Stephanie Fierro 0000-00-00 00:00:00
How to Have a Meaningful Discussion with Clients About Estate Planning Everyone knows they should have an estate plan. But that task is usually placed on the back burner – even though most people eventually get around to doing their estate plan. So what’s holding them back? There is certainly a mental hurdle for most clients. It may be the cost, talking about death, or simply not being educated on the topic. Or it may be that the client is simply too busy. In my experience, you can lead a horse to water but you can’t make him create an estate plan. You can however, educate your clients in a way that will allow them to make an informed decision. First, the cost for the vast majority of estate plans is objectively reasonable. On average, the cost to create an estate plan for a young family with minor children and modest assets, including a home, is usually less than an annual vacation. I suspect, however, that when allocating funds for the year, home improvements and family vacations win out over the creation of an estate plan for most adults under the age of fifty. Second, admittedly, estate planning is not the sexiest area of the law to talk about. Although considering your own mortality is a requirement for estate planning, the process does not have to be morbid. Therefore, the key to a successful estate planning consultation is to make it fun. Yes, that’s right - fun! Estate planning should focus on how the person (or people) closest to your client will take care of the people he loves and the property he acquired during his lifetime, not on the fact that the client will be disabled or deceased. An estate plan is essentially a love letter to the client’s survivors. When a client is creating and molding his legacy the estate planning task is more productive. Finally, I believe that most clients are simply uninformed (or misinformed) regarding estate planning and its value. So, what is estate planning, what does an estate plan do, and why should someone choose to set aside the funds to create an estate plan now? Estate Planning: Estate planning is the process of anticipating life’s uncertain events and arranging for the management of affairs if something unexpected (like disability) or expected (like death) occurs. Estate planning typically culminates in the creation of a comprehensive set of legal documents to govern these affairs, i.e. an estate plan. Estate Plan: Estate plans do not need to be complicated. Estate planning is, however, an area of the law that can become com-plex. In some cases a simple estate plan will serve a client well, e.g. a will and powers of attorney. For others, one or more trusts may be required to accomplish the client’s stated objectives. Here are the most common estate plan documents: 1. Will: Black’s Law Dictionary defines a will as a “document by which a person directs his or her estate to be distributed upon death.” Thus, by definition, wills are only effective upon death. A will is necessary even if a person also creates a trust. In that case, with limited exceptions, the will becomes known as a “pour over” will. Pour over wills catch any remaining assets and direct the distribution of those assets to the trust. 2. Power of Attorney: By contrast, a power of attorney, generally effective until death, is written authorization to act on behalf of the person creating the power (the “principal”). A power of attorney may be effective immediately or only upon the principal’s disability or incapacity. The power of attorney may be general or “special” (limited to a specific act). It may govern financial matters or healthcare matters or both. Health care powers of attorney are generally paired with an advanced health care directive or living will which is a statement of the health care choices the client would make under specific conditions. 3. Trusts: There are many kinds of trusts all of which fall into two primary trust categories: revocable and irrevocable. a. Revocable: A revocable trust, also referred to as a living trust or inter vivos trust, is a flexible and commonly used estate plan tool. The creator or grantor of the trust transfers property to the trustee during his lifetime but retains the beneficial incidents of ownership. As the name suggests, the creator can change the trust in whole or in part at any time. Nevertheless, the terms of the trust ensure that assets are transferred upon death. And it may provide for the continued management of property in the event a beneficiary is a minor or is otherwise unable to handle money responsibly. b. Irrevocable: Transferring property to an irrevocable trust effectively removes the property from the client’s estate. As a result, the client often derives a significant tax and asset protection benefit. Consequently, the grantor cannot retain control over the assets. So generally speaking, the terms of an irrevocable trust cannot be modified. This area is complex, and only an attorney with experience should be involved in creating an irrevocable trust -lest there could be some unintended consequences which cannot be undone. Why Create an Estate Plan Now: No one dies without an estate plan. If the client doesn’t create one, Arizona statutory law will govern the distribution of the estate to the decedent’s survivors. The laws of intestate succession (Ariz. Rev. Stat. Ann. §§ 14-2101-14-2405) dictate what happens to property in the absence of a written estate plan. When a client creates an estate plan, the client controls what will happen to his property. An estate plan is the client’s voice when he is no longer able to speak for himself. Fortunately or unfortunately, none of us know when that day will be. Clients manage (and micro-manage) their affairs during life. Estate planning affords a client the opportunity to manage his or her affairs in the future – even when that client is gone.
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