Posted By 
By Robert Theofanis
Special to Financial Independence Hub
Estate planning is like going to the dentist. Everyone knows they should do it. But whether it’s getting your teeth drilled or contemplating your mortality, we’d all rather fill our time with just about anything else.
For entrepreneurs, this problem is even more acute. Your business depends on you, and high-priority items constantly appear at the top of your to-do list.
What I’ve found as an estate planning attorney is that my clients can get more done when we approach estate planning in a systematic way. This post contains an actionable plan for entrepreneurs like you to design and implement an estate plan.
I’ve organized the list by priority, with the most critical items first:
Obtain Term Life Insurance
If you have minor children, life insurance is the most important component of your estate plan. Most parents of young children simply haven’t had enough time to accumulate sufficient wealth to sustain a family without any additional income.
I like term insurance for this baseline protection because it’s cheaper than a permanent policy.
I also recommend that both parents have policies. Irrespective of who earns the income, both parents contribute to the household.
For the benefit amount, err on the side of more coverage and consider purchasing separate policies (e.g., two $1 million policies rather than one $2 million policy). This allows you to scale back the coverage amount without dropping coverage entirely.
If you don’t have children yet but are planning to, I still suggest getting coverage now. Life insurance premiums increase with age and pregnancy-related health issues may make it difficult to secure coverage later.
Create a Revocable Living Trust
A basic revocable living trust is the foundational legal document for an estate plan. Its purpose is to keep you and your property out of conservatorship and probate proceedings.
Included in this step is creating the other estate planning legal documents:
- A pour-over will ensures that all property is distributed in accordance with the terms of your living trust, even if it’s inadvertently left out of the trust;
- A durable power-of-attorney authorizes a financial agent to conduct transactions on your behalf if you’re incapacitated;
- A medical directive authorizes a healthcare agent to make medical decision for you if you are unable to and specified your healthcare and end-of-life wishes (in some states, two separate documents are prepared for this purpose);
- A guardian nomination appoints a guardian to raise your minor children if you are unable to.
Be sure to actually fund the trust! This is one of the biggest mistakes people make. This involves transferring title to real property, opening new financial accounts (bank, brokerage, etc.), and updating beneficiary designations.
Establish and Implement a Written Financial Plan
Estate planning is more than just creating a set of legal documents. It’s a multifaceted plan to achieve positive outcomes for you and your loved ones. So, while the first two items on this list are about limiting your downside, this item concerns your upside.
Committing your plan to writing serves two purposes. First, it forces you to actually decide on a strategy, rather than relying on a hazy approximation. Second, it allows you to share an actual document with your spouse and other advisors.
Even if you have an advisor, I still suggest writing down the plan.
Protect Against Liability
This concern arises constantly with my clients. Liability protection comes in many flavors. I suggest starting with the basics before moving onto the advanced strategies (irrevocable and out-of-jurisdiction trusts).
For most entrepreneurs, the easiest and most cost-effective way to shield personal assets from liability created by business activities is to establish a business entity like an LLC or corporation.
Likewise, umbrella and personal excess-liability policies are great ways to protect personal assets from liability arising from your non-business activities (e.g., car accidents, conduct of your children). Another benefit of insurance is coverage for the cost of defense (i.e., paying for an attorney to defend you). Even a completely frivolous lawsuit can be expensive to deal with.
Advanced techniques have their place. But for most people, the benefits are not justified by the upfront and ongoing expenses associated with these techniques.
Consider your Legacy
Once you’ve completed the first four items, you’ll be in a good position to consider your legacy. Take some time and contemplate this question: What mark do you want to leave on the world?
Assuming you are in a strong financial position and inclined towards leaving your estate to your children, it may be worth considering gifting earlier, rather than waiting until you pass away. With modern life expectancies and advancements in medicine and health technology, it’s not uncommon for children to receive their inheritance in their fifties and sixties. By that time, the die is cast. For many, financial support received in their 20s or 30s, when starting a family and career, would be much more beneficial than waiting decades later.
Robert Theofanis is an estate planning and probate attorney based in Manhattan Beach, CA.
