As a financial planner, you work diligently to help your clients reach their financial goals. Estate planning is the final piece in protecting a family’s financial future and legacy. At Cook Tillman, we often receive questions from financial planners about incorporating estate planning into a client’s portfolio, so we put together an article to help you better serve your clients.
The Essential Documents of Estate Planning That Financial Planners Need to Know
While an estate plan may include more documents to serve a family’s unique needs, every estate plan has four essential primary documents:
Dispositive Document: A will or revocable trust that expresses a client’s wishes on how their property should be distributed, and if minors are involved, who will be the guardian of one’s children.
Financial Powers of Attorney: Appoints a trusted individual, such as a spouse, child, or friend, to handle financial affairs if the client becomes incapacitated.
Healthcare Power of Attorney: Appoints a trusted individual to make healthcare decisions on the client’s behalf in case of incapacity.
Living Will or Advanced Directive: May authorize the termination of heroic measures in the event the client is terminally ill or in a persistent vegetative state with no hope of recovery.
Communicating the Importance of Estate Planning to Reluctant Clients
We like to think of estate plans as one of the key components of a house. The foundation consists of the initial investment plan: stocks, bonds, mutual funds, etc. Further goals, such as college or retirement funds, build up as the years go on. In this metaphor, estate planning and insurance are likened to the roof, protecting all the assets and growth a client has accumulated. A client can avoid jeopardizing their investment benefits by implementing the appropriate safeguards. Identifying this risk, particularly for clients with young children, helps them understand the potential harm of not creating an estate plan. Financial planners should discuss creating an estate plan with clients as early as possible, as the plan can be updated as needed.
Risks For Clients Who Overlook Estate Planning
Unfortunately, clients commonly put off estate planning because it doesn’t feel urgent or they don’t want to consider it. However, failing to create an appropriate estate plan risks assets not passing to their family as expected upon a client’s death.
All states have a statutory process of distributing assets called “intestate succession,” and those defaults are rarely what the client intends. For example, if a couple has young children and one spouse passes, the surviving spouse will receive joint assets but not all assets. Individually, everything held in the name of the deceased spouse will be split between the surviving spouse and children. If the children are minors, they cannot own property, so the court creates a trust for their benefit, appointing the surviving spouse as trustee. The surviving spouse will then have to account for how that money is spent on their children's behalf, which may mean multiple court visits throughout the years. No grieving family needs to be in this challenging legal position that reopens old wounds. Financial planners should stress the importance of estate planning to their more avoidant clients. The discomfort or time spent creating a will far outweighs the potential detriment to their loved ones should they not create an estate plan.
Common Misconceptions Financial Planners Have About Estate Planning
The most common misconception that many financial planners have is that the choice to use a revocable living trust is dependent on the size of a client’s estate and financial portfolio rather than particular needs. In reality, trusts have several benefits, including avoiding the additional expense of probate for clients who own property in multiple states, providing simpler administration, and affording certain tax benefits available under Tennessee law. Trusts also offer clients more privacy than a will because they do not become public record. Trusts can be a wise option for clients even if they don’t have a very high net worth.
Resources For Financial Planners Looking To Expand Their Knowledge
Financial planners have a wealth of resources available to them should they wish to expand their knowledge in estate planning. The National Associate of Estate Planners & Councils (NAEPC) is an excellent resource for financial planners seeking an accredited estate planning designation. Additionally, our team at Cook Tillman is approved by the Certified Financial Planner (CFP) Board to conduct estate planning seminars for which CFPs can receive continuing education credit.
Because estate planning laws change, a strong relationship with a certified estate planning attorney is vital for financial planners dedicated to growing their knowledge and understanding of the field. Financial planners can look to Cook Tillman for advice and aid on estate planning with clients. Please contact us through our website or at (615) 370-2444.
We look forward to helping financial planners and clients with their estate plans.