Everyone has a will. About 40% of the population has written their own. But 60% let their state legislators write it for them. Where do your clients fit?
A will is one of the most important documents a person can create in his or her lifetime. It is the financial blueprint for the distribution of a person's assets after death. A will can clearly state who will be guardian of a person's minor children, who will inherit his assets, when they will inherit, and any conditions that must be met for them to receive the assets.
What will happen to his business or practice? If he dies without a valid will, the court does not have his instructions to follow. Therefore, it has no way of knowing how he may have wanted to distribute his assets. The state where he lived steps in and makes the decisions for him, according to the distribution schedule set forth in its intestacy laws. The state's decisions may or may not conform to his wishes, or to what is best for the people closest to him. His loved ones will likely have to hire an attorney and incur delays and unnecessary costs to determine who will receive his assets. The most disturbing fact is that without a will, he may disinherit his loved ones by allowing the government to be first in line to inherit his assets!
How do you create a will?
Drafting a will can be difficult based on your client's family and type of assets. It is not an endeavor your client will want to tackle single-handedly. It's important to call on the services of a competent estate planning lawyer. A lawyer might help to:
- Determine what type of will he needs;
- Help make the best decisions as to how his assets should pass on;
- Change the terms of an existing will, if appropriate; and
- Save on estate, gift, income and state inheritance taxes.
Take advantage of estate planning opportunities people often overlook. Don't let your clients disinherit their families by putting the government ahead of them. That's what you do when you don't write your own will!
Life insurance and wills
How does life insurance fit into the picture? Check beneficiaries on all contracts. When I was a neophyte, I did a checkup for a good friend. I uncovered that he still had his ex-wife on as the beneficiary. It was a large life insurance policy. Obviously he, his current wife and family were quite grateful to me. Life insurance is a vehicle your clients can use to help make sure their estate has the cash needed to pay expenses at death, such as funeral costs, debts and death taxes.
Unless we are on death row, we don't have a set date to die. If your client is the ATM for his family, will his death deactivate their ATM card? What is his human capital value? If he is 35 and making $100,000 a year, without adjusting for inflation and based on an age 65 retirement, his human capital is $3 million (30 years x $100,000). Who will provide this money to maintain their lifestyle, keep the kids in college and secure the home? Remarrying is not an estate plan for the spouse. What if he has a "stay-at-home" spouse? Who will provide these services and work, if death visits a spouse too early in life?
From personal experience, having lost my wife suddenly at age 49, the costs both emotionally and financially are devastating. Who arranges and executes doctor appointments, calls the plumber, prepares lunches and dinner? Who does the laundry and coordinates all the tasks to run a warm, safe, nurturing and comfortable environment? It is expensive and fraught with risk when you have to hire help to provide these important tasks. We are not trained or experienced to handle these important responsibilities without our partner. Friends and relatives are only around for a short time to support and help. They will eventually get back to their own families and routines. Can you trust anyone with your money, your home, your valuables and children?
Impress upon your clients how important it is to insure a stay-at-home partner so you can protect you and your family against a significant loss. Life insurance is a gift of love. It can't replace the emotional loss, but by insuring against the economic loss, it will make sure the emotional loss is not exacerbated by the painful loss of these required and indispensable services.
Life insurance can provide a legacy for clients and their families. It can create wealth where there was none or little before. It can smooth the painful transition for the family. Without liquid assets, the estate may be forced to sell precious and needed assets -- securities and real estate may have to be sold in a down market and other assets may have to be sold at a discount. The family becomes a victim of the down economy.
In most instances, life insurance proceeds are paid income tax-free to beneficiaries. Check the laws in your state. In most states, life insurance is free of state inheritance taxes. You must be careful of ownership of life insurance, especially in the larger estates, because ownership can put the income tax-free death benefit at risk. Without proper planning and professional advice, the life insurance could be included in your client's estate. This terrible mistake could make you professionally liable by making the estate subject to federal estate taxes. Life insurance can be owned by a trust or a third party to keep it from being subject to death taxes, but be careful of the relationships between owner, insured and beneficiaries. Be extremely careful of changing ownership on existing policies. Don't make it a gift, subject to gift or estate taxes. Seek competent legal advice.
