$! I would encourage any client to speak to more than one attorney, not just to get a sense of different pricing but also to see who you are most compatible with.

Finally, I'll add that the Durable Power of Attorney, Living Will, and Health Care Surrogate Designations are just as important as your Will and/or Trust, because those documents impact you while you are alive. Many people come to me and are only concerned with getting a will and/or trust. The Will is important, especially when you have minor children, but be sure to give just as much thought to the other documents.