Building Your Estate Planning Foundation with Core Values

In every estate plan, there are certain elements that make up the foundation for that plan. I have always believed that building this foundation is the most crucial component of each client's estate plan.

You can illustrate this in this way. Consider building your dream home and using a ruler as the foundation. Not a good idea, is it?

Well the same thing is true in estate planning. To steal from the brilliant Steven Covey, in estate planning, we always start at the beginning and begin with the end in mind. In this way, we can be sure that everything else we do with the client's plan rests on a rock solid foundation.

So what are these elements? How do we fashion and build the foundation using core values? We start by considering the following:

1. What are the goals of the client?
2. What protections are already in place?
3. Have the client's existing estate plan documents been reviewed and brought current.
4. Are any existing documents synchronized with the client's goals.
5. What is the family structure?
6. Who is on the client's current advisory team, if anyone?
7. What are the client's assets and insurance coverages?
8. How are beneficiary designations currently drafted?
9. Has the client's insurance coverages been recently reviewed.
10. Has the client's property and casualty insurance coverages been recently reviewed.

After this data is gathered, then the following elements are designed, drafted and executed by the client and counsel:

1. Some form of Will (also known as Last Will and Testament).
2. Drafting necessary to protect the surviving spouse if the client is married and drafting to protect children in accordance with the client's goals.
3. Consideration of the need for estate tax planning.
4. Durable Financial Powers of Attorney and Durable Health Care Powers of Attorney, including the very important HIPAA provisions.
5. Personal Property Memoranda
6. A marital agreement if necessary for the efficacy of the plan.
7. Living Wills.
8. DNR's if necessary, or at least a discussion of DNR's.
9. Proper drafting for beneficiary designations for insurance policies; IRA's and 401(k)'s.
10. Necessary coordination with the other members of the client's advisory team.
11. Retitling of ownership of assets between spouses.

While these two lists are not meant to be complete for every client, they demonstrate the thinking that should be part of every estate planning foundation for every client. Each client's plan design will be different, but the process for each client is similar. In this way, we can use the client's core values to design and construct for the client a rock solid estate planning foundation.

Is your foundation sound and rock solid? If you are not sure, then take steps to review your plan, or your situation as soon as possible. You'll be glad you did.

Returning To Core Values: Estate Planning for Parents with Younger Children

Recently I wrote about returning to core values through estate planning. That article discussed how we could start to deal with these difficult times by focusing on protecting our families.

In this follow-up, I discuss how estate planning is crucial to the protection of our children. Most would agree that protecting our kids is a laudable goal. I believe that if you go to the movie, Taken, you will even feel stronger about this than ever before.

So how is estate planning a crucial component to protecting kids? Let's explore several case studies to illustrate just how important this can be.

First, consider Todd & Julie, a couple with two toddlers, one age 5 and the other, 3. Todd and Julie have assets, savings and insurance that is well below the estate tax exemption of $3.5 million, so estate tax planning is not an issue for them. However, when they are asked where their kids would live if something happened to Todd and Julie, they became very motivated to resolve that issue.

Remember, returning to core values is about protecting against the unplanned and unexpected. In the case of Todd and Julie, the biggest downside risk they identified is they both died unexpectedly, like on their recent trip to Mexico. Who would raise their kids and where would the kids live? This became the motivation for Todd and Julie to complete their estate planning.

The second case involves Jaclyn, a single mom in her 30's. Jaclyn has a daughter that is very important in her life named, Christina. Christina's Dad, Jason, is no longer in her life. Jaclyn is a successful realtor who has done quite well for her family. Jaclyn's estate is also below the estate tax threshold, so she was not interested in estate tax planning. However, in addition to who would raise Christina, Jaclyn was not excited at all about Christina receiving the $975,000 estate she has when Christina turns 21, should Jaclyn pass away before then. This fear of Christina receiving all the money at once on her 21st birthday became Jaclyn's primary motivation in her estate planning.

The third case involves Robert & Linda. They have three kids, one of who is a special needs child named Lance. Lance requires significant care and receives a variety of governmental benefits. Robert and Linda have an estate of $1.8 million once their life insurance coverages are counted. (Most people forget to include their life insurance when calculating their estate size, but it must be counted).

For Robert and Linda, their primary motivation was not only to protect the kids in general, but to make sure that Lance's share was not wasted. They asked, could Lance's share be set up in such a way to protect his governmental benefits?

So, we have three different cases and three different motivations. 1) making sure the right people will raise the kids; 2) making sure the inheritance left for a child is not wasted when the child turns 21; and 3) providing for the financial security of a special needs child. By identifying these goals, each family can use estate planning to accomplish their motivation and properly protect their children. The three cases could be solved as follows:

1) Using proper provisions in the Wills for Todd and Julie to provide for where the kids would live in the event of an untimely demise for them.

2) Creating a Contingent Trust Will for Jaclyn to create distribution guidelines and ages so that Christina's inheritance is protected and used in the manner that Jaclyn deems best for Christina.

3) Creating appropriate Special Needs Trust provisions in the plan for Robert and Linda.

In each case, proper estate planning is fundamental to the over-riding goal of protecting children that each of the three cases present. Do you have kids? Have you protected your children? Make sure your estate planning is synchronized with your family situation and your goals for your family.

In our next article, we will explore the individual elements of a sound estate planning foundation.