Families with a special needs child are especially vulnerable. Any asset owned by the special needs child will disallow government benefits. The child cannot own more than $2,000 in all types of assets, even "in-kind" gifts. Very often the government comes back, years later, demanding to be paid back for previously funded services and worse, taking away present and future services until these assets are all depleted and the liability repaid. If no family members are around, this leaves the special needs child to fend for himself, when most cannot. The parents need a Special Needs Trust (SNT). This type of SNT takes an especially competent estate attorney to draft and monitor.
Don't wait until it's too late
Despite the obvious importance of an estate plan, which includes a self-authored will, 60% of Americans still do not have one. They do not take advantage of the special tax benefits offered. Why? Creating a will forces each of us to come face-to-face with our own mortality -- and dealing with death is difficult. But it will be much more difficult for your loved ones if you don't author your own will. Procrastination is costly.
Remember, you should seek the services of a qualified attorney to draft a will. Put a team together for your client and get it right. Tell your clients to include an estate attorney and CPA (and trust officer, if needed). Tell them to look for the recognized professionals in their fields. Be the financial quarterback for your clients. Tell them you want their families to win that "Super Bowl" and not be knocked out of the game early by the costly mistakes of inaction, apathy and lack of preparation. Do not disinherit your family. People don't plan to fail, they fail to plan! The trophy of a comprehensive plan will give the survivors financial peace of mind and security at one of the most stressful times in their lives.
Common client misconceptions
Myth: "My assets are so small that a will is not necessary."
Fact: Not true! For a married couple, they are generally worth more than they give themselves credit. Even if some possessions do not hold great monetary value, they could hold an enormous amount of sentimental value -- and that's something you can't put a price on. Failing to indicate who receives these treasures in a will can cause friction between family members that lasts for decades and generations.
I do a lot of planning for retiring local, state, federal and government workers. They are always amazed and in a state of disbelief, when I show them that their assets, with their pension, often exceed $1 million!
Few people take the time to add up their assets and properly value their pensions.
Myth: "I wrote my final arrangements and requirements in my handwritten will."
Fact: A person's funeral requirements are not part of his will, because he will be long gone when his will is probated (acted upon by the legal representatives). Do this in a separate document given to a loved one while he is alive. Your client should include his own obituary, so people know what he considered important in his life.
Myth: "When I die, my spouse will get all of my assets."
Fact: Not necessarily! With today's multiple marriages, without your own authored will, disposition of your assets can get very messy. Most likely a person can disinherit the very people he wanted to protect. Any assets held jointly with right of survivorship automatically pass to the joint owner. Some states are marital property states and have special legal requirements that may upset your clients and destroy families. Assets with a beneficiary designation, such as IRAs, life insurance, annuities, and investment accounts generally pass as stated on the beneficiary form. What happens when the surviving spouse dies? What happens if the beneficiary dies? What happens if the client no longer wants that beneficiary to inherit his assets? What if he remarried? If the ex-wife has custody of his minor children, they can control these assets! Will the children receive their share at too early of an age? Does his spouse have the financial skill to manage the family wealth? Will his business partner be faced dealing with a very emotional, irrational and distraught surviving spouse?
Myth: "I can create a will on my own and save the legal costs."
Fact: "Do-it-yourself" wills often do not contain all of the necessary components as required by state law. Anyone who might benefit from an invalidation of your client's will can contest it, and if the courts decide in their favor, his estate may have to pay for all legal costs. Remember, the few dollars he saves now can cost his loved ones thousands of dollars later. Laws change. Clients need a competent estate attorney to keep them informed. Instruct them to ask for an estimate ahead of time. Most estate attorneys will give potential clients the first interview at no charge as a public service.
Myth: "I don't want my final wishes to be set in stone. I'll create a will later in my life."
Fact: The terms of a will can change as often as needed, so your client doesn't need to wait to create one. Legal experts agree that a person should reexamine his will, business and financial documents periodically to make sure they are up-to-date. Every three years is a good plan. A will and your client's financial plans should receive a "checkup" whenever there is a substantial change in his life. No one has a lease on life, so we don't know when we will die, unless we are a patient of Dr. Kevorkian!
George R. Shadie, AEP, CLU, is a 20-year Premier President's Council career agent with New York Life, 16-year member of MDRT and the President of the Estate Planning Council of Northeast Pennsylvania. He lives with his wife, Brenda and their three children in Sand Springs, Drums, Pa. Contact him at (888) 447-7695 or visit www.georgershadie.com.
