Traditional estate planning
Traditional estate planning enables people to protect their personal assets. These assets range from various types of financial items such as bank accounts, company shares, and stock portfolios to tangible assets such as art, antiques, and real estate.
Estate planning protects people and families primarily from potential creditor claims, for example, in case of insolvency, and against lawsuits and probate. Quite often, estate planning also brings tax benefits, as now the assets are owned by the trust and not by individual people or families.
There are many definitions of estate planning, but usually it entails the establishment of a trust and the preparation of a will. The trust is an entity which becomes the de facto owner of the assets. Its aim is to protect and manage the assets.
There are a few different types of trusts, but the most common are these:
- Revocable trust (also known as revocable living trust)
A type of trust that you can revoke at any time. In this way, you continue to have control over your assets during your lifetime, and you can revoke the trust itself if that becomes necessary. - Irrevocable trust
When you transfer your assets to an irrevocable trust, that cannot be changed. You can’t revoke the trust or change the assignment of assets to the trust. That’s why it’s called irrevocable. : what are the benefits and when do you need it?
There are also many special types of trusts, such as charitable trusts and special needs trusts.
Typical problems with traditional estate planning
Estate planning sounds great, right? It aims to protect your various assets, so what can be wrong with it?
There are a few major problems with traditional estate planning, of which you must be aware. Let’s review them.
It can become obsolete if your assets change
This is a major risk of traditional estate planning. If your assets change, for example, you acquire shares in new companies, buy new real estate, move to another state or country and open bank accounts there, all your estate planning will become obsolete as these new assets won’t be reflected in it.
There is a simple check that you can do. Think about the assets you have now and the assets you had 5 years ago. And 10 years ago? If the difference is big, then estate planning is probably not the best tool to protect your assets.
This is the case with most people nowadays. While in the past it was common for people to have more or less static assets during their lifetime, these days people have dynamic and constantly changing assets.
The factors that contribute to that are many:
- the democratization of stock trading through online trading platforms
- tech companies which are giving stock options to their employees
- the increasing number of expats who open bank accounts
- join pension funds, and establish new insurance policies in their new countries
- multiple new trends such as cryptocurrencies.
Also, in the past, it was common for only high net worth individuals to possess multiple assets. These days, many people, even if not super wealthy, possess many types of assets.
With such a dynamically changing portfolio of assets, it’s not surprising that traditional estate planning offers little protection. Of course, one can’t expect people to go every year to an attorney to amend and update their estate plan. That’s simply unrealistic.
It’s expensive
There is no fixed standard fee for estate planning, as it depends on too many factors –
- the number and size of the assets
- the state or country where the people and the assets reside
- the situation of the people
- the fee of the attorney who is drawing up the estate plan
- the type of trust
- the scope of the estate plan
Still, estate planning preparation often costs more than $10K. Also, it’s a lengthy process, so you must invest a lot of time and energy, as well as money.
You might inherit assets – but only on paper
Many assets these days are stored in various digital repositories online. One question is the legal basis, for example, in the case of inheritance, but a completely different question is how your heirs will be able to identify and locate these assets and get access to them.
Do your heirs have access to the stock portfolio stored in online trading platforms? Do you have the private keys for the cryptocurrency wallet? Do you know which these platforms are at all?
There is an increasing technical complexity related to being aware of the very existence of these assets, their location, and how they can be accessed.
Digital estate planning
Digital estate planning services appeared with the promise to fix the problems of traditional estate planning. They are much cheaper, and they also enable people to easily update their estate plan.
Usually, digital estate planning tools are legaltech services that walk users through a series of questions related to their residence, assets and family situation, and then they generate an estate plan for them.
Some of these tools generate an estate plan fully automatically, while others rely on human review and finalization.
Many digital estate planning services work in collaboration with attorneys who participate in the preparation of the questionnaires and the content of the generated estate plans, and in some cases, these partnering attorneys do manual verification of the content before it’s handed over to the users.
While digital estate planning fixes some of the problems of traditional estate planning, particularly in terms of ease of use and low cost, it still possesses many of the shortcomings of traditional estate planning, which makes the effectiveness of its protection questionable.
Let’s review some of these major shortcomings.
Limitations of digital estate planning
As we said, digital estate planning automates the process that is usually conducted by experienced estate and trust attorneys.
The problem is that these attorneys specialize in the legislation of specific states or countries, and they provide their services only in these locations.
This means that even if you automate that process, it will protect your assets as long as you and the assets are in one specific location, e.g., a specific state in the US or a country in the European Union. The reality these days, though, is that people possess assets in multiple geographic locations.
You might open an online trading account in one state, a bank account in another where you live; tomorrow you might relocate to France or Germany and open local bank accounts and join a pension fund there, while buying a new real estate property for vacation or investment purposes in another country.
In this situation, digital estate planning is as ineffective as traditional estate planning. Despite its automation, ease, and lower costs, it’s still focussed on specific states in the US or countries in the EU. It can’t protect your global portfolio of assets.
If traditional estate planning and digital services can’t provide the necessary asset protection for the modern person with dynamically changing assets in various geographies, is there another solution?
Let’s take a look into the future.
The estate planning of the future
The world around us is changing rapidly, but often in small increments. We see the small increments, but we realize the magnitude of the change only in retrospect. And then we ask ourselves, how could we not see the huge revolution that was happening?
The boiling frog syndrome, which we’ve seen in human history so many times. The same thing is happening now. Events never seen before in human history are taking place, but we can hardly make any sense of them. See how they correlate and build a bigger picture.
Think about it. The tech ecosystem in the Middle East is advancing rapidly. Middle East and technology and entrepreneurship in one sentence? Yes, and it’s totally booming.
The number of expats globally is skyrocketing. According to official statistics from the UN, there has been about a 50% increase in expats only in the last 10 years!
Many people have stock portfolios, even people with regular professions who are far from professional brokers or high net worth individuals. Various digital assets are popping up every day – cryptocurrencies, assets in digital games, virtual wallets. Employees in tech companies having stock options is now the norm.
100 years from now, 50% of the global population will be expats, possessing a large number of assets which are constantly changing and in various geographies and repositories. How will traditional estate planning legislation, specific to each individual geography, fit into this picture of globally distributed assets? It simply can’t.
The future will need a global estate planning protection system. A system in which a global citizen can protect various financial and digital assets stored in different locations around the globe. And this protection should include not only the legal aspect but, increasingly, also the technical aspect.
As an increasing number of assets are being stored in online repositories, for example, neo banks, neo insurance services, and online trading platforms, this technical aspect will become more and more important.
Are the newly emerging global digital inheritance services this solution, a blink into the future of estate planning and asset protection?
Let’s see. And after some years, we might say, “But wasn’t it obvious?”
