Top 3 Reasons Your Clients Need an Estate Plan
Although we live in a world where information is easily accessible through the internet, there are still many misconceptions surrounding estate planning. Most individuals do not dedicate their time to learning more about a topic that they do not believe they need or could benefit from. There are some common beliefs that clients may have about estate planning that are inaccurate: that having a will avoids probate, being married means everything a spouse owns goes to their surviving spouse, and a person does not need an estate plan if they own few assets. Educating people on the importance of an estate plan is key to saving time, money, and heartache that can be associated with lack of planning. As an advisor, you understand the importance of having an estate plan and can help your clients understand that a comprehensive estate plan can not only contemplate what will happen after death, but also protect clients and their loved ones in the event of incapacity.
While there are many important reasons to create an estate plan, we are going to focus and elaborate on three.
Reason # 1: An estate plan lets loved ones know what the client wants.
People tend to avoid thinking about death and dying and do not discuss these topics with their loved ones. While these topics often evoke strong emotions, it can be important to discuss several aspects of what they want to happen after they die with their loved ones. Their loved ones probably know them best but may not know what steps to take when faced with loss and grief. Encouraging your clients to provide the important people in their life with guidance through estate planning will hopefully reduce any confusion or additional stress following their death.
By establishing a comprehensive estate plan, your clients can decide and communicate what they want to happen with their money and property, but also make some important decisions regarding the care of their minor children, pets, and their own final arrangements. You should discuss the benefits of conveying their wishes to their family through estate planning because depending on their goals, there may be appropriate strategies that an experienced estate planning can educate them on that they may not have been previously aware of.
Reason # 2: An estate plan is a legally enforceable way to carry out the client’s wishes.
When speaking to your clients about establishing an estate plan to ensure their wishes are carried out, some may believe that they do not need to memorialize these decisions because they are confident that their loved ones will follow their wishes. However, as many of us are aware, it is hard to predict what will happen in the future and when faced with financial difficulties or struggles, their loved ones may act differently than what they had wanted. For example, while some clients believe that adding children to their real property or bank accounts will protect them in the event of incapacity, and avoid probate, these situations come with significant risks. Adding a child to their property grants an ownership interest in said property, and when the parents die, the child becomes the sole owner and can do with the real estate as they please. This could result in the unfortunate result of their child cutting out siblings or other intended beneficiaries after the client’s death without recourse. While this is only one scenario, this is a great example to provide to your clients as to why creating an enforceable estate plan will make sure that all they have worked so hard for will end up with who they want.
Reason # 3: The client gets to choose what happens.
Your clients may be hesitant to meet with an estate planning attorney to establish their estate plan for a variety of reasons, including a lack of education on the benefits of estate planning. It is important to let them know that if they do not create their own plan, the state will have one for them. The default estate plan (known as a state’s intestate statute) that controls the distribution of an estate may not align with their wishes. The state’s plan will not consider your client’s unique relationships and family structure. Blended families, parents of minor children, business owners, and unmarried couples are just a few groups that should strongly consider the consequences of not establishing a plan.
An estate plan can protect clients from the consequences of incapacity that can occur as a result of an accident, injury, or illness. Without a plan, clients could be faced with a court-supervised conservatorship or guardianship, in which a court will delegate control of their person and property to another person, whom your client may not have chosen. As part of an estate plan, clients can choose who can act on their behalf in the event of incapacity.
Everyone should have a choice in their future. A qualified estate planning attorney can help your clients create a plan that illustrates their wishes. If you or your clients have any questions or want to get started with the estate planning process, give us a call.
Estate Planning Roll Call: Crucial Legal Tools
As with any roll call, it is important to make sure that everyone is present and accounted for. Similarly, when assessing an estate plan, several tools, or documents, should be in attendance to create a complete and comprehensive plan. Most of your clients have likely heard the term estate planning, but they may not be familiar with which legal tools typically comprise a complete estate plan. You can teach them about the legal tools they should include in their plan and what protections and benefits each tool can provide.
