I want to talk about estate planning basics and why it’s important. If we think back to the financial framework, the path to financial success.
You’ve seen that there are essentially two rails associated with it with seven steps in between So first thing we want to do is manage our money get 1, 000 Pay off our debts get a solid emergency fund begin investing 15 percent into retirement Save and invest for kids college if applicable pay off the house and build wealth and give that is the steps to financial Success, but associated on the sides of the framework are two rails and it’s those rails that I want to begin talking about first.
If you want to, you can go back and watch the playlist on money mindset and cash flow planning. That is really the foundation, but after that we’re trying to build wealth, intentionally build wealth. But to do that, we must have some guardrails to keep us inside. And that’s what estate planning is.
One of the Rails
Estate planning is one of the two rails. Insurance is the other one, which we’ll unpack in the future, but the rails are meant to keep you safe. They’re meant to keep you in bounds. Last summer, Eric and I went down to Switzerland and as we were driving there for most part, it was interstate four lanes, six lanes, wide open roads, no problem.
But a handful of times, especially as we got into the Alps and the, and the narrow mountain spaces the roads, the interstates essentially narrowed down to just, one way, each direction. And it became very, very tight. And there were these switchbacks on the mountains where your kind of just going up and you do a kind of one 80 turn and you’re going up and back forth.
And, and that right on the edge, like there’s the road and then a little shoulder and then just cliffs. I was so thankful to see. guardrails on the side of the road, because that way if something happened to someone and they kind of took a turn too fast or got a little sideways or whatnot, they might crash into the guardrail.
But thankfully they weren’t going to fall off the cliff because if you go off the cliff, it’s going to hurt. And that’s what these guardrails are meant to do. They’re meant to keep you in bounds. And if you, cause if you go outside, something happens, and you go outside of that boundary. It could hurt if you go off the path.
Now, if you’ll notice about the framework, it scales to really the very beginning steps. As well as the upper steps of building wealth. And the idea there is that no matter where you are on the path, everyone has some aspects of estate planning to take care of. Now, the reality is when you’re starting, you don’t have a lot of wealth and maybe you’re in debt and you’re just getting going, you just need a very basic estate plan as you build more and more wealth.
It could certainly get more complex along the way, but everybody needs some element of estate planning.
After you get control of your mindset and your money management, the next important thing to do, at least in my opinion, is to start to build out an estate plan, because it’s only going to change over time.
As your wealth grows, your estate plan will get more complex. So, what is estate planning? Broadly speaking, textbook definition, it’s the process of accumulation, management, conservation, and transfer of wealth, considering all the legal, tax, and personal objectives that are individual to everybody.
Essentially what we’re trying to do is we’re trying to transfer wealth or conserve it, based upon the situation at hand. But we want to do it two ways. One, we want to do it effectively. And number two, we want to do it efficiently. So, what do we mean by that? Well, effective transfer is the idea that it goes to where it’s intended to go.
This person got the house. This person got that account, the things that you wanted took place. That’s what we mean by effective. Efficient means we did it with the least amount of cost, the least amount of frustration, the least amount of stress involved, so, we can do something very efficiently or very inefficiently.
One takes a lot of energy, the other one doesn’t take as much energy. So, we’re trying to Ensure that what we want to occur occurs and we want to do it with the least amount of friction Stress or cost and that’s what I mean by efficient. So why is Estate planning important. I want to give you three reasons as to why number one.
Reason 1: Stewardship
Is that of stewardship? The reality is we are all going to die. The joke is we’re not going to get out of this life alive and 2nd Kings chapter 20 verse 1, the prophet Isaiah comes into Hezekiah, Hezekiah was sick, and he says to him, thus saith the Lord, set thy house for thou shalt die and not live.
While Isaiah in that instance was speaking straight to Hezekiah, the reality is that’s true for all of us. We shall die and not live. That’s a reality. Now, it might be tomorrow that we might not live, or it might be 40, 50, 60 years from now, but the reality is. We are all going to die and Hezekiah’s advice that he received from Isaiah was set thine house in order.
That’s what estate planning is. That’s what we’re trying to do. We’re trying to set our house in order. Why? Because it’s your responsibility to. The reality is you have been given the stuff and you’ve earned the stuff that you’ve had and that’s great. But the reality is it’s yours. You must manage it even beyond your death.
Don’t put that burden on somebody else. It’s not somebody else’s responsibility to take care of your stuff. It’s your responsibility. And here’s the thing. If you don’t address it and others must, things might not work out the way you want to. And whose fault that will be? Your fault because you didn’t engage in the process of taking care of your stuff.
God has given you the wealth and the possessions that you must manage and to manage it well with diligence and excellence and it’s your responsibility to ensure that whatever happens to that is in alignment with what you want.
How can things get not take care of?
Well, number one is Intestate rules. So intestate is when someone dies without having a will. If you don’t have a will, that means. that there’s no direction of what’s going to happen with your stuff. So therefore, somebody else must take care of that for you and decide on your behalf because you’re not here to, those are called intestate rules.
So, every state has an intestate rule of what will happen. direction of what you have and who it’ll go to. Generally, the rules are it goes to spouses first and then children and then to family members. So, the idea being, if you don’t decide, someone else is going to decide for you. Additionally, things might not work out the way you want to think.
