Helping Clients Slice the Pi(e)

What? You didn’t know that March 14 (3/14) is National Pi Day? We didn’t either until recently, but now we know that this celebratory day was established (you guessed it!) by a physicist (Larry Shaw) to recognize the mathematical constant (𝛑) whose first three digits are 3.14—probably as an excuse to devour lots of pie. National Pi Day is a great occasion to invite your clients in to enjoy a slice of pie and discuss their financial planning, as well as how estate planning will help them determine how they should slice their financial pie when they pass their wealth on to their children and loved ones. No complicated mathematical formulas are necessary to determine whom they would like to leave their money and property to, but it is an important subject that requires some serious thought.

How Should Clients Slice Their Pie?

With only a couple of possible exceptions, clients are free to use their estate plan to slice up their wealth for the benefit of anyone they choose. Some common beneficiaries that your clients may choose are spouses or other significant others—such as their boyfriend, girlfriend, or partner—and their children. More and more people are also leaving money in trust to be used for the care of their pets. Others want to provide a gift to one or more close friends when they pass away. Some clients may choose to include institutions as well as people or pets in their estate plan: if they have a strong relationship with a favorite alma mater, charity, or church, they may choose to leave money or property for its benefit.

It is crucial for your clients to create an estate plan to ensure that each person or institution gets the slice they intend. Without an estate plan, their money and property will be divided up according to state law, which may not provide the result they would have wanted. The state’s intestacy statute typically provides that if a deceased person had no will, the surviving spouse will inherit everything, but if the deceased person had children from a prior relationship, the estate will be divided between them and the surviving spouse. If there is no surviving spouse or children, the estate may go to the deceased person’s parents or siblings. In the absence of any surviving family members specified in the statute, the deceased person’s money and property go to the state. This means that if the deceased person had stepchildren or foster children who were beloved but not adopted, or a significant other who was not a spouse, those loved ones will receive nothing. In addition, a person who did not have family members or did not want to leave their money and property to their family will lose out on the opportunity to leave their wealth to a charitable organization or other institution of their choice; instead, their wealth will go into the state’s coffers.

By creating an estate plan, your clients can specify not only to whom they want to leave a slice of their pie but also the size of that slice. For example, they may want each of their children to receive an equal inheritance, or they may choose to divide up their wealth among their children based upon what they think each one needs. Children who are disabled and unable to provide for themselves may need more than other children who are independently wealthy. There is no right answer: it is up to your clients to determine those to whom they want to leave their money and property and the size of each gift.

Depending on state law, there may be a couple of exceptions that have at least some impact on clients’ ability to specify the size of the slices of their pie:

  • Spouse’s elective share. Nearly every state has a statute that protects a surviving spouse from complete disinheritance by allowing them to elect to take a certain portion, such as one-third or one-half, of their deceased spouse’s estate. In some states, the size of the elective share may depend on whether the deceased spouse left behind children, grandchildren, or parents in addition to their spouse. The surviving spouse’s elective share may be smaller if there are other surviving relatives who would benefit from the deceased spouse’s estate.

Some states’ elective share statute applies only to the probate estate, that is, accounts and property that are held in the deceased spouse’s individual name. However, other statutes also subject money and property that the deceased spouse had transferred to a revocable living trust during their lifetime to the surviving spouse’s elective share. Elective share statutes are generally a default rule, so a surviving spouse may contractually waive or modify their right to an elective share if they sign a premarital or postmarital agreement to that effect.

  • Family allowance. Under state law, the surviving spouse, minor children, and adult children with special needs may be entitled to an amount from the deceased person’s estate necessary for their maintenance if they are able to demonstrate their need to the probate court. The money and property considered in determining the amount to which the spouse or children may be entitled vary depending on state law. Often, if the family allowance is determined to be available, it will be paid to the spouse or children before gifts are made to other beneficiaries named in the deceased person’s estate plan or most other claims against the estate. If there are insufficient funds in the estate to cover the family allowance, the court may order the sale of estate property.

You Can Help Your Clients Slice Their Pie How They Want

Review beneficiary designations. In addition to encouraging your clients to create an estate plan, you can help them review the assets under your management to ensure that they have named beneficiaries on their accounts. If the accounts were established years ago, your clients should consider whether the person or entity named is still the beneficiary they would like to receive that particular slice of their financial pie. If no beneficiaries have been named on their accounts, your clients should designate one or more beneficiaries to avoid the need for the accounts to go through probate and be distributed according to the terms of their will or state law if they did not have a will.

Evaluate their accounts and property. You can also help your clients determine if their assets are sufficient to provide for their beneficiaries in the way they wish. This is particularly relevant for clients who have many beneficiaries and are concerned that their current money and property will provide smaller slices of wealth for each one than they desire. If their current accounts and other property are insufficient, you have the opportunity to suggest solutions such as additional life insurance or adjustments to their financial and investment plans. 

Determining who receives a client’s money and property, as well as how much, are important decisions that are the cornerstone of most estate plans. By working together, we can help clients legally document their wishes and ensure a smoother administration when the time comes. If you would like to discuss ways we can partner together to serve our mutual clients, please reach out to us.