Will or Trust
As with many other structures, a well-rounded estate plan must be built on a solid foundation. To establish a foundation for an estate plan, the use of either a will or a trust is necessary. Wills and trusts are legal tools designed to direct and control the distribution of assets that a client owns. While a will can only provide direction at death, a trust has the added benefit of providing direction in the event of a client’s incapacity during their lifetime, as well as upon their death. Consequently, there are multiple considerations that go into whether using a will or trust as a foundational tool makes the most sense for a client.
A will often requires that the client’s assets go through the probate process upon their death, although certain assets can be transferred outside of probate if a beneficiary designation has been used or the asset was jointly owned with right of survivorship. In a will, clients elect an individual to be in control of carrying out their wishes and state who gets the client’s assets at their death. This person is commonly known as the executor, executrix, or personal representative, and they must be formally appointed by a probate court. It should be noted that some states have restrictions on who can serve in the role of executor, executrix, or personal representative. It is very important that clients meet with an experienced estate planning attorney to understand who to elect to serve in this role, as choosing the wrong individual can result in unnecessary delays.
Alternatively, the use of a trust as a foundational estate planning tool can allow your clients to avoid the probate process and keep their affairs private. However, a trust can only avoid probate if it is properly and fully funded with the bank accounts and property that a client owns prior to death or transferred to their trust at their death. Additionally, trusts have the added benefit of protecting clients and their assets if they become incapacitated.
Your clients may be surprised to find out that even when utilizing a trust as a foundational tool, they will still need a will. The type of will used in conjunction with a trust differs from a standalone will. Instead, a pour-over will is used, which essentially “pours” into the trust any assets that were not titled in the trust at the time of the client’s death. While a pour-over will ensures that assets not funded into the client’s trust during their lifetime are funded at their death, it also provides other essential benefits. A will allows a client to nominate a guardian for minor children and pets and provide direction for their funeral arrangements (in some states).
A testamentary trust is another tool that may be appropriate for clients in certain circumstances. The terms of the trust are stated in a will during the client’s lifetime and the trust is created upon the client’s death. Like with a revocable living trust, clients can customize the provisions that control the distribution of assets through the trusts. However, this type of trust is created during the probate process.
There are a variety of considerations that can go into whether a will or trust is the right foundational tool for each client, which is why clients need to work with an experienced estate planning attorney to help ensure they have the right foundational tools for their unique situation.
Financial Power of Attorney
Most of your clients have likely heard the term power of attorney before. However, they may not realize that each power of attorney and the level and type of authority granted within it varies based on its contents. A financial power of attorney can often be customized to accomplish specific goals, but may have some limitations depending on state law. It is helpful to first understand the roles within a financial power of attorney. The person who creates it is known as the principal, and the person who receives the authority through it is the agent. An agent’s role is to act as a fiduciary and on behalf of the principal for a variety of purposes.
Under a limited power of attorney, the agent is limited to performing very specific duties, such as executing a deed for a real estate transaction or transferring a vehicle. On the contrary, a general power of attorney allows the agent to step into the principal’s shoes and manage almost all aspects of their finances and property ownership to the extent of what is allowable under state law.
A financial power of attorney can take effect immediately (or as soon as the agent has officially accepted the role) or it can be springing. A springing power of attorney requires that a certain event occur before the agent can exercise their power. This is usually upon the declaration that the principal can no longer act for themselves. It is important to note that not all states allow for a springing power of attorney.
Lastly, there is a durable power of attorney. A durable power of attorney lasts through the principal’s incapacity, making it crucial for incapacity planning.
Medical Power of Attorney
Our health and the way we manage it is largely dependent on our own beliefs and preferences. If we were unable to make our own medical choices, we would want to make sure that the person making our medical decisions was someone that we trusted would follow our wishes. It is important that clients understand that through their estate plan they can decide who will manage their care and make medical decisions in the event they are unable to do so. To have this control, their estate plan should include a medical power of attorney. A medical power of attorney is known by several names depending on what state you are in, such as a healthcare power of attorney or a designation of health care surrogate. Your client will designate an agent and several successor agents in their medical power of attorney to act on their behalf. Some states allow clients to choose to delay the effect of the authority granted until incapacity.