People could be unintentionally disinherited, so think about the scenario with blended families where husband and wife, either they get divorced and then somebody gets remarried, or someone dies, and they get remarried. But anyway, you have a blended family. What could happen is husband and wife gain wealth together.
One dies. Everything goes to spouse. Okay. Well, then after that something happens to the spouse. Maybe that spouse only, only his or her children get the inheritance, and the other children are left out. So, the wealth that was gained by two people is goes to one side of the family and not the other.
That could potentially happen. So, the idea is that you must decide what you want to take place and that you must. Go about the process and estate planning is the process to ensure that that is dictated, documented and known, the other aspect of stewardship is you must have the control as to what takes place.
You at least must voice your opinion of what you want it to be because the reality is that your estate, your possessions and your money and your wealth given to other peoples can do one of two things. It can be a great blessing. To others, or it could be a real curse to others. What do we mean by that?
If you have somebody who handles money well, functional relationships, doing well with their life, and you add to them wealth, it’s kind of like a wind behind their back, it pushes them forward. But you, if you have somebody who’s un, un, organized with money, doesn’t do well with money, wastes everything they have, maybe they’re plagued with some addictions or bad behaviors, and you give that person some wealth, what you’re going to do?
You’re going to give a drunk a drink. You’re going to enable their bad behavior. So, you must decide, if I give whatever I have to this person, is that going to help them or hurt them? And that’s your responsibility as stewardship over your things.
So, the number one reason why I think you need to engage in estate planning.
Reason Two: Avoiding Unnecessary Expenses
The most important reason is that of stewardship. But number two is if you don’t have a good estate plan, you’re going to potentially cause unnecessary expenses or taxes related to the settlement of your estate. Things like probate, things like court costs, things like legal fees things like lawyer expenses,
in some cases, just trying to get rid of stuff must be sold at a discount because the person doesn’t want it. They just need to sell it. So, they’re going to discount the price just to kind of get rid of stuff. All those result in unnecessary expenses that potentially could have been avoided. And again, kind of going back to the idea of being efficient and effective.
We want to be efficient. We want to have the least amount of costs associated with the settling of your estate. And the number third reason why you should engage in estate planning is because of the lack of it could potentially cause undue family conflict that could last for months. Maybe years, maybe even decades, or really for the rest of their lives.
Reason Three: Avoiding Family Conflict
The worst thing that you could happen, in my opinion, is that you could not engage in estate planning. And cause a division between your children. I told my kids just recently when we had some conversations about this, that I don’t want anything to come between them. I would rather all our wealth essentially be burned, than given to some of them and it cause conflicts between them.
Their relationship, in my opinion, is more important than all this stuff and money. I had a client some years back where a relative of theirs died and they were engaged in and taking care of the situation of, of resolving this date. And again, there was no will, there was no planning, there was no communication, there was just living.
And then one day, this relative fell over and died, proverbially speaking and just left the mess for everybody to take care of. Well, one member decided they wanted the car. They came. Stole the car. Think about the dynamics of that family relationship. How’s Thanksgiving going to taste, with your, brother, sister, uncle, cousin, relative, whatever the stole the car.
I mean, what kind of relationship is that going to be thought about the dynamics in there, as, as crazy as it may be., all kinds of things happen over stuff. I could tell you a handful of stories, I won’t, but I could tell you a handful of stories of family drama, where this person wanted this, and that person wanted this, and I’m not speaking to you, and you need to do that, on forth, all this craziness.
My guess is you’ve probably seen some or heard of some family drama related to this stuff as well., if you have a, leave a comment below, share with others, to help avoid it. But the idea is that a lot of drama and conflict could be resolved by doing effective state planning.
We’re going to talk about future lessons about, and I love you, binary communications that take place. That’s a good way to help resolve the conflict before it occurs, but you must have a plan to communicate the plan. So, what are the different elements that everyone must have when it comes to an estate planning?
Well, there’s really three or four. Basic estate documents that everybody should have number one is a will a last Testament or will that essentially dictate what happens to your stuff what happens to you? Accounts what happens to your wealth? Who’s it going to and who’s it not going to that’s what a will does Additionally, there’s what’s called power of attorneys.
A power of attorney gives the power to another person to act on your behalf and make decisions for you while you’re alive but can’t do it. Either because of cognitive decline. or incapacity, or you just can’t physically do it a power attorney gives the power to an attorney. In fact, that’s what that person is.
Basically, your agent acting on your behalf. And there’s two flavors of them. One is for financial issues. So, if you must make financial decisions, you could give someone else the power to do that on your behalf. The other one is medical or health care decisions. So, a power of attorney for medical decisions or health care is you’re giving the power of someone else to make decisions for you and related to your health because you can’t make them anymore or you can’t convey them anymore.
And the last document that everybody should have in a basic estate plan is that of a living will or an advanced medical directive. That is essentially gives the power to someone else to terminate life sustaining treatment. So, if you’re on a feeding tube or a. Respirator or some other, life preserving mechanism that gives you the ability to take that to take someone off life support.
So, these essentially are the three or four basic documents that everyone should have.
In the next episode, we’ll unpack those documents in greater detail. I’ll explain what they are, the provisions inside of them how to go about deciding the agents that you want to have, the characteristics and qualities that you want to engage with, with each of those people that you’re choosing.
I hope this helps you on your financial journey.
If you have any questions or comments, you can leave them below. Additionally, you can send an email to Mike@truewealth.show.
And until next time, I hope you have a great day.
