Your Estate Planning Team
In preparing to write this article regarding the makeup of an estate planning team, I just happened to be in conversation with my 96-year-old father-in-law who was sharing his experiences as a young gunner’s mate on the USS Tennessee in the Pacific Ocean theater during the Second World War.
He spoke with pride regarding the men he served with and how as a team they could fire and reload their big guns in just a few minutes, laying down an umbrella of protection for the Marines storming the beaches or of laying down a pattern of shots to disable or destroy submarines which were a constant threat to the safety of the ship.
He said on his gun station it took at least 13 men to perform their functions to successfully fire their gun. They got so proficient at what they did they could hit a submarine over 15 miles away from where they were firing. When I asked him if one member of the team was more important than another, his response was if one member failed in doing his job, they all failed. Because they had to be in synchronization with the others, a gun captain was chosen from the team to make sure everyone was doing his job when the job needed to be done. It wasn’t necessarily true his position was more important than the others, but by designating him to coordinate the firing sequence, the team was much more efficient in achieving its goal of hitting their designated target.
This real-life example lends itself nicely to the necessity of an estate planning team being in harmony with the objective of preserving the estate of their client. If not, the estate plan will be flawed and may not achieve the desired results.
Who makes up this estate planning team and what function do each fulfill? Consider the following:
- Insurance Agent
- Financial Planning Consultant
- Estate Planning Attorney
- Trust Personnel
Everything the other members of the estate team do must revolve around the objectives, dreams, and desire of the client. It is those objectives, dreams, and desires which gives meaning to the labors of the others.
No matter whether the estate of the client is just a few assets or a worldwide conglomeration of businesses, almost everyone wants to leave something for his or her posterity besides just his footprints in the sands of time. Who is to say one personal possession is more valued and appreciated than another? I know of a young man who wanted nothing more from his Dad’s estate than the big crescent wrench used by his father to repair broken farm equipment, while his brother wanted a diamond ring passed from one generation to the next. They were both satisfied upon receiving those items at their father’s passing.
Neither of these items were mentioned in the father’s will, but fortunately the two brothers had expressed their feelings and the rest of the family obliged them.
It is important for the client and spouse to share openly with the other members of the estate team what their desires are because the plan can only be as good as the information from which it was developed. Not disclosing some vital information—like a child from a previous marriage, ownership in another business, secret savings account, desire for a favorite charity to be funded, beneficiaries of life insurance policies which can pass outside the provisions of a will, mortgages, or additional assets to be inherited yet by the passing of a distant relative--could easily impact future tax burdens and percent of allocations to beneficiaries of the estate.
Time waits for no man, so once you get the urge or are advised to get a plan in order, don’t procrastinate. It is not something which will solve itself by waiting. Kendon Perry, a five time member of the Million Dollar Round Table (MDRT), 15 years as one of the top producers for Iowa Farm Bureau Life and Financial Services, licensed Life Insurance and Property Casualty Agent in Idaho, and Registered Financial Advisor, said the hurdle most difficult to get across in estate planning is the client’s feeling that there is no hurry and the illusion of invulnerability--it can happen to someone else but not me. “It is so difficult for people to recognize their own mortality.”
Recognize there is going to be some costs involved at various stages of the planning. All your team members will have fees associated with their services except the life insurance agent who will only be reimbursed for the time spent when insurance policies are deemed to be necessary in the plan. He or she will then receive a commission from the insurance company and not directly from the proceeds of the estate. Make the conversation regarding fees to be paid at the beginning of your journey so you don’t have a surprise waiting for you at the end.
Let your family members know you are establishing an estate plan so that if there are specific desires or interests, they can be addressed. Identify for your family who you will be appointing as administrator of your trust if one is required or who will be the executor of your will if that is all that will be required.
Being an administrator is not a task to be taken lightly. Those so identified need to understand they will be under personal obligation to perform their duties based upon the instructions given to them. In addition to that understanding they also need to know they can be held personally responsible for financial losses which may occur if due to their ineptness or carelessness the estate loses value. Any beneficiary of the estate has the right to receive an accounting from the administrator as to how the estate is being managed; and if they feel it is not being handled properly, they can begin lawsuit proceedings to correct management or methods of management. In addition to other provisions spelled out in the plan, make sure there is a provision for how the administrator is to be reimbursed for services rendered to the estate and what accounting records will be expected.
This is not a task to be taken lightly, so he or she needs to know ahead of time your desire so if he or she chooses not to accept you can proceed to choose someone else. It would also be suggestable to have that administrator involved in the “nuts and bolts” of the plan so he or she has a firsthand knowledge of your intent and not have to discern it from just reading instructions. It would also give you a good opportunity to see how that administrator would function before you are confined to the last plot of earth you will own.
