As advisors, we know that estate planning is something all of our clients should consider. Like a doctor recommending more exercise and a better diet, we are talking about a topic that is good for everyone but something that most people, regardless of their age, put off. We cannot help but benefit our clients, however, when we ask, "Are your estate planning documents current?" By looking at what stage of life your client is in, you can better help them plan for the future and respond to the changing events in their lives.
Following is a list of considerations and questions for clients in all stages of life, ensuring that no matter their age, you're most effectively spending your time helping them plan their estates for the future.
Clients in all life stages
No matter what stage of life your client is in, start by asking if they care who receives their property at death.
Almost everyone does, so this is a great place to start by asking them:
o Do you have any thoughts about when your beneficiaries should receive your assets, in what proportion, and under what conditions?
o Who should be the trusted people or institutions that will put the plan into place?
If your client chooses not to plan or make these decisions, let them know that their state's law will determine who will benefit from their estate. This is called intestacy, and the results can often be unintended.
People also need to be reminded about the possibility of disability. Most do not like to think about such difficult circumstances, but the chances your client will become disabled are greater than they think. To ensure that proper care and attention is given if a disabling occurrence should happen, people should have durable powers of attorney in place. These are the documents that allow family members or others to make financial and health care decisions if the client cannot. Otherwise, court intervention is generally required, which can be both intrusive and expensive.
The young couple
Younger clients often think estate planning does not apply to them. You must remind them that everyone needs some type of a plan. What happens if something happens to them? For younger families, begin by asking them the following questions:
o If something were to happen to you, who would make your financial and health-related decisions?
o Who would raise your children?
o In what increments of time would you want your assets distributed?
The guardian for a child can be nominated in a will or a trust. This is a decision they do not want to leave unmade. Also, minors cannot hold property. Even after age 18, beneficiaries may need help managing property.
Remember, especially with life insurance, the client may be leaving behind a significant sum of money. You might also suggest that the trust continue for the lifetime of each child, providing asset protection or at least paying out in staggered amounts so that the beneficiary is not suddenly in charge of a lot of money.
More mature or wealthy clients
As clients get older and have larger estates, you can often improve their estate plan by discussing a revocable trust to avoid the cost and delay of probate. Probate is the court-supervised proceeding used to settle an estate and may be required regardless of the existence of a will. Having a will does not eliminate the need for probate. A revocable trust, on the other hand, privatizes the probate process. A trust is also harder to contest and keeps the estate plan private.
If the estate is worth more than the amount that can be covered by one person's estate tax credits (including the face amount of all life insurance policies for both spouses), tax planning is critical. The federal estate tax currently applies to estates worth more than $2 million, and the rate is 45 percent. Many states have an estate tax, as well.
Without proper planning, most couples waste the use of some of their estate tax credits. Proper planning can save beneficiaries hundreds of thousands of dollars.
Clients in transition
Significant life changes can mean a variety of things: a change in marital status, the addition of children and grandchildren, changes in beneficiaries, inheritances, and retirement. As you discuss planning with your clients, they will often mention a special interest or perhaps a problem that has prevented them from making decisions. For example, it is common for couples to have children from previous marriages. Balancing the interests of the blended family requires careful planning. It is critical that the estate plan complies with all the technical restrictions regarding spousal rights and tax law. Before entering a marriage, a prenuptial agreement could also be considered.
Other clients may have a closely held business. Just as death and disability affect a marriage, these events also impact a business. Owners of a closely held business should have a buy-sell agreement that describes what happens in events such as these. The agreement, coupled with proper insurance funding, helps ease liquidity concerns and ensures that the equity ownership is confined to the family or other approved people.
Many individuals may want to give charitable gifts. Federal tax laws encourage charitable giving by granting an unlimited estate tax charitable deduction. There are many gift options available that your client may want to explore. Without a will or a trust, no assets will go to charity, so an estate plan must be discussed. Some people may want to benefit a charity but do not have sufficient assets if something happened today. Life insurance is a good tool for such a person.
Helping your clients protect their assets
The most difficult task in estate planning is getting started. An experienced estate planning attorney can be a valuable ally, available both to explain technical legal issues and to get clients thinking. Before your client calls an estate planning attorney, however, remember to help them collect the information that pertains to the stage of life they are currently in, such as:
- The names and contact information of anyone who might be named in the estate plan.
- The names and ages of their children, and, if they are minors, their potential guardians.
- The names of beneficiaries and those who will make their financial and health-related decisions.
By looking at your client's life stage and helping them collect the necessary information, you can begin talking with your clients about the status of their estate and what they would like to accomplish. Once that happens, you will be in a good position to add value as a professional advisor and accurately guide your clients in planning for their future.
Hugh Gill is an estate planning attorney at Hinkle Elkouri Law Firm, LLC. He can be reached at hgill@hinklaw.com or 316-267-2000.
