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Complexity of Estate Planning Isn’t Based on Value of Assets

word web of estate planning.
As an estate planning attorney, the most common phrase I hear when I meet with someone new is that they have a “simple estate.” In fact, very few people would consider their lifetime of accumulating property as anything other than simple.

The natural result of this is an expec­ta­tion that they will need a “simple” estate plan. However, as is often the case in the legal world, common sense and legal sense rarely share the same definition.

In estate planning, what makes an estate something more than simple usually can be determined by the type of property being distributed and the specific beneficiaries or lack thereof.

First, the type of property being distributed is significantly more important to properly preparing an estate than simply the value of property.

For example, a couple with $10 million in a checking account would have what most people would consider to be a large estate. However, if they have only one account, own no real property and own no vehicle, this high-asset couple may very well have a simple estate. It is simple, not because of the value of the estate, but because of the simplicity of administering the assets after death.

Their taxable estate would be under the estate tax limit and if they leave everything to each other or to immediate family members, their estate likely would pass somewhat simply to beneficiaries tax-free.

Now imagine a different couple with a much smaller estate. This couple has $30,000 in a checking account, owns a small house and an inherited piece of real property in Tennessee, along with some money invested in qualified retirement accounts.

Although this couple does not have the high net worth of the first couple, their estate would need something more than a simple estate plan in order to ensure beneficiaries receive the greatest inheritance with the least trouble.

The type of property in the estate is a significant factor in how difficult or expensive an estate will be to administer after death. Out-of-state real property, jointly owned assets, inherited property, retirement accounts and rental or business property often need to be individually considered when planning.

The second major factor that determines complexity of an estate is the beneficiaries – or those who think they should be.

Regardless of the size of an estate, emotions run high after someone dies. Those emotions often encompass both grief and an expectation of entitlement. If that expectation is not met, the time and cost to settle the estate can increase because of the inability of those involved to work together.

In some cases, the beneficiaries may feel cheated because one class receives property while another class is left out or when beneficiaries receive unequal distributions. This also happens when large assets are owned jointly with a beneficiary, ultimately leaving the beneficiary with a whole property that other beneficiaries expected to share.

And sometimes a beneficiary simply should not be receiving outright distributions. These beneficiaries may be receiving government benefits or could be minor children. Failing to take small additional steps in the planning stage can result in expensive and time-consuming repairs during administration.

The difference between a simple and a complex estate plan are not always obvious and rarely depend on the value of the estate. By creating an estate plan that takes into consideration the variety of assets within your estate as well as the individual needs and relationships of beneficiaries, you can ensure a few additional provisions in the document will save time and money in administration.


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