Wisconsin Estate Planning and Tax Law Blog

Common Mistakes in Estate Planning

Link:  Morningstar.com: Top 10 Estate-Planning Mistakes.  This article by Sue Stevens, CFA, CFP, CPA highlights the top ten mistakes that she has observed in the course of her practice as a financial advisor.  Generally speaking, from my experiences I would agree with Ms. Stevens' observations.  The areas that can lead to the least desirable results are not updating an estate plan, choosing the wrong trustees and personal representatives, not funding the inter vivos trusts, and not coordinating beneficiary designations.  This is not to say that the other areas are unimportant.  I single those four areas out because they are rather easy to address with proper reflection and planning. 

I would also expand the trustees and personal representatives area to include the appointment of guardians for minor children and agents under powers of attorney.   The selection of trusted people to act in these capacities can be very difficult and understandably so.  But just because it is difficult, that does not mean it should be avoided.  The same can be said for fully funding trusts.  It will take some leg work to make sure real estate, bank accounts, and other assets are retitled in the name of the newly created trusts.  That is all time well spent.  Coordinating beneficiary designations with your overall estate plan ensures that your intentions are fully carried out.  This need arises because assets with beneficiary designations, such as life insurance, 401k or retirement accounts, are not distributed according to the terms of your Will or Trust. 

It is also worth noting that this list is certainly not all-inclusive.  Estate planning involves numerous issues that work together to apply to your unique situation.  The best way to ensure that your estate plan addresses these and other issues is to develop a lasting relationship with your trusted advisors, including an estate planning attorney, a CPA and a financial advisor well versed in estate planning issues.  Just as one would regular meet with a CPA or a financial advisor for periodic reviews, it is a worthwhile practice to review your estate plan with your attorney every two to five years as circumstances change.       

What is Estate Planning?

Often times professions develop their own vocabulary and when you are around that all of the time you lose your frame of reference from the outside world.  I believe that to be the case with the legal profession on many occasions.  For instance, we often refer to the areas of law that we focus on as our "Practice Areas".  Then within that category we have a descriptive title for our particular focus including, Tax Controversy, Business Organizations, Title XIX Planning or Elder Law, and Estate Planning.  The truth is that other attorneys and some clients actually understand what those areas cover, but many clients may be left in the dark when attorneys use this legal vocabulary.   My hope is that this post will help everyone gain an understanding of what is meant by the term of art "Estate Planning".  For those of you that already know this will just be a basic review, which is not a bad thing since a review every now and then can do some good.

Estate Planning can be defined broadly as the process through which one memorialized his or her wishes for the disposition of assets upon his or her death.  Although this definition does not encompass other important aspects of the overall plan including naming someone to help out in cases where the individual is still living but unable to manage finances or care for his own wellbeing.  A comprehensive estate plan will also address these situations by naming individuals to make health care and financial decisions for an individual if there are ever incapacitated or adjudged incompetent.  Estate planning covers topics that many people would rather not openly discuss as you can imagine including what will happen when I die, who will care for my minor and/or disabled children, who will manage my finances if I cannot or who will make health care decisions if I am in a coma or incompetent, etc.  We all want to believe we will live forever or at least for a long, long time.  I cannot nor would I want to dissuade people from feeling this way.  The reality is there are at least two certainties in the mortal world we live in and the title of this blog is appropriate in that regard.  An additional aspect that is increasing in regularity and probability in recent years is the fact that people are living longer with the advances in medicine.  This increases the likelihood that people will need long-term care or related services and assistance at some point in the future. 

Estate planning is probably best known to the general public by the particular documents that one would typically execute including a Will, Revocable Trust, general durable powers of attorney for finances, health care power of attorney and instructions to a health care agent (also known as a living will or advance directive to physicians).  The combination of the various documents ensure that the individual has planned not only for disposition or assets and care of minor children after death but also for his or her care and financial management during life should something unforeseen occur.

As is often the case when working with attorneys, the individual does not leave the office will a product or other tangible asset other than the documents mentioned above.  From my perspective that is not the valuable service provided by estate planning attorneys.  Instead, I believe that the main service received by an individual is the peace of mind that comes with knowing that she has completed a plan that memorializes her wishes and after signing the documents she no longer needs to worry about things in that arena. 

The Estate Planning Process

A large part of the purpose behind this blog is to provide useful information to the public regarding the specific practice areas covered in my practice.  To that end, while most posts will address more technical issues including Medicaid, Tax acts, and the fundamentals of Estate planning, an occasional post will focus on the process and what people can expect to encounter along the way.  This post falls into the latter category.  I am hoping that it will provide some additional information regarding the estate planning process from beginning to end to provide a sort of agenda if you will.  The following overview is simply that -- an overview.  It is not a hard line rule that must be strictly followed in all situations, but it is very typical of the estate planning process, at least in my estate planning practice in Appleton, Wisconsin.

