How Much of an Estate Should I Have Before I Need an Estate Plan

I am often asked how much net worth a person should have before they need estate planning. Many people believe that they don’t have enough assets to consider estate planning. Both the question and belief are based on a mistaken assumption that estate planning is about assets and net worth. Estate planning is really about the people you love, the people who rely on you, and the protections they need.

Estate planning is about Jennifer, whose mother died when she was only 8. Her parents didn’t have much in assets but had simple wills leaving everything to the surviving parent. Per the will, when the mother died, all of her assets passed to Jennifer’s father. (The same result would have occurred if Jennifer’s mother died without executing a will.) The father later remarried, and many years later, executed a will leaving everything to his new spouse. When Jennifer’s father died, all of his assets and personal belongings, including his wife’s possessions with sentimental value to Jennifer, passed to his second wife. Jennifer now has no contact with her mother-in-law and does not expect to ever receive any of her mother’s or father’s possessions. It’s hard to believe that Jennifer’s mother would have wanted her child to be disinherited (whether intentionally or not).

Estate planning is about Jeffrey. Because Jeffrey’s parents didn’t have a large net worth, they didn’t see the need for estate planning. But they had purchased a life insurance policy to provide financial support to Jeffrey in case something happened to them. Tragically, Jeffrey’s parents died in a car accident when he was only 5. Jeffrey inherited his parent’s life insurance proceeds, but since he was a minor, the court appointed a conservator (financial guardian) to manage everything he inherited. For the next 13 years, Jeffrey’s grandparents, his new guardians, were subject to ongoing court proceedings over the assets Jeffrey inherited. His grandparents had to appear in court each year to account for every penny of the assets they themselves should have been managing, and they have had to pay financial bond fees to boot.

When Jeffrey reached 17, he and his grandparents got into an argument typical of that age and he left. He moved out because he knew he’d be getting his inheritance once he turned 18. Jeffrey’s grandparents now have no control over how he uses that money, if he’ll do something productive with it or fall into traps kids encounter—peer pressure, thinking they know it all, or believing that the first hit of meth won’t hurt them.

Estate planning is about Daniel and Michelle, and their college son Jason. While attending college out-of-state, Jason was in a serious car accident and was rushed to the hospital unconscious. When Michelle learned of the accident from Jason’s college roommate, she immediately called the hospital to learn about her son’s condition. Even though Jason was insured under his parents’ medical insurance policy, the hospital refused to share Jason’s medical condition with Michelle, citing HIPAA regulations. Like many, Jason had never previously executed a HIPAA release authorizing a medical provider to share his medical information with his parents, and because he was unconscious, he was unable to do so when he was admitted to the hospital.

As a colleague once said, “estate planning is about people and stuff. It’s the stuff that often drives people to plan, but good planning is about the people you love and the people who rely on you.”