Who Needs an Estate Plan? Everyone!

Written By: Amy G. Piedmont, J.D.

You have advised your clients on steps to take to reach their financial goals, but have you given them the tools to ensure that their wishes will be protected should they become incapacitated or in the event of their death? Estate planning is more than just having a will or trust—it is a comprehensive set of documents that protects your clients and their assets in the event of incapacitation and death. Your clients should be advised that all individuals need a power of attorney for property and health care, a will and in many cases, a trust. It should be stressed that you should be familiar with state laws governing estates in order to guide your client effectively. Here are some ways that estate planning tools can be successful for clients.

What are the basic choices?

A power of attorney can be either durable or limited. Many individuals have a limited power of attorney which was signed for a specific purpose or period of time. A limited power of attorney will not survive incapacitation. A durable power of attorney survives incapacitation. It gives your client the ability to appoint an agent of their choosing to handle their finances and assets should they be unable to make decisions themselves.

A health care power of attorney and living will allow your client to appoint an agent or health care surrogate who is able to make decisions regarding their medical care, communicate with doctors, and access records in the event they are unable to do so. Should your client fail to appoint a health care surrogate, a guardian will need to be appointed by the court which can be costly both financially and emotionally for all involved.

So, what if my client does nothing?

Failure to execute a power of attorney for property and health can result in your client’s loved ones having to petition the Court for appointment of a guardian. This process might cost a family well over $1,000 and will include continued court supervision as long as the guardian is appointed. In fact, the person selected may not be someone your client would have initially chosen. As  a result, a time which is already stressful and emotional becomes more so by having to involve the Court.

What’s the better option for my client – a will or a trust?

When it comes to distributing property following a death, there are two options: a will or trust. Without a will or trust, distribution of property is governed entirely by state law and may not go to the individuals your client would have selected. Property titled as payable on death (as allowed by state law) passes outside of probate. When minor children are involved, without a will or trust, the Court will appoint a guardian to care for them in their parents’ absence.

If your client chooses a will, he should be aware that upon his death, the will must be presented to the Courts by the personal representative for probate. The probate process usually lasts for at least six months with little to no distributions to your
client’s heirs until its conclusion.

Experts estimate the average U.S. probate cost is six percent of the gross estate. With small estates that can nonetheless be time consuming, attorneys can charge an hourly rate that can be several hundred dollars per hour. Because a will must be presented to the Court, it provides an opportunity for those who wish to contest the will an easier avenue to present such objections and further delay any distributions.

With a trust, the trustee becomes owner of the trust property during your client’s life and distributes said property in accordance with the terms of the trust. In choosing the trustee, your client should choose an individual or trust company who is financially prudent, familiar with the estate planning objectives of the grantor (the person who creates the trust), has adequate time to serve as trustee, and who will act in the best interests of the beneficiaries. There is no delay or court involvement following the death of the grantor, thus, there is less likelihood of an objection to the terms of the trust.

Presenting the value of estate planning is an important function of the prudent financial professional.

What if my client owns property in multiple states?

In this situation, a probate will have to be instituted in each state unless a trust is established and the property is transferred to the trust. A trust gives your client more control to ensure that the estate passes according to their wishes and allows a client to continue to provide for his or her spouse following their death and still choose the ultimate beneficiaries. This is especially important with blended families as a trust ensures that the client’s property does not pass to an ex-spouse or step-children for whom they do not want to benefit.

What happens in the case of divorce?

Assets in the trust are protected from the creditors of both the beneficiary and the spouse should they get divorced. When a client has a special needs child, a trust can offer your client the ability to provide for the child without disqualifying them from receiving government benefits.

Won’t my client have to pay estate taxes anyway? With proper estate planning, estate taxes can be greatly reduced and maybe even eliminated entirely for any property transfers following death.

But my clients don’t make enough money to warrant an estate plan? Either your clients have an estate plan in place which will dictate the distribution of their assets according to their wishes or the government will put an estate plan in place for their family including who will take care of any minor children. Thus, regardless of the size of an estate, nearly all clients with any assets or minor children need an estate plan. Not only is having an estate plan essential at the time of death, it can prove invaluable should the client suffer a health crisis that leaves them unable to make decisions regarding their property or medical care.

Presenting the value of estate planning is an important function of the prudent financial professional. Financial planners and counselors should consider encouraging clients to explore whether retaining an estate-planning attorney would be beneficial to their estate planning efforts and long term financial goals, as it is beneficial to your client’s financial well being and necessary to achieve long-term financial goals.