Aspen current thinking column


Spring 2013

August Current Thinking Column

Tuesday, September 09, 2014

Estate Planning--Is it For the Young?

By William E. Roberts, CLU, ChFC

At my firm, we have a question directed to us regularly:  "Why should we worry about having wills or trusts and creating an estate plan? We do not have an estate. We are young!"  On the surface, the logic seems compelling, but the reality is vastly different. What if there are minor children? Who will be their guardians? Who will be custodians of assets for them? Should there be guidelines for how income and principle are distributed to them? Is there a business interest or ownership? If in a family business, what are the family guidelines regarding ownership of stock in the family business and what effect does that have on the planning? 

The obvious answer is of course a plan is needed that reflects your values and objectives for your family. With that, we arrive at the need to develop a plan, including a will and likely a trust that will carry out your legacy in the manner you would direct if you were still alive to do so. 

What I hope to accomplish is to highlight some of the more important reasons why estate planning is absolutely critical. In the case something should happen to you, the documentation of your wishes is highly important to your extended family and their future. 

Firstly, let's clarify what entails an "estate.” No, it is not a castle in the United Kingdom, which is often the first impression of many clients. Instead, it is everything you own—assets (minus liabilities), your house, personal effects, cars, stocks and bonds retirement accounts, and more given the different aspects of your situation. Many are surprised to find out that their life insurance, whether it is the group life plan provided through work or policies they own as husband and wife, are also included at face value of the death benefit. We will consider the tax effects of these assets later.

Let's first consider the effect of not having a will. In fact, you do have a will, just not of your own design. Each state has its own plan and provisions for persons who die intestate, or without a will. You can find your state’s intestate guidelines by googling “[state name] intestacy rules” to determine how your assets would be handled. For most states, as well as most of the people we deal with, the provisions are not what responsible parents would want to happen. Having half the estate distributed to a child or children upon their 18th birthday without any guidelines to how that money is spent is hardly the responsible plan that most parents would voluntarily arrange, however, in several states, such is the provision in the law.

Almost everyone agrees that dying intestate is hardly the plan they would wish on their family, but what are other motivating factors? There are two issues high on the list of parental concerns regarding the treatment and care of children should both parents die in a tragedy. One is guardianship of their children and the other is how their money is to be invested and distributed on behalf of the children's best interest. Let’s deal with them separately.


In my years of working with families and establishing their estate plan, no single issue has caused greater delay in signing their documents more than the question: "Who do we want as guardians of our children if we are not here?" Many attorneys agree on this point. Some say they have seen some interesting disagreements concerning this issue. In our situation, with two sons, we had three different sets of guardians through the years. We began with my wife's parents (likely because we could not agree on anyone else at the time). We realized due to their age, that we needed to have younger more compatible guardians and selected a couple whose ethics, integrity and parenting were similar to ours. However, after a few years, they moved out of our neighborhood and we realized that if something happened to us, our boys would not only lose their parents, but also be uprooted from their friends and school system with which they were familiar. Consequently, we changed to another couple using the same guidelines we had established prior, but who lived in our vicinity.

My point is to first establish your guidelines: does it have to be a family member? Is that a compatible pick? What other guidelines do we want to evaluate? If your experience is like ours, the list of possibilities rapidly shrinks down to a few contenders who are trusted friends or family. One additional item we added was a letter summarizing our wishes. Besides naming them in our wills and trust documents, we cleared the arrangement with them and then wrote a letter outlining our wishes as parents and a general outline of the assets available to assist in offsetting the expense of raising our two sons. We did not want to burden them with our children without providing the resources needed to properly raise them.

Distribution of Assets

This brings me to the second major reason for having your own plan—how do you want your assets used for the benefit of your children? What income or principle do you want distributed to them? What guidelines do you want established for use of the funds by or for your children? Most parents have firm feelings about these concerns. However, it is a good idea to have a discussion between spouses and a financial planner to gain agreement and direction before approaching your attorney.

If you are in a family business and own stock in that business, it is a good idea to familiarize yourself with any established buy-sell agreements governing who will be able to own stock, what happens to the stock should a death occur, what value the stock has and if the stock is redeemed and how the purchase price will be paid, whether cash, note or a combination of both. This is a very important step before going to your attorney. Often the stock represents a considerable percentage of the total value of the estate and knowing what the "rules" are is important to the planning process.

Two other documents that are usually created as a part of the will-planning process are the “Durable General Power of Attorney” and “Durable Health Care Power of Attorney.” I have found the Durable General Power of Attorney, or "POA," critical in caring for my aging (103-year-old) mother. I have been required to send proof that I have POA authorization innumerable times for such innocuous things as a simple change of address for her bills, changing her home security system and of course, in dealing with her banking transactions. While this seems far-fetched to younger generations, accidents do happen that incapacitate, and the POA is of incalculable help.

The Durable Health Care Power of Attorney simply appoints someone to make health care decisions for you when you are unable to do so. I have heard story after story of hospitals and doctors who refuse to turn off life-extending support systems unless the Health Care Power of Attorney can be produced and is on file with the appropriate authorities. We have even heard of families having the Health Care POA on file in their permanent medical records. Hopefully as medical files become more universally electronic, access can be obtained even if traveling in another state or overseas. Without it, even family members may not have the legal ability to discontinue life-sustaining efforts.

Hopefully, this has given those of you who do not have wills or trusts or who have not updated them lately the motivation to review your documents. If you are absent of documents, schedule a meeting with your attorney to begin the process of creating or updating your planning. Should something tragic happen, your heirs will be forever grateful!

In subsequent issues, I will address some of the tax issues that may be considered part of the planning process and how you might go about selecting a team to advise you. In addition, I will focus more on the "soft side" of thinking about your values, legacy, goals and objectives, which should be an important part of the planning process. These guidelines, coupled with the collaboration between husband and wife, provide a much easier environment when dealing with the crucial decisions of estate planning.


In other AFBG news, Leslie recently presented a podcast on the subject of women leading family businesses--to listen, click here


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