From the January 2017 issue of Investment Advisor • Subscribe!

7 Estate Planning Resolutions for Clients to Make Now

Revisit clients’ estate plans with these checkpoints

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Revocable trusts are just one aspect of clients' potential estate planning needs. Revocable trusts are just one aspect of clients' potential estate planning needs.

Given the uncertainty surrounding estate planning legislation, many clients may be reluctant to focus on their estate planning goals. I would argue that now is the perfect time to ensure that clients’ estate plans are in shape for whatever the future holds — and here are seven estate planning resolutions to help.

1. Make sure revocable trusts are funded.

Clients execute revocable trusts to accomplish various planning goals, such as reducing federal or estate tax liability, protecting assets from creditors, providing for a family member with special needs, or controlling the timing and distribution of assets for beneficiaries. These trusts are also designed to preserve privacy and minimize estate administration expenses.

So what’s the problem? Clients often spend time and money executing a trust to suit their planning goals, but then fail to complete the process by actually funding the trust. If a client’s trust has a provision related to a particular asset, the trust should own that asset. Assets not owned by the trust will not be subject to the trust’s provisions.

2. Update the estate plan when personal circumstances change.

Often, problems arise when clients neglect to update their plans to reflect significant events, such as the birth of a child, marriage or divorce, or a new job. Such changes need to be reflected in estate planning documents to ensure that the documents keep pace with client goals.

3. Ensure that beneficiary designations are up to date.

Outdated beneficiary designations can derail an estate plan. If a client has experienced life changes, such as a divorce, reviewing the beneficiary designation is important to ensure that assets will be inherited by the intended individual.

In addition, be sure to educate clients on the difference between probate assets, which are distributed to heirs through a court process (e.g., real property, bank accounts in the client’s name), and nonprobate assets, which bypass the court process and transfer directly to the heir (e.g., retirement accounts, life insurance listing someone other than the client as beneficiary).

4. Review asset ownership.

Similar to beneficiary designations, asset ownership plays an important role in streamlining the client’s estate plan. If assets are jointly owned with survivorship rights, the asset will transfer to the surviving owner, outside of probate or a trust. If a trust is in place to accomplish specific goals, examine the ownership of assets to ensure that the client’s planning goals are met.

5. Ensure that revocable trust documents include retirement plan language.

Many clients have a significant portion of their assets in qualified retirement plans, such as 401(k)s, and have designated a revocable trust as the beneficiary of those accounts. If the trust hasn’t been updated in some time, however, it likely doesn’t contain language to qualify as a see-through trust, which gives the trustee flexibility in dealing with retirement assets. Without such language, the trustee’s options will be significantly limited, and negative income tax consequences may result.

6. Make advance directives part of every plan.

Durable powers of attorney for financial matters, as well as for health care matters, are important resources to help protect a client’s assets; these directives also pave the way for an authorized individual to act on the client’s behalf in times of need. Without these documents, when unexpected health care needs arise, family or friends may not know which step to take with respect to medical decisions or financial matters.

Clients should be encouraged to not only execute these documents, but to discuss their wishes with those they have appointed to act on their behalf so there is a clear understanding of responsibilities.

In addition, these documents should be kept current. Recently executed documents should be in line with current statutory provisions, as well as easily recognizable by financial and health care professionals.

7. Make sure clients understand what their documents are designed to accomplish.

How many times has a client passed you a stack of documents and said, “I have no idea what is here or what they do”? Clients may not remember the discussion or the decisions they made during the original execution process. They may not understand the simplicity or complexity of their plan. A regular review can help keep clients up to date on how their planning is working for them. Most important, it can help them evaluate whether their plan is right for them.

Not every client needs a complex estate plan, and not every client’s goals are accomplished by basic planning. Clients need to understand how their plan works, what it takes to maintain it, and how it benefits them and their beneficiaries.

By discussing these resolutions with your clients, you can demonstrate both your attention to detail and your view of the broader picture. Starting off the new year with a well-rounded plan will allow clients to move forward with other goals, knowing that their estate plan is in good shape.

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