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Financial Planning > Trusts and Estates > Estate Planning

Estate Planning

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Plan on it

Estate planning involves many pieces. Here’s a checklist of what you and your client must have to ensure an efficient transfer of assets.

No one likes to think about planning for the inevitable. Yet if your clients don’t, the consequences could compound an already devastating tragedy.

To illustrate, Kathleen Rehl, Ph.D., CFP with Rehl Financial Advisors in Land O’Lakes, Fla. and author of “Moving Forward on Your Own: A Financial Guidebook for Widows,” tells the story of the untimely death of her stepdaughter, who died in her late 20s.

She had been engaged but broke off the relationship several years before her death. While engaged, she named her then-fianc? as the beneficiary of a life insurance policy provided by her employer. The ex-fianc? received the death benefit and when Rehl’s husband asked him to return the money to help the family with final expenses, the ex-fianc? refused.

That’s just one example of why estate planning is important for every client. But it takes on added urgency for seniors. Not only do they face a greater risk of dying but there’s also the increased risk of debilitating injury and illness.

Effective estate planning isn’t just about the client’s death, though. Besides reducing estate administration costs and taxes, the estate plan should address the challenges that arise when a client becomes disabled or passes away. Consider the following lifetime and post-mortem estate-planning steps for review with your older clients.

Lifetime planning: Steps to help the client now

1) Build a balance sheet. A personal balance sheet lists clients’ assets and liabilities: what they own and what they owe. It provides a useful summary to estimate potential estate taxes, but it’s also a great organizational tool. By including details on account ownership and where assets are held, clients can help their family members find the information they need if the client becomes incapacitated or dies. That’s particularly important with physical assets, such as gold or silver coins, says Garth Scrivner, CFP, CPA/PFS with StanCorp Investment Advisers of Albuquerque, N.M. Some clients may be hesitant to provide those details because of security concerns but if they don’t share the information, it might be impossible for anyone else to locate the assets.

2) Organize your financial records and important documents. Organizing records and documents in a secure but accessible location makes life easier for clients and their families. Those family members will need to know where the documents are stored and have access to them, of course–otherwise they face the hassle of finding them. The records should also include user IDs and passwords for websites the client uses, Scrivner says.

3) Estimate estate taxes and settlement costs. The current estate tax exemption is $5 million for individuals, while married couples can combine their exemptions up to $10 million. That means many of your clients aren’t at risk–at least through 2012–for federal estate taxes. But they’re not necessarily off the hook for state estate taxes and should plan accordingly. Clark Kendall, CFA, CFP with Kendall Capital in Rockville, Md., notes that many states have decoupled their estate tax rates and limits from the federal government’s levies. Consequently, a client’s estate could pass free of federal taxes but incur significant costs from his or her state.

4) Create a durable power of attorney for financial management. This document allows another person to manage the client’s finances, including paying bills, handling investments, etc. It provides back-up financial management in case the client becomes incapacitated. Clients need to create this document while they have their full mental faculties or the power’s legitimacy could be challenged later.

5) Set up a power of attorney for health care and a living will. This power of attorney lets clients name another person who will make health-care decisions for them if the person is unable to do so. With a living will, clients can describe in advance the types of health-care treatment they want to receive or refuse. Some clients might find it emotionally difficult to create these documents, but they can provide vital guidance when clients are unable to express their wishes. Scrivner reminds clients to also complete HIPAA (Health Information Portability and Accountability Act) forms to give another person permission to access their medical records and information.

Living trusts can provide back-up financial management if the client becomes incapacitated. They’re also useful for keeping assets out of probate and speeding estate administration. But there’s a catch: The client must transfer assets into the trust to get the benefits. Donald Duncan, CPA, CFA(TM), CFP with D3 Financial Counselors, LLC in Downers Grove, Ill., points out that the trust can hold real estate as well. But if the client doesn’t transfer the property to the trust, it will wind up in probate unless it’s owned jointly, he adds.

6) Check for Form DD 214. George Padula, CFA, CFP with Modera Wealth Management in Boston, says that clients who are military veterans may be eligible for military burial benefits but their family will need Form DD 214–the Certificate of Release or Discharge from Active Duty issued by the Department of Defense–to apply for the benefits. An application to request Form DD 214 is available online at

7) Introduce the family to the advisors. “If you’re an advisor to an elderly client, ask to speak with the children,” Padula suggests. “If there’s a situation where the client is experiencing signs of dementia or Alzheimer’s, you want to have someone to communicate with on the family’s side. Perhaps a family member is going to be appointed as a financial power of attorney, and you as an advisor, I think, should know who that is.”

Post-mortem planning: Making the administration of clients’ estates
less stressful and costly for heirs.

1) Review wills; write a new one if needed. A client’s will determines how property that isn’t owned jointly, held in trust or names a beneficiary gets distributed. It also allows the client to name guardians for minor children. Clients without wills give control over those decisions to their local probate court. If the will is more than a few years old or the clients’ situation has changed, they should review the will with their attorney. Also, be careful about storing a will’s sole copy in a safe deposit box, Padula cautions: “If the safety deposit box is in your client’s name and they pass away, you’ve got to get a court order to open it.”

2) Write a letter of instruction for survivors. A letter of instruction provides details that don’t fit in the will. Those could include specific directives for final arrangements; bequests of specific assets to heirs, and so on. Make sure the client’s will and letter of instruction are accessible to those who need them; otherwise they might not be able to find them in time to follow the client’s wishes.

3) Write a legacy letter. A legal will passes on possessions, but a legacy letter can pass on values, hopes and dreams, says Kathleen Rehl. She shares her personal experience after her mother’s death four years ago as an example of a legacy letter’s value. Rehl received a small amount of money from her mother’s estate but what she values most is her mother’s legacy letter. “I still go and get that letter and read it maybe three or four times a year because there were beautiful, beautiful sentiments that mother expressed in there,” she says.

4) Plan for pets. Pets are an important part of many clients’ lives, but failing to plan for pets’ care after the clients’ death can leave pets stranded. “Pets are vitally important for people and members of the family,” Padula finds. “So, what do you want to have happen to your dog or cat and who will take care of them?” Padula cites a client’s solution: “We have one client that actually put in his will, ‘I would like my pets, if I have any, to go to my brother and if he can’t take them, to my next brother and if neither would like to take care of my pets, I want them to go to a good home.’ “

5) Review joint ownerships, beneficiary designations and pension survivor benefits. These arrangements take precedence over the client’s will and it’s easy to set them up and then forget them, often with unintended consequences, as Rehl’s experience after the death of her stepdaughter illustrates.

Therefore, it’s a good idea to review and update your clients’ beneficiary designations.
There’s also an asset-protection consideration. Duncan encountered a case where the husband did not name his wife as the beneficiary of his IRA and the IRS impounded the proceeds for a tax assessment.

6) Review existing trusts. Trusts are often created to take advantage of the tax laws in effect when the trust is written. But tax laws change and those changes can make the trust’s terms outdated and possibly detrimental to the client’s estate. “In my opinion, a stale trust is worse than an outdated will,” Rehl says.

She uses the example of the recent estate tax law changes, which increased individuals’ estate tax exemption to $5 million and a married couple’s combined estate tax exemption to $10 million. However, Rehl notes, many couples set up bypass trusts that were written for the era of the $600,000 exemption. If the trust documents call for funding the bypass trust to the maximum amount, it’s possible that $5 million of the first-deceased spouse’s estate could go to the bypass trust. Depending on the size of the estate, that could result in the surviving spouse receiving nothing.


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