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Life Health > Life Insurance > Life Planning Strategies

An Advisor's Guide to Wills

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What You Need to Know

  • It takes 16 months on average to settle an estate without a will.
  • Beneficiaries who may be minors when they receive bequests need special attention.
  • Spouses who are not U.S. citizens also need extra attention.

Many clients don’t want to think about the consequences of acting or failing to act upon their will, and it’s not hard to imagine why.

No one likes to think about their own death, but as your clients’ advisor, helping to guide the proper creation, maintenance and execution of their will can be one of the most important services we can provide.

As the author of this article, I would like to point out that I am not an attorney. But as a former advisor and current financial planner, the following may help advisors when reviewing their clients’ wills and estate documents.

As financial advisors, we can help to ensure that our clients’ intentions are clear and communicated effectively to those charged with implementing their wishes.

Every year, thousands of wills are contested, disrupting the rollout of a client’s last wishes and unnecessarily injecting chaos into the lives of their family and friends.

Advisors may wish to consider four critical steps:

  1. Planning.
  2. Error and challenge prevention.
  3. Possessions.
  4. Taxation.

Remember that we are not providing legal advice; rather, we are facilitating conversations between our clients and their legal advisors.

Will Planning Essentials

A will doesn’t have to be complicated, but making one should not be put off, Unchallenged, many clients delay making their postmortem decisions until it is too late, possibly upending your clients’ intentions or delaying their estate settlement.

According to a 2021 report, it takes 16 months on average to settle an estate without a will, five months longer than an estate with a will.

Can your client’s beneficiaries wait a year and a half to receive the assets that they are due? Even if they are not financially dependent on receiving those assets, the uncertainty and timing of the estate settlement can be avoided with some simple direction from your client and their legal advisor.

Further, for estates that are ‘”intestate,” or without a valid will, how a client’s assets may be divided will likely be determined by their’ home state.

Those determinations may be fair (and consistent from one estate to another), but they may not serve the beneficiaries or the clients’ intentions.

Assets can go to people who are not competent to make responsible decisions about the assets they have received or may leave loved ones feeling snubbed if the state divides assets in a way they view as unfair.

Worse, such settlements can emotionally divide families, particularly if your clients’ family is a complex one.

Do your clients really want to run that risk?

Executors and Trustees

Determining if your clients’ executor and trustee selections are appropriate is one of the key steps to ensuring a will accurately reflects their wishes.

The right executor can make complicated situations simpler, determine how to best navigate the estate and provide for your clients’ intentions.

Giving sufficient permission for that executor to make decisions on behalf of the estate can simplify the process.

For example, if the estate executor is also an heir, which occurs often, does the will provide too much or too little discretion in the exercise of their powers?

Does the executor or trustee have appropriate tax planning powers, such as the ability to make pro-rata distributions?

Do their trustee powers risk adverse tax consequences such as the loss of a marital deduction or the inclusion of an asset in the estate when trying to remove that asset from probate?

Will Bequests and Will Recipients

In reviewing a client’s will, attention must be paid as to who will receive the bequests of the estate, particularly whether the assets are to pass outright or through a trust.

The will must also specify timing, control and amounts of your client’s asset transfers.

Does your client risk passing assets to children or grandchildren who may not be of age or temperament to responsibly make decisions on their own behalf?

If minors are involved in the bequests, does the will nominate a guardian for the children’s interests and provide appropriate powers or compensation?

Should a trust be created to ensure these assets are available when needed?

Are there generation-skipping transfer tax considerations, based on the bequests detailed in the will?

Anti-Lapse Provisions

Does the will incorporate anti-lapse provisions, designed to be enacted if the specific heir has died? An anti-lapse provision can prevent deceased heirs from becoming effectively disinherited from the allotted bequest.

For example: If a child predeceases a parent, anti-lapse provisions will prevent the child’s spouse or family from being accidentally disinherited.

If nothing is explicitly indicated in your client’s will, the state will determine what happens next through its anti-lapse statutes.

Human Error

It may seem trivial, but human error can seriously derail the implementation of a will.

Only about 1% to 3% of wills are contested in the United States every year, but one has to consider that the Centers for Disease Control and Prevention recorded 3.83 million deaths in the U.S. last year; 3% of that is almost 115,000.

Also, most financial advisors’ clients have sufficient assets to make a will an appetizing target for a challenge, especially if human error opens the door and provide challengers a basis to stand on.

Advisors may find themselves reviewing documents including account statements (and their titling), beneficiary documents (such as in a retirement plan), titling on deeds and leases, obligations from a business to its owner, trust documents, durable powers of attorney for health care, general powers of attorney, living wills if they exist, and other advance directives that cumulatively indicate their end-of-life wishes.

Once assembled, the documents can be reviewed for errors, which could be as simple as finding typos or misspelled names, removing outdated beneficiaries, adequately identifying all heirs or updating asset holdings.

The review of the documents can also tell an advisor who they may be working with and help confirm if the will’s wishes align with reality.

One other item to look for are any “no-contest” clauses in case of anticipated challenges to the will’s validity.

A no-contest clause in a will can serve to discourage relatives or other heirs from contesting a will by voiding their claims to any part of the estate if they challenge the language of the will.

Of course, this clause works only for those named who have an actual claim in the will.

If a person feels an entitlement to an estate to which they are not named, a no-contest clause will have no impact on their actions.

Distributing Tangible Personal Property items (TPP)

Financial advisors must determine if a client’s will has separate provisions for the disposition of their tangible personal property items, or TPPs, which are possessions that can be touched, felt or seen and, of course, distributed.

The will should specify how TPPs are to be passed on to specific beneficiaries or to a named class of beneficiaries.

Because you can give property away only once, the will should provide guidance as to who receives what property and when.

But if the property is given too early or to the wrong person due to titling, a clear intention may no longer be possible.

Tax Deductions

After considering the essential contents of the will, financial advisors can determine any obvious tax implications of the document, measuring if certain aspects may require alterations.

As we do not give legal advice, the same holds true for tax advice.

We are helping to inform our clients’ conversations with their other advisers.

But such considerations to look for could include bequests to the surviving spouse qualifying fully for the marital deduction.

For example: If a spouse is not a citizen of the United States, a qualified domestic trust, or QDOT, may help to provide or obtain similar unlimited marital deductions as enjoyed by citizens.

The Final Checklist

Each will is unique, a snapshot of your client’s wishes at the time the will was drafted.

As your clients’ advisor, being able to read their will and follow its provisions, can be a valuable service, leading to a better relationship with your clients and their family and colleagues.

Once you have reviewed the will and other documents, a list of questions can be provided for your clients to present to their legal and tax advisors, guidance for the upcoming conversation.

H. Jeffrey SpivackH. Jeffrey Spivack, CFP, AAMS, MPAS, is a wealth senior financial planner with Citizens Securities.




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