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Financial Planning > Trusts and Estates > Estate Planning

Estate Planning 101: Motivating Clients to Get Started

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Encouraging clients to do estate planning, or to keep existing plans up to date, can be a challenge. Clients often find this kind of planning tedious; it forces them to focus on difficult decisions, their own mortality and the unknown. Consequently, they put it off, telling themselves that they are too busy, too young or too old—or that they have too much to contend with—to make it happen. And the prospect of potential legislation or changes in the tax code as we begin a new year makes for yet another excuse to postpone taking action.

A basic estate plan is essential for every client. He or she needs a plan in order to manage and preserve assets during life and to direct the distribution of assets at death. If you begin your estate planning discussions by helping clients focus on the positive aspects of putting a plan in place— such as the ability to control and protect assets for their beneficiaries or to minimize potential risks—you might find it easier to motivate them to commit to the process.

Preparing an estate plan starts with these basic documents:

  • Durable power of attorney (POA) for financial matters
  • POA and/or a living will for health care matters
  • Will
  • Revocable trust

POA…for Financial Matters This document authorizes an agent (or attorney-in-fact) to act on the client’s behalf for financial matters if the client becomes temporarily or permanently incapacitated. Without a durable Power of Attorney, the client’s family would likely need to institute legal proceedings to have a guardian appointed to carry out financial responsibilities. By addressing the possibility of incapacity in advance through a durable POA, clients can help their heirs avoid the expense and potential hassle of probate.

When establishing a durable POA, your client should determine whether the authority granted will be “springing power,” which is only effective upon a client’s incapacity, or “durable,” which authorizes the agent to act as soon as the document is executed and beyond incapacity. Durable powers of appointment offer the benefit of convenience, with the agent having the ability to step into the client’s shoes if he or she is unavailable (e.g., if the client is out of the country).

POA…for Health Care A client may authorize an agent to make general health care decisions if the client becomes incapacitated. The authority extends beyond end-of-life decisions, so the agent should make decisions consistent with the principal’s beliefs. Health care POAs may also include provisions that express the client’s desires regarding life-sustaining treatment, including the continuation of life support, nutrition and hydration in the event of permanent unconscientiousness or terminal illness.

A living will or declaration may be a secondary component to a health care POA or it may be a stand-alone document. Its purview is limited to declaring whether life-sustaining treatment should be withheld or withdrawn if there is no hope for the principal’s recovery (e.g., if there is brain death or terminal illness).

HIPAA release language may be included as part of a health care POA or as a standalone supplement. HIPAA language authorizes the release of medical information to the agent to help facilitate health care and financial-related decisions, so it is imperative to have this authority addressed.

At a Minimum, a Will…

A will is the foundation for a client’s ability to direct how probate property will transfer at his or her death and under what circumstances estate beneficiaries will benefit from the client’s assets. Without a will, the transfer of assets will be directed by state law; and, surprisingly to most clients, the assets may not pass to the individuals whom they suspect or wish to be the recipients.

A will can direct assets to a testamentary or revocable trust and managed for the benefit of beneficiaries to help a client achieve longer-term goals. A client may also use his or her will to accomplish other goals, including the identification of the executor or nomination of a guardian for minor children.

Please note: A will only governs probate property. Assets that transfer outside of probate by virtue of a beneficiary designation or the manner in which title is held will transfer directly to the named individual. Examples include jointly held property with survivorship rights, life insurance, retirement accounts, and employee death benefits. Clients should be reminded to review the ownership and/or beneficiary designations of these assets to be sure that the transfer upon death is coordinated with the totality of their planning.

..or a Revocable Trust Although a will may suffice, I am a proponent of a revocable trust, which has many beneficial facets to help a client plan beyond death. A few of these benefits include:

  • Minimizing potential estate taxes (which still remains an important goal for many state residents)
  • Providing creditor protection
  • Generational planning

If drafted with incentive clauses, trusts are also a good tool for building financial responsibility for young trust beneficiaries. When properly funded, trusts can help ensure that probate is avoided. More important, a revocable trust can help clients plan for the management of assets in the event of incapacity.

A S.M.A.R.T. Goal for 2017

Recall the power of having SMART goals, which are Specific, Measurable, Achievable, Realistic and Tangible.

A simple, well-thought-out estate plan can provide financial security, avoid family disputes, and ensure the competent management of property and health care matters in the event of incapacity and after death.

Why not consider making a point of encouraging clients to set up their estate plans in 2017?


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