The Really Personal Issues of Estate Planning

Estate Planning discussions often are mostly about wills, trusts, powers of attorney, and the different clauses and terms that could be contained in each. The point to all the strategies and technical discussions often is lost. That point, or points, should be the subject of the early discussions in the estate planning process, and it shouldn’t be forgotten as the process continues and the discussions move to details and technicalities.

While specifics vary, the basic goals of every plan are to transfer wealth to those you want to own it in the most efficient way possible. To achieve this goal and minimize wasted wealth, the estate planner needs to know some details about you and your family. Those details often lead to some secondary goals and concerns, and eventually often lead to the specific details of the plan.

The details about you and your family the estate planner needs to know are not dollars and cents or pieces of property. They are the personal factors. They include your goals, interests, and desires. They also include family interests, problems, and concerns. In short, the most important aspect of the estate planning process is the personal or human side. Without full knowledge and understanding of these matters, the estate planner can draft a technically perfect plan that fails.

Almost every estate planner will tell you that after years of talking with families and developing plans, he or she concluded ?every family has one.? You might refer to that one as the family’s black sheep, the lost child, or something similar. Many people are hesitant to mention this to their estate planners, and some people won’t even go to an estate planner because they avoid discussing or dealing with it.

Substance abuse often is the main concern about the black sheep heir (or heirs). Other common problems are gambling, marital problems, and financial irresponsibility. It’s not unusual for more than one of these qualities to be in the same person.

Don’t let this factor cause you to avoid planning your estate or being candid with a planner. It’s relatively easy to deal with this situation, and your planner’s heard it all before. Your planner likely will recommend that this heir’s share of assets be left to a trust instead of directly to the heir. The trust and your financial power of attorney also can include clauses that favor making payments directly to those who provide goods and services to the heir instead of making cash payments to him. A trust also will be the beneficiary of any IRA or retirement plan instead of the heir as an individual.

The planner should ensure that you don’t hold assets jointly with such an heir. It might be suggested that you own key assets through an irrevocable trust to protect assets from an heir in case you become disabled.

Another issue not addressed often enough in estate planning is to protect the client, in advance, from the potential for mental or physical incompetence. We all like to think we’ll deal with such issues as they develop. But they’re a common part of aging and often sneak up on people very gradually. People don’t realize what’s happening until it’s too late. You want to protect yourself from financial abuse, undue influence, and the like. That means taking action before you need protection.

Simple and easy actions should be recommended. You don’t even need an estate planner to tell you about all these steps. I’ve long recommended simplifying and consolidating your financial accounts. You also can use an aggregation service to make it easier to monitor different accounts. An independent person, such as an accountant or attorney, can receive copies of all financial statements to monitor them for signs of any unusual activity. You also can consider creating automatic payments or bank drafts for regular payments. We discussed all these in past visits.

Take care when selecting your executor, trustees, and the agents for your powers of attorney, as we discussed in past visits. Don’t make a quick choice of the obvious person. Consider what the job entails and who around you is best able to handle it.

Personal property issues are some of the most contentious in estate plans. Often assets with the least financial value seem to have significant non-financial value to family members. They’ll often fight about seemingly unimportant items and even tie up the estate for extended periods over these items.

In past visits we discussed ways to have these items distributed. Most people simply let the heirs or executor divide the assets. If you’re confident that will go smoothly in your family, you can take that route. Otherwise, choose between the methods presented in past visits, such as the July 2009 issue.

Business owners plan remarkably little for a succession of ownership. That’s why most businesses don’t survive past the first generation. There are many factors to consider, which we reviewed in our June 2012 visit. Once you decide how to distribute ownership, management, and income, you need to plan for the transition. The transition period is critical. For example, too many plans don’t ensure there is sufficient cash flow for the business to survive the transition. There are many different ways to plan a business succession. The important steps are to start early and have all the details in place.