When a new client first visits with me to update their estate plan, it isn’t unusual for them to say, “I just want to keep it simple.”
The irony of that statement is that almost none of my clients have “simple” situations. If all I had in my estate was a checking and savings account of less than $100,000, and if I want to leave it all to my wife, then all I do is own the account jointly with her as “husband and wife.”
Simple. Problem solved.
But that’s not what most people have nor is it what they really want. What they really want are several things.
Privacy: They want their plan to be private, not public. This usually requires the use of a trust as opposed to a will. They have a certain idea how they want to take care of their loved ones when they’re no longer around, and don’t want their family to scramble in a time of crisis. So they want an ongoing relationship with seasoned professionals, which is different than a transactional experience which many assume creating an estate plan is.
Protection: They want to protect the inheritance they leave their children from a divorcing spouse, a business lawsuit, or creditors. Simple outright or staged distributions over time won’t achieve that goal. We need something a bit more complex.
Taxes: Another goal is to minimize taxes. Even though federal estate tax exemptions are high and don’t affect many, income tax planning is becoming more important as many clients have significant balances in their IRA and 401(k) accounts. Tax planning requires careful thought and consideration of various strategies.
Avoid Court Processes: No one wants unnecessary court processes to interfere with their lives, such as guardianship and probate. This goal coincides with the universal desire to minimize legal, accounting, and financial service firm expenses. Who we designate as trustee, our power of attorney agent and health care surrogate comes into focus, along with the instructions we leave behind.
Family & Financial Dynamics: There’s no such thing as a static family or financial situation is there? Our families grow with the birth of new children and grandchildren, and our adult children’s needs change as they raise their own families.
As recent stock market gyrations caused by the global COVID-19 pandemic demonstrate, our financial situation is dynamic, perhaps more so than anyone cares to acknowledge. Some of us don’t look at our monthly portfolio statements as we don’t want to know the bad news. Consequently, we need an estate plan that can adapt to these changing circumstances.
Some clients are part of a blended family, where his children and her children are not the same. These clients generally want to take care of one another, but then have assets eventually filter back to their respective bloodlines. What does one do when a significant portion of their portfolio is held in an IRA or 401(k) account, for example? If Janet names George as her primary beneficiary, this is simple, right? But assume George survives Janet. He rolls over the IRA account and may select anyone that he wants to be his beneficiary. In other words, he has no obligation absent a nuptial agreement that expressly speaks to that point to name Janet’s children.
Even if George is true to his word to name Janet’s children, assume that after her death George remarries without a nuptial agreement. His new spouse, should she survive him, will have rights to the IRA account.
It’s not so simple after all.
I believe I’ve made my case that most of us really don’t have “simple” situations.
It’s my feeling that when my clients say they want a “simple” estate plan, what they really mean are two things − first that their loved ones aren’t trapped in endless meetings with attorneys, CPAs, and financial advisors having to make important decisions about complex matters while they’re grieving and vulnerable.
Second, they want to understand the plan. Most of our clients have already put an estate plan in place before they moved to Florida and met with us. Their prior attorneys did a lousy job with cookie cutter plans and didn’t address their clients’ emotional concerns. The clients walked away from that experience with an incomplete plan that they don’t understand.
This is where having relationships with qualified professionals will keep things “simple.” A good estate plan is one thought out, where different scenarios are considered, to ensure the plan remains consistent with the client’s intent. Keeping that plan on track also requires consistent reviews so the attorney is aware of current family dynamics.
When that happens, the plan works for the family. It’s ready when it needs to be.
Now that’s simple.
© 2020 Craig R. Hersch. Originally published in the Sanibel Island Sun.