What Is an Estate Planner, and Why Do I Need One?
Key Points:
Estate planning refers to the process by which individuals determine how their estate is distributed to their friends, family, and/or favorite organizations at their incapacity or death
Everyone has an estate, so anyone can benefit from the guidance of an estate planner
Estate planning is a complex process that includes, but extends far beyond, drawing up a will
Tax efficiency, care plans, inheritance plans, child guardianship, and probate avoidance are all components of proper estate planning
The consequences for having no estate plan or an out-of-date plan can be extremely costly
Due to their knowledge (both of their advisees and of current regulations), experience, fee structure, and connections, properly trained financial advisors make the best estate planners
An estate planner is an advisor — ideally a financial advisor— who advises individuals on all facets of their estate planning process. “Estate planning” refers to the process by which an individual controls the way their estate is given to the people or organizations they care about in the event of their incapacity or death.
Estate planning is often a primary component of the work financial advisors do with their advisees, and as such, requires a thorough understanding of individuals’ financial situations, family dynamics, wealth objectives, personal values, and more. All of the upfront information financial advisors gather from their advisees factors into their estate planning suggestions.
To understand the full scope of an estate planner’s responsibilities, it’s important to understand the purpose of estate planning — what it is, why it’s valuable, who should have an estate plan, when to begin developing one, and how the process works. Estate planning is an integral component of a good financial plan and begins with a strong relationship with the planner.
What is Estate Planning?
As stated above, “estate planning” refers to the process by which an individual determines how their assets will be distributed among their friends, family, and/or preferred organizations in the event of their incapacity or death. Because drawing up an estate plan requires thinking about one’s own mortality, many people delay the estate planning process, inadvertently setting themselves (and their families) up for damaging long-term consequences.
While the term “estate” may conjure images of vast expanses of expensive property, the truth is, everybody has an estate. Automobiles, real estate, clothing, jewelry, cash, stocks, artwork, and more all factor into an individual’s estate. As such, anybody can, on some level, benefit form estate planning guidance — though, as an estate grows, the stakes for proper planning increase.
What’s included in a good estate plan?
Most people know that drawing up a will falls under the heading of “estate planning,” but a will alone does not constitute a thorough estate plan. Good estate planning also includes:
Providing instructions for your care and/or your financial affairs should you become incapacitated before you die
Making arrangements for disability income insurance in the event that you cannot work due to illness or injury
Writing a transfer plan for your business upon your retirement, disability, incapacity, or death
Naming a guardian to care for for your minor children (if you have any) and their inheritance(s)
Minimizing taxes, legal fees, and court costs, which could include creating and funding living trusts, updating beneficiary designations, or realigning your assets
Proper vs. Improper Estate Planning
Proper estate planning means that the wealth an individual has accrued during their life will be preserved and distributed exactly according to their wishes after their death. It means they have participated actively in the planning process, authorized each decision, likely communicated with all beneficiaries to minimize surprises and/or conflicts, and organized each segment of the plan in the most cost- and tax-efficient ways possible.
Improper estate planning can mean either no estate plan has been created or that an individual has created a plan but failed to update it, allowing it to become inconsistent with their current wishes. Each of these situations can lead to highly unfavorable circumstances.
No Plan
Someone who becomes incapacitated or dies without a plan will leave the fate of their estate to a court-appointed executor. The court, located in the state of the individual’s primary residence, will supervise the process, deciding how the individual’s assets are used for their care (among other purposes). Upon their death, the individual’s assets will be distributed according to the state’s intestacy laws, most frequently through a court-supervised probate proceeding.
Between legal fees, court fees, and executor fees, these processes can be highly costly, and rarely reflect the exact wishes of the intestate person.
Out-of-Date Plan
If an individual creates a plan but does not update it regularly, they risk bequeathing assets to unintended beneficiaries, failing to name beneficiaries for newly acquired assets, incurring unnecessary tax penalties, and more. In essence, out-of-date plans are at best suboptimal, and at worst counter to the testator’s current wishes.