If in your estate planning you decide to do just a simple “I love you” will, be sure you address the issue of end of life health care directives. Be certain that the surviving members don’t have to make the decision on when life support should be removed. An attorney can assist you on what paperwork needs to be in place so in that moment instructions can be activated in your behalf.
Stop and ask yourself, who have you shared more of your personal information with than your insurance agent? His file already has your vital information like social security numbers, dates of birth, driver license information, address, some financial records, family members, place of employment, religious affiliation, etc. If you have had the good fortune to have one agent attend to your property and casualty insurance needs along with your life and health plans and retirement programs, you can easily see where the agent could be helpful to your plan.
It might just be that this individual could act as the quarterback on your team. With his access to so much of a client’s personal information, the agent is positioned to move the estate planning process forward more effectively than any of the other professions. Another practical reason for the client to designate the insurance agent as the captain has to do with finances. An insurance agent receives no compensation until a product is purchased by the client, whereas the other professionals have billable minutes which can become very expensive if someone isn’t encouraging the work to get done.
It would be nice if when the accountant, while preparing your tax returns, sees you have tremendous amounts of assets still in just your name and would suggest you explore the possibilities of reviewing that scenario with your attorney; or when the attorney drawing up the will sees a serious problem with the size of the estate exposing you to exorbitant taxes refer you to a registered financial advisor to see what could be done to reduce that tax burden, or the perfect moment to bring in the accountant to help find a way within your budget to prepare you on how those taxes are going to be paid when you pass away. These professionals are probably extremely proficient in their areas of expertise but may feel uncomfortable reaching across the fence into another professional’s field of interest.
However, when a client requests the insurance agent write a big umbrella liability policy for him, the agent knows there is an exposure here which may be able to be addressed by an attorney drawing up the appropriate legal documents limiting the client’s liability. When the husband and wife approach the agent requesting automobile liability insurance for their children and then list children with different last names, the agent may suggest an attorney or financial advisor look at how estate is going to be administered upon the death of the husband or wife. When writing a new homeowner policy, the client has question regarding rolling over retirement funds from an out of state company, the agent can refer to the accountant how this can best be accomplished. These are just a few examples of how the insurance agent is positioned to be the quarterback on the estate planning team.
Financial Planning Advisor
This professional is a hybrid in the realm of estate planning. The individual is not licensed or registered as an attorney or accountant but must meet stringent requirements established by the state in order to conduct business as a financial advisor.
This individual can charge a fee for the services rendered but must be very careful about any of his recommendations being product driven. For example, if in his fact finding a need for a life insurance policy is revealed, the financial advisor cannot then pivot to a sales presentation where a policy is promoted and sold. There is a good chance the advisor would lose his license issued by the state and run the risk of the insurance company not honoring the application by virtue of the circumstances surrounding its origin.
A thorough understanding of accounting practices and the law make a financial planner a valuable member of the estate team. Most likely, the financial advisor will also be a licensed insurance agent trained in how insurance policies help fund estate plan.
The driving motivation of the financial advisor is to answer the question, what’s the best solution for the client currently in his or her life? It is again in the words of Perry, “No one wants to leave a mess for someone else to have to clean up.”
The solution to the question can best be found in a complete and thorough gathering of information. The client must be completely transparent with what they own or owe and with what their wishes, desires, and goals are. It needs to be understood that the plan developed by the estate team will only be as good as the information from which it was drawn. Because this step is so critical, most advisors will have developed an outline which the client can fill out, sharing such information as they feel is appropriate.
Once the information is gathered, the financial advisor can confer with other professionals to devise a comprehensive plan to satisfy client’s goals. One registered financial advisor, Kendon Perry, five time member of the MDRT, said in an interview with the author of this article, “There needs to be an improvement in the collaboration between the professionals, each looking across the fence to determine how best to meet the goals and objectives of the client. One professional bringing his or her expertise to the estate planning procedure is good but bringing all of their expertise together will greatly enhance the success of the plan.”
Going back to the gathering information phase of estate planning, it doesn’t take long to understand the gathering of estate information can be very time consuming and expensive so you will want to go to the professional who will charge you the least. Since attorney, accountant, financial advisor and trust officer have billable minutes, your life insurance agent would be your best choice to assist you in marshalling your information since he or she receives no remuneration until you purchase a product. They will have the motivation to keep things moving ahead.
