EstatePlanning

Financial Planning (FIN 551 – 552 – 553)o Managing the Wealth of a Client• Wealth Accumulation• CFPs – Portfolio Management

• Wealth Protection• Insurance Agents – Policies

• Wealth Distribution• Lawyers – Estate Planning

o FIN 553 Part One – Estate Planning

Learning Objectives o Define Estate Planningo List Goals of Estate Planningo List Risks (Failure to Plan)o Determine Who Needs Estate Planningo List the steps in Estate Planningo Name the Professionals Involved in Estate

Planningo Describe Unauthorized Practice of Law

What are the issues, concerns, or potential problems for a financial planner?

Definition of Estate Planningo The plan that distributes the assets of the individual prior to

and at death such that they match the wishes of the deceased and

o Provisions are made for needed liquidity needs at death• Funds available to family/heirs• Funds available for funeral costs• Funds available for medical costs

o Follow healthcare instructions of individual• Advance directives such as feeding tubes, assisted breathing,

extending life treatments, etc.o Children (minors) are provided proper support

• Children are placed in custody of individuals at choosing of client• Protection of assets distributed to children

Estate Planning Defined - Continuedo Planning ahead of a clients death to distribute wealth

with consideration of legal, tax and personal issues.• Effective transfer (assets transferred to desired individual

or institution)• Efficient transfer (minimizes taxes and transfer costs)• Timely transfer (avoid delays in distribution)

Goals in Estate Planningo Fulfill Client’s Wishes o Documents Legal and Appropriate for Client’s Wishes

What are some of the basic wishes a client makes in an estate plan?o Directs named assets to specific person or charityo Directs documents to be completed to set up future needs

distributionso Directs terms for distribution of un-named assetso Healthcare instructions or individual that has power to make

decisionso Funeral instructionso Others?

Risks of Failing to Do an Estate Plano No Will

• Die intestate and Laws of State determine heirso No Will

• Court determines child careo No Will

• Allocation of assets to minimize taxes not guaranteedo No Will

• Contested estate could delay distribution of assetso No Will

• Financial burdens for family while assets in probateo No Health Directive

• Medical care costs could wipe out assets• Prolong life past desire of individual

Who Needs Estate Planningo Everyone who

• Has minor children• Has assets that would need distribution at death

• Spouse will get title to many assets but not all• More on this in later chapters

• Has health issues or specific desires on health care• Has a preference on funeral and burial desires

What could happen without plano Guardianship of Children to inappropriate adulto Poorly titled asset does not go to “rightful” for persono Much of wealth lost to transfer costs and taxeso Major delay in distribution as estate is contested

What Can Estate Planning Do? o Preplanning of asset distribution can lower taxes

• Giving specific assets that have a stepped up basis to a charity avoids taxes – example share of stock

• Charities are not-for-profit so it is a tax free-distributiono ByPass-Trust allows maximum tax deductions for married

couple• Separate assets at death of first spouse • Allows surviving spouse access to assets and tax deduction

o Power of Attorney• Allows designated individual to act in the interest of the

individual while still alive but incapacitated so estate is maintained and does not lose value

o Other ?

The Six Steps in Estate Planning 1. Establish the Client/Planner Relationship

o Division of Tasks – Lawyer leads in Estate Planningo Legal documents can require lawyer

2. Collect Informationo Financial Statements, Tax Filings, Asset Titles, Etc.o Family and Family Histories (health of parents, children with special

needs, etc.)o Insurance policieso Legal documents (Powers of Attorney, Health Directives, Wills, Trusts,

etc.)o Other items such as prior gifting, annuity contracts, lawsuits pending, etc.

3. Determine Clients Financial Statuso Examine assets, cash flow, liabilities, insurance coverage, future liabilities

(children’s education for example) and living standardo Analyze information

4. Develop a Comprehensive Estate Plan o Match the comprehensive plan to the desires and the

financial status of the client• Goals of client should be realistic• Plan should support a realistic outcome• Plan should provide for potential contingencies

5. Implement the plano Usually plan has some immediate steps or short term

goals that put client on a “successful” path 6. Set Specific Review Periods for Plan

o Circumstances change overtime and plan must be adjusted to meet the changes that alter the outlook

The Financial Planning Teamo Typically three to four professionals

• Certified Financial Planner, Insurance Agent, Estate Lawyer• Could also include broker or other financial professional

o Initial planning usually with CFP and • CFP serves as the professional with the overview of the entire plan• Recommends other professionals

o Insurance Agent• Reviews insurance needs and policies that support the plan• Life insurance, long-term care, property and liability insurance

o Estate Lawyer• Legal documents (wills, trusts, healthcare directives, power of

attorney)• Files proper papers with court for estate distribution

Problems with seeking advice and instructions from non qualified individuals

Unauthorized Practice of Lawo States have laws that license the practice of law and

estate planning is included in these lawso Advice from unauthorized individual may not be bad

advice but your recourse may be limitedo If you are providing the advice and not authorized your

liability could be significanto Documents prepared may not be accepted by the court

Other issues with non-professional advice?

What are the implications for Financial Planning?o Estate Planning is an essential part of the financial plan

and a poor estate plan can hurt clients o Clients need to have thorough evaluation of current

financial status and see that it matches their personal goals

o Legal documents provide insurance against decisions that are in conflict with desires of client

o Wealth management served with good estate plano Other issues?