Those of you who are considering planning for your estate may wonder how much to budget for the cost of assorted services including but not limited to drafting related documents.
Tasks with Little or No Associated Costs
Although many of the estate planning tasks you engage in will have associated fees, it is important to mention those related tasks that have minimal or no cost. Often these can be just as important as other tasks that incur expenses.
Selecting or Updating Your Beneficiaries on direct transfer accounts can be an important part of your estate plan that many people overlook. Several types of accounts (life insurance, retirement accounts, etc.) will have the option to select beneficiaries to receive the proceeds after the death of the account holder.
It is quite common for accounts to have no beneficiary at all or outdated selections such as a previous spouse or beneficiaries who have predeceased the account holder. This is unfortunate since for many accounts the task of selecting or updating a beneficiary can be as simple as a single form or even an online update.
You can select your primary beneficiaries as well as contingent beneficiaries to receive the portion of a primary beneficiary who dies prior to being removed from the account.
Selecting a Trust as Your Beneficiary
Those with more complex wishes for the distribution of their accounts such as gradual access over time to recipients may wish to have a relevant trust as the beneficiary of the account.
Although, caution should be taken when naming a trust as the beneficiary of a retirement account. If not drafted with an appropriate “look through” provision, it may need to be distributed over a five-year period rather than over the life of the natural person who ultimately receives the funds.
This can be less advantageous from a tax standpoint so be sure to let your attorney know if any trust you are establishing will be funded in part with retirement accounts.
Funding Your Trust
Funding your trust is another task that will incur little or no costs. This is the process that occurs once a trust has been drafted (we’ll get to these costs soon) of placing the relevant assets inside the trust. Without taking this step, the trust will not work as intended. While most people get a trust fund drafted with the appropriate items initially, there are a few points once the trust has been in existence that can be prone to mistakes.
One of these is forgetting to place newly acquired or recently transferred assets into the trust. Did you buy a new property, change investment custodians or replace a maturing investment you’ve redeemed with another?
Perhaps you’ve refinanced a property and needed to remove it from the trust temporarily to finish the mortgage application process. Be sure that these and any other assets relevant to the specific trust at hand are placed inside it rather than remaining in your individual name, joint tenancy or another titling.
Estate Planning Costs
The most common estate planning costs are those paid to attorneys for advice and for drafting relevant documents such as wills and trusts. The specific cost and method of billing will vary from one attorney to the next. You may be charged per hour, per task or on a retainer basis when ongoing services are involved.
Consultations, including reviews of existing documents where no additional documents are drafted, could potentially be billed hourly. Although there is substantial variation, many firms charge a few hundred dollars per billable hour. Some but not all firms will provide a free initial consultation to see if any work is needed and if so, are they are a good fit for the task?
Drafting of initial items is often but not always done for a flat fee. Sometimes this will be a “package” containing a will, trust, and powers of attorney for medical and financial purposes, for example.
For those without unusual or complex situations, the documents mentioned can often be drafted for several hundred dollars on the low end to a few thousand dollars. Those with more complex situations can exceed ten thousand dollars in fees. Be sure you ask the attorney who drafts your initial documents what their charges are for periodic reviews and ongoing updates as well.
High net worth families with complex situations (interests in multiple businesses, for example) may pay estate planning fees on a retainer basis. This is generally only the case for those with estate planning needs that require ongoing attention.
How to Find a Quality Attorney
So how do you find a quality attorney to provide estate planning services, and how do you know the fees quoted are in line with market norms? There are a few ways to do this. Asking someone you trust for a referral is a common option. This can be a friend or family member or a professional you work with such as your financial planner, tax preparer or attorney you have worked with in another area of specialization. They may be able to provide a recommendation to someone who would be a good fit for your needs.
If you don’t find a good fit through referral, you may also want to consider your local bar association lawyer referral service. Your city or county may have one or even multiple bar services where those who wish to find an attorney can ask for referrals to a few (usually three) whose specialty they need. You should ask for an estate planning attorney and interview or have an initial consultation with those you think may be a good fit before making a final selection.
Some of you may wonder if a discount or online service might be an appropriate way to save on cost. While there are many online and discount services that can help you prepare your own legal documents including those related to estate planning, it is worth noting that a qualified estate planning attorney is not simply taking dictation and filling out a template, but providing valuable advice relevant to your situation.
Part of the value a professional can add is not simply in drafting the documents, but helping you decide which ones are even needed to accomplish your stated objectives. Given the potential costs of poor estate planning decisions, a quality estate planning attorney is often well worth engaging.
Non-Legal Fees Relevant to Your Estate Plan
There are some costs you could incur in planning your estate beyond the legal fees associated with your estate planning documents including tax and insurance costs.
Your estate plan may involve strategies that cause additional tax planning and preparation fees. Some trusts, for example, will file their own return rather than report on the return of the grantor. This will likely produce additional costs beyond the fees associated with a personal tax return that will be paid to your preparer.
Some estate planning strategies involve purchasing insurance policies. Two common examples are using life insurance to fund a buy/sell agreement among business partners and using life insurance to prefund an estate tax liability. This is often in a device called an ILIT or Irrevocable Life Insurance Trust. If insurance is relevant to your estate plan you will also need to consider the cost of premiums in your budget in addition to the legal costs of establishing the relevant documents.
Fortunately, the examples above are not relevant to most people planning for their estate. You should, however, ask your attorney if you can expect to incur additional costs paid to other professionals when implementing any recommended strategy.
As you can see, there are a variety of costs you could potentially incur in planning for your estate. When you consider the costs of errors in an estate plan or in experiencing probate that could have avoided, estate planning costs are usually well worth it. You get to experience one of the biggest payoffs while alive, which is the peace of mind having your estate plan in order can provide for you and your family.