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Patricia Annino
Patricia Annino
Estate Planning Myths: Forget About Estate Taxes
Why estate planning is important for all clients.

June 16, 2011
by Patricia Annino, JD, LLM

Many of our clients rely on the common myth that “estate planning is only for people who are richer than we are” to prevent them from taking that first step towards planning. That is not true. Putting an estate plan in place is important no matter what your client’s net worth is.

Why is that so many of us and our clients work our entire lives to make sure that we are secure and that our families are well provided for, and yet put so little thought into what would happen if we become disabled or die? Even Houdini could not escape death. It is normal to want to avoid dealing with the prospect of disability or death, but at the same time it is vital that we push forward and take the necessary steps to safeguard what we have accomplished during our lives. 

Four Reasons Why Your Clients Should Act Now

Here are four reasons to encourage your clients (no matter how rich or how poor) to put their affairs in order now:
 
Reason 1: Estate Planning Is Not Just to Protect Your Client’s Family When They Die; It Is to Protect Your Clients While They Are Alive.

Estate planning today is far more than a Will. It addresses what happens if your clients become disabled or incapacitated. By showing your client how to put appropriate legal documents, such as a durable power of attorney and a living trust, in place with necessary safeguards, the estate planning process enables them to select who should be in charge of their assets if they are alive but lose the ability to handle their own financial affairs.

Most couples’ homes are their biggest asset, for example. Unfortunately, that asset will be frozen if one of them becomes disabled or incapacitated. If a husband and wife own their home jointly with a right of survivorship at the death of the first spouse the ownership of that home will pass to the surviving spouse. If instead, one of them becomes disabled or incapacitated and is unable to handle his or her financial affairs, then the house is frozen, since both signatures are required to transfer, sell, mortgage or deed the home. At death, a retirement planning asset is paid to the named beneficiary — normally the spouse. If instead, the plan-holder becomes disabled or incapacitated, that retirement plan is frozen, as only the plan-holder has the ability, during his or her lifetime, to make decisions concerning investments, hardship withdrawals and emergency loans.

The same thing is true for a single person. If your client becomes incapacitated and all of their assets are in their name alone, they will be frozen. If, however the couple had executed durable powers of attorney by which they gave each other the authority to handle those transactions then should one spouse become disabled or incapacitated the other spouse would have the legal authority to handle the transaction.

Reason 2: Estate Planning Should Begin When Your Clients Are Young.

Once your clients reach the age of majority, even if they do not have any assets, they should execute a healthcare proxy or healthcare durable power of attorney. In that document your clients may designate one person (and successors) to make their medical care decisions if they are unable to do so. They can change the document any time during their lifetime.

No doubt Terry Schiavo had no idea that at her young age she would experience serious medical issues. Because she had not expressed her intent in writing, Florida state law named her husband as her agent. Perhaps her parents would have had some comfort if they knew that she had selected him to make those decisions herself.

Designating a healthcare agent is equally critical in a second-marriage situation. Otherwise, if, for example the wife gets sick, both the adult child and the new spouse might end up vying for the right to make healthcare decisions for her. It is not fair to put them in that position, i.e., forced to negotiate in the middle of a crisis. The person who should make that decision is your client, and they should make it now.

If your clients are in a relationship with someone but they are not married, that person has no legal standing to make your client’s medical care decisions for you, or, in some states, even to visit you in the hospital. Executing a healthcare proxy or healthcare durable power of attorney can grant the person the legal authority to visit your client and to make those decisions.

It is important that your client write down the phone number of the healthcare agent in the document. After all, if they are in an accident, and it is a life-threatening situation, the healthcare professionals will want to call and discuss the situation immediately with the named agent.

It is also important to tell their healthcare agent that they have named him or her as their proxy. Make sure your client gives a copy of the document to their primary care physician and keeps a copy of it with their passport when traveling.  

Reason 3: Nominating a Guardian to Protect Your Client’s Children.

If your clients have minor children, no matter what their net worth, they need an estate plan so they can choose the person who will make decisions concerning their children’s care, upbringing and education when they are not around to do so themselves. If your clients do not take the time to designate who should serve as their children’s guardian, they could be leaving that important decision to a stranger, probably a judge.

This is a decision your client not only wants to make themselves, but one they want to think through carefully. Raising someone else’s children is a tremendous responsibility and the choice of who should serve in that capacity takes time. ¬†Your clients need a guardian who shares their value system, religious beliefs and attitude towards education. Ideally the guardian should also share your client’s money value system — what it is ok to spend money, and what it is not.

Making parental decisions is very subjective. We all have our own ideas on whether or not it is appropriate to send a child to private school, summer camp, vacations, purchase an automobile for him or her, put a down payment on a child’s home or pay for post-graduate education. Sitting down annually and writing a letter to the person your client’s has selected is a wise idea. The letter can be maintained with your client’s legal documents and replaced annually. That way, they can offer the guardian a guide to their child’s personality, such as what to watch out for and what to protect.

When choosing a guardian, if your client names a couple, such as their sister and brother-in-law, for example, then they must weigh the pros and cons. The “pro” side is since both will have the legal responsibility as guardians to make decisions, they will both feel involved actively in your child’s upbringing. If there is a medical emergency on the school playground, either one of them can act. Either one of them can attend school conferences. The “con” side is that if they divorce, your client’s child or children could be involved in a custody battle, or if one of them dies, the other, as legal guardian, has standing in custody matters.

Reason 4: If Your Clients Don’t Have an Estate Plan, Massachusetts, As the State in Which They Are Domiciled Will Write One for Them.

The laws of the state in which your clients live will dictate who receives any asset that is in their name alone. Many spouses are surprised to learn that in Massachusetts (and every other state) they do not automatically receive all of their deceased spouse’s assets. Any asset that is in your client’s spouse’s name will be split between them and their children.

Conclusion

It is an absolute must for you as the trusted advisor to raise the issue of estate planning now with your clients so that your clients can control the direction of their estate and ensure that their children, their own health and assets are taken care of in the way they would like it to be and not rest on others’ judgments.

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Patricia M. Annino, JD, LLM, a nationally recognized authority on estate planning, received the Boston Estate Planning Council’s “Estate Planner of the Year” Award in 2007. She chairs the Estate Planning practice group at Prince, Lobel, Glovsky & Tye LLP. She has been voted by her peers as one of the Best Lawyers in America (trust and estates), a SuperLawyer and a Top 50 Massachusetts SuperLawer. She is a Fellow of the American College of Trust and Estates Counsel (A.C.T.E.C.)

* Forefield Advisor, a PFP Section and PFS Credential benefit, has additional charitable giving resources.  The AICPA’s PFP Section provides information, tools, advocacy and guidance to CPAs who specialize in providing tax, retirement, estate, risk management and investment advice to individuals and their closely held entities. All members of the AICPA are eligible to join the PFP section. For CPAs who want to demonstrate their expertise in this subject matter, apply to become a PFS Credential holder.