A comprehensive estate plan will also include an advance healthcare directive, also commonly known as a living will. This legal tool serves the important purpose of allowing your clients to memorialize what forms of end-of-life care they would like. Within a living will, they can record their wishes as it relates to being placed on life support if they are in a persistent vegetative state or diagnosed with a terminal illness with no probable chance of recovery. This tool is commonly confused with a do not resuscitate order, which is not part of an estate plan and is instead typically filled out at the hospital and applies specifically to resuscitation.
Health Insurance and Accountability Act of 1996 (HIPAA) authorizations allow an individual to designate who the hospital or medical facilities can provide medical records and information to. These authorization forms became necessary following the enactment of the federal Health Insurance and Accountability Act of 1996, which provides guidelines to the healthcare industry for the protection of patient information. This is an important legal tool to have if there are multiple individuals who are not nominated under the client’s medical power of attorney, but the client wants them to have access to their medical information in the event of illness or injury. While the individuals will not have decision-making authority, they will be able to stay informed about the client’s medical condition.
Appointment of Guardian
Planning for children is a high priority for parents. There are some states that have a separate legal document for guardianship of minor children. While a lot of states allow a client to include this information in their will, it is important for your client to meet with an estate planning attorney who can create a standalone legal tool if it is appropriate within your client’s state of residence.
Temporary Guardianship or Delegation of Parental Authority
There are circumstances in which clients may not be able to be with their children, commonly due to extended travel. This can be an appropriate circumstance for your client to nominate a temporary legal guardian to make decisions on behalf of the minor child. There are state-specific guidelines for the length of these temporary guardianships in addition to other limitations as to how and what decisions can be delegated to another individual.
Roll call complete! Now that you have learned about the legal tools that should be present in a client’s estate plan, you can further educate your clients and offer to connect them with an estate planning attorney to ensure that they have all of the essentials in attendance.
Do Not Let Your Clients Become a Statistic
You spend countless hours helping clients establish a solid financial plan for the future, so why not take the time to tell them about the benefits of creating an estate plan to align with their financial plan? As a trusted advisor to your clients, we are confident that you do not want to see them become a statistic because of a lack of planning.
Most People Do Not Have a Will or Trust
Only one in three Americans have a will or trust. This statistic is not surprising due to the amount of misinformation and fear around establishing an estate plan. One in three Americans who do not have a will or trust believe they do not have enough money or property to justify having an estate plan. The belief that estate planning is only for the wealthy is just one reason people put off planning; other reasons include being too busy, viewing it as too complicated or expensive, or fear of discussing death.
It Is Not Always Known if Someone Has an Estate Plan
Some people may not see the point in discussing death with their loved ones, but having this difficult discussion can serve several purposes. Surprisingly, 52 percent of people do not know where their parents keep their estate planning documents, and only 46 percent of will executors are aware that they are named in someone’s will. It is important that your clients tell their loved ones where they store their important legal documents, as loved ones may need to access original legal documents for multiple reasons. Additionally, when establishing a plan, your clients must tell the individuals named in their documents that they have been chosen to serve in these roles. These discussions should focus on what their responsibilities are and highlight the client’s wishes. Some estate planning attorneys offer family meetings after an estate plan is created to educate the individuals named in the client’s plan on the role they will play.
Conflicts Are Common
According to a survey conducted by LegalShield, 58 percent of adults in the United States say they or someone they know have experienced familial conflicts due to not having an estate plan or a will. Conflicts can arise from a lack of proper planning. Often these conflicts are related to arguments over how assets should be distributed after a loved one’s passing. You should advise your clients that working with an experienced estate planning attorney can assist in reducing family conflicts and disagreements that could ultimately end in estrangement.
Now Is the Right Time for Your Clients to Plan
Proper planning has always been important. American retirees expect to transfer more than $36 trillion to their families, friends, nonprofits, and additional beneficiaries over the next 30 years. This figure indicates an increased need to have a comprehensive financial and estate plan. You can help benefit your clients by assisting them in creating their financial plan and encouraging them to avoid the estate planning statistics. If you or your clients have any questions about creating or updating an estate plan, please reach out to us.