Let it be known--attorneys are not created equal. Just because a person graduates from a law school and hangs out their shingle notifying the world that they are open for business does not constitute a lawyer who will be proficient in the estate planning venue. In some cases, a lawyer will have become so specialized in one aspect of the law and may be rather ignorant in another area of the law. It is a little tongue in cheek when it is said of an attorney, he is practicing law, which would suggest he may be learning how to be an attorney proficient at drawing up trusts and wills at your expense. In defense of the attorney, though, the other professionals are similar in that they become more of an expert with the lessons gained while on the job. In choosing your attorney then, do some homework on what area of the law has he or she become proficient in. Several items to consider: Has the attorney gained additional education in the area of estate planning, has the attorney written and had printed any professional articles on the subject, has the attorney attended any professional seminaries relating to the subject, has the attorney built a clientele which testifies to the expertise of the attorney, has the attorney built a reputation of honesty and integrity, does he or she associate with a law firm giving him access to resource personnel, does he or she communicate clearly with you, is the attorney approachable, does the attorney have a reputation of maintaining confidentialities, is he or she in good standing with the bar association in the states he is licensed to practice law, and, do you like him or her. You will be spending quite a bit of time in the presence of this individual so can you see yourself spending the time and sharing the information required? He may not be your fishing buddy, but is the attorney someone you could trust with your most valuable possession, your spouse and children?
Don’t make the mistake of hiring an attorney from some highly recognized firm because they are housed in a large city. Don’t make the mistake of assuming that if he lives eighty miles away and carries a briefcase he qualifies as an expert in the field of estate planning. It is becoming more and more popular for extremely gifted and qualified attorneys to live in more remote communities. They can do so because their ability to access resources through technology and innovations is so available.
Skyping and other forms of face to face communications are helping to get the most out of your billed minutes of professional assistance.
Since you are the reason for the marshalling of these professionals, don’t hesitate to get their opinions regarding any of the other members of your team. If you are constantly having to console a prima donna or two on your team, you would be better served to move on to someone else.
Hiring an attorney who respects the guidelines and regulations governing estate planning and who doesn’t push the envelope toward unethical practices will allow you to sleep well at night knowing when the trust and will are activated they will not have to be litigated in a court of law to validate the contents as being valid.
Now that the estate plan has been formulated, wills and trusts become focal points for activating objectives of the estate plan. The attorney will play a major role in determining how the will and or trust should be legally drawn up. He or she will explain the advantages and disadvantages of either instrument. When a trust is determined to be the viable instrument for achieving the goals of the estate plan, several other individuals become important players in the plan.
If a living trust is established, there should be a trustee appointed to administer and manage instructions found in the trust. This trustee should always exercise discretion about client details under all circumstances. The trustee represents all the beneficiaries of the trust, and even though he or she may be one of the beneficiaries, he or she must always act in the best interest of the other beneficiaries. The trust itself cannot be sued, but the trustee has no immunity against being sued. The trust does nothing to change ownership status of assets placed in trust; it does nothing to change tax implications; and it seems the main reason for its existence is to bypass often complex and expensive legal process of probate.
An irrevocable trust, however, is a legal entity on its own. It can function just as if it were an individual person. It can buy and sell assets, it can hire and fire employees, it can pay taxes, and it can terminate itself upon acting on instructions found within legal documents drawn up at its inception.
This type of trust is usually administered by a trust officer who is an employee of a bank or an investment firm. The trust documents are held by the financial institution chosen by the beneficiaries of the trust with a trust officer being assigned to the account.
The duties of the trust officer include administration and creation of the trust account as per client specifications, following the terms and conditions of the trust account while disbursing of funds, filing tax returns, making investments from the surplus amount of the trust account keeping in tune with federal law, consulting with the accountant and attorney so good faith practices can be agreed upon, exercising discretion about client details under all circumstances, and the most paramount duty is to act at all times in the best interest of all beneficiaries of the trust.
When setting up a trust account, one may chose an accountant, an attorney, or anyone else they may feel would be competent rather than a financial institution; but having an “outside party” as the trust officer gives the advantage of having an individual who has the capability of outliving all the beneficiaries of the trust. If the trust officer cannot function, the other employees of the financial institution can pick up the servicing of the account. With all the notes and records of previous transactions available, the administration of the account would be seamless.
As a parting observation, every one of us living wants not to be a burden on those who are yet to experience the last of the two certainties God bestows upon us as we opened our eyes to mortality--we would be born, and we would die. Whether we accumulate a huge complex estate or just have a simple blanket in which we wrap ourselves to escape the cold, we can leave something behind to go along with our footprints in the sands of time. Wouldn’t it be soul satisfying knowing we affected that legacy?