Step One:    Initial Contact

Initial communication between the perspective client and the estate planning attorney

• Topics Discussed
  • Short overview of the fundamentals of estate planning
  • Perspective clients' contact information
  • Scheduling of initial estate planning conference

Step Two:    Information Gathering

Attorney sends out confidential estate planning questionnaire following initial communication

• Information Sought
  • Personal and Family Information (i.e. date of birth, SSN, children, etc.)
  • Asset and Financial Information
  • Trusted Advisors Contact Information (i.e. CPA/tax advisor, financial planner, investment representative, etc.)
  • Financial, Health Care and Living Will decision makers
  • Goals for Estate Planning

Perspective Client returns completed confidential estate planning questionnaire or brings it with to initial estate planning conference

Step Three:    Initial Estate Planning Conference

Initial estate planning conference to discuss overall estate planning options including but not limited to:

• Wills and Trusts (revocable and/or irrevocable),
• Selection of trusted individuals to serve as Personal Representatives, Trustees, Health Care Agents, and Financial Agents,
• Distribution of assets after death of the first spouse and after the death of the surviving spouse,
• Charitable, religious or other specific bequest.

Also discussed during the initial estate planning conference is the topic of attorney's fees for the estate planning services.  In my practice this is typically a flat fee based on my experience with similar situations over the years.  Once we decide on the particulars of the estate plan fees are discussed and the process continues.  At the close of this first meeting we will review and sign engagement letters outline the scope of representation and the fees agreed upon.  We will also schedule another meeting to sign the documents about two weeks into the future.

Step Four:   Document Preparation

Attorney prepares drafts of the estate planning documents and sends them to the client at least a week before the signing meeting for review.  This is the period of time where any changes should be mentioned and made to the documents.  The Attorney makes the changes and gets the documents in final form.

Step Five:   Document Signing

This is the second and final meeting in the typical estate planning process.  The documents are prepared, reviewed and in final form.  The clients and the attorney meet to first review the documents.  Any remaining questions are answered and any remaining changes can be made.  The clients then sign and execute the documents as the attorney and a disinterested person (typically the attorney's assistant) witness their signatures.  At the close of the meeting the clients are presented with a completed estate planning binder containing all of their signed estate planning documents.

Step Six:    Implementation and Follow-up

The last step in the process is making sure that the selected plan is fully implemented.  This will include coordinating beneficiary designation and the retitling of assets in certain situations.  This process often involves working with banks, investment institutions, financial planners and the Register of Deeds to ensure that the framework of the estate plan is being followed.

At the close of Step Six the clients have successfully completed the estate planning process.  I typically advise clients to check in every three years or so to review their plan and to make sure that it still adequately addresses their needs and wishes. 

If you have any questions or comments regarding this process or this post please let me know by leaving a comment below or by contacting me directly.  I cannot speak to the process from the perspective of ALL estate planning attorneys, but I can say that this is a very typical process for my practice.  As I have mentioned before, one of my main objectives in my practice is to provide as much education and guidance throughout the process as possible.  I find it is more comfortable and it provides more peace of mind when you have a better understanding of what the process is and why we are doing what we are doing.

Statistics Regarding Estate Planning in the U.S.

According to numerous surveys and studies conducted over the years, the statistics show that roughly 55 to 60% of people in the United States do NOT have a Will.  That is a somewhat frightening figuring considering the importance that a Will can play in a number of areas after we pass away.  My reaction to these statistics is at least two-fold.  First, I am aware that a lot of people do not look forward to planning for one of life's less pleasant certainties and a lot of people do not enjoy talking with an attorney about anything.  Second, I am not convinced that these statistics are as frightening as they appear for some people, but I am convinced that the absence of proper estate planning for others will be met with unwanted consequences. 

In regards to my first reaction, I would just say that I can appreciate someone's reluctance to discuss death and the disposition of their assets.  It just simply is not a conversation that one wakes up looking forward to on any given day.  But the truth is in a lot of cases, most people should complete a proper estate plan as soon as they can.  I often hear from friends, colleagues and clients that they are too young or they do not have enough wealth to take the time to write a Will or to complete their estate planning.  In some cases I agree with them.  But if they are a young married couple with children, own a home, retirement accounts, expect an inheritance, a married couple or single parent with a child with a disability, second marriages, etc., then I must respectfully disagree with their conclusion that estate planning is unnecessary. 

A Will can accomplish a number of things besides directing assets to particular individuals.  For instance, a mother and father can appoint a guardian for their minor children in the event something should happen to both of the parents.  Also trusts can be used within the will to protect and provide for children and grandchildren without dropping their entire inheritance on them before they are ready to handle the finances.  In situations where there is a child with a disability who is receiving government benefits, the receipt of a large inheritance would potentially disqualify the child from receiving those benefits.  To prevent that result the Will could be drafted to contain a supplemental needs trust (also called a special needs trust) for the benefit of the disabled child or the estate plan could include a supplemental needs trust separate and apart from the Will.  This planning would ensure that the child's government benefits are not disrupted upon the death of his or her parents.

This is just a brief summary of some of the issues that can be present in all of our lives, including in the lives of the 40-45% of people who do not have a Will.  The State of Wisconsin does have a Will for you in the event that you do not take the time to draft one yourself.  It is found under Ch. 852 of the Wisconsin Statutes and it is titled, Intestate Succession.   It may work for some but it may not work for others.  Considering this alternative, the peace of mind that comes with knowing that you have an estate plan tailored to your situation is well worth the time and expense.