All of these negative consequences can be avoided by taking the time to establish a plan with a trained professional. Then, once the plan has been established, individuals can ensure the currency of their plan by meeting regularly with their advisor, even just to check in. Individuals’ financial circumstances, family dynamics, and life goals change all the time, as do the regulations surrounding taxes and other financial matters. To stay as consistent and efficient as possible, estate plans should be monitored and updated at least annually.
Who Should I Work with to Establish My Estate Plan?
The legal documents that comprise an estate plan can only be written and authorized by estate attorneys. Theoretically, an individual could use an estate attorney for the entire estate planning process, approaching them with their wishes, having the attorney design documents that reflect them, and signing them.
While this is, legally speaking, a valid estate planning approach, it is far from optimal. Estate attorneys are always a necessary part of the estate planning process, but the nature of an individual's relationship with an estate attorney vs. a financial advisor trained in estate planning has enormous consequences for the quality of the plan. To engineer a high-quality, cost-effective, easily updatable estate plan, it is best for an individual to collaborate with a financial advisor to develop the plan and seek out an estate attorney only once the plan is complete.
Why should I have a financial advisor be my estate planner?
Fee Structure. Estate attorneys charge by the hour, which means the longer it takes to generate an estate plan, the more an individual will be charged. Most financial advisors — particularly fiduciaries — charge according to a flat assets under management (AUM) fee, meaning they receive payment according to a small percentage of their advisees’ total asset valuation, not based on how much time it takes to work with them. Advisees therefore never have to worry about incurring additional costs, regardless of the complexity of their estate plans.
Training and Expertise. Financial advisors — especially those who have received additional certifications (e.g.: CFP® certificants) — have completed extensive background training in all financial matters, including estate planning. Advisors with certifications must prove, on an annual basis, that they are up to date on all the latest laws and regulations impacting financial matters. Additionally, they have likely gone through the estate planning process with other clients, and have therefore developed experience optimizing other similar estates. Their extensive knowledge, proven currency, and thorough expertise makes them superb estate planning resources.
Intimate Relationship. An individual’s relationship with their financial advisor is intrinsically a close, intimate one. In addition to have a completely exhaustive understanding of their advisees’ financial situations, they also understand family dynamics, personal values, risk tolerance levels, communication preferences, and more. Because of the intimacy of this relationship, financial advisors are uniquely well-equipped to give excellent advice in terms their advisees can easily understand. Advisees may contact their financial advisors after significant life events, prompting financial advisors to put the events in context, evaluate their financial implications, provide suggestions about how to proceed, and update estate plans accordingly.
This relationship also makes advisors particularly well-positioned to help their advisees through challenging circumstances, emotionally and financially. For example, the death of a parent often comes with financial consequences, which a grieving person may not feel equipped to handle in the moment. As objective third parties with rich comprehensions of their advisees’ financial circumstances, financial advisors will be able to prioritize and execute actions in advisees’ best interests.
Well-Connected. As stated in the beginning of this section, estate attorneys are an inevitable part of the estate planning process. They are the only ones who are legally qualified to draw up valid documents for individuals to approve. While it may be challenging for individuals to find trustworthy estate planners on their own, financial planners, who have undertaken the estate planning process multiple times, will be able to source proven estate attorneys with ease.
Recap
Estate planning refers to the process by which individuals determine how their estate is distributed to their friends, family, and/or favorite organizations at their incapacity or death. Everyone has an estate, everyone should have an estate plan, and anyone can benefit from the guidance of an estate planner. The consequences for having no estate plan or an out-of-date plan can be extremely costly. Due to their knowledge (both of their advisees and of current regulations), experience, fee structure, and connections, properly trained financial advisors make the best estate planners.
When it comes to estate planning, the earlier (and more thorough) the better. While thinking about one’s incapacity/death may be unpleasant, the negative consequences of delaying the process are far worse. Good estate plans bring peace of mind to all involved.