1003 Third Street, San Rafael, California 94901

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The Wealth Counselor
Estate Planning Pop Quiz

August means school is back in session or just around the corner, signaling the return of new school supplies, homework, and pop quizzes. Try your hand at this estate planning pop quiz to see if your knowledge of estate planning makes the grade.

Question #1: True or false? The only people involved in an estate plan are the client and the estate planning attorney who drafts the documents.

Answer: False. Many advisors such as financial planners, certified public accountants (CPAs), and insurance agents play an important role in the estate planning process. For example, one of the first steps in creating an estate plan is understanding what property the client owns. This may include tangible property such as real estate, vehicles, and collectibles, as well as intangible assets such as retirement accounts and insurance policies. A client’s advisors can help the estate planning attorney understand everything the client owns and how it is owned so that the client’s estate planning documents are properly drafted to ensure the smooth administration and distribution of their accounts and property at the time of their incapacity or death.

In addition, a successful estate plan requires the proper coordination of the legal documents prepared by the estate planning attorney and the beneficiary designations on a client’s accounts (such as retirement accounts) and insurance policies. The estate planning attorney and the financial or insurance advisors can work together to ensure that the client’s beneficiary designations are correct and to make any necessary updates to the client’s beneficiary designations.

Finally, the estate planning process requires a thorough understanding of the role that taxes (income, estate, and gift) will play in the client’s plan. A client’s CPA can be invaluable in helping clients understand the interplay of these different taxes and ensuring that tax savings are fully maximized.

Question #2: True or false? An estate plan needs to be reviewed periodically to make sure everything is still accurate according to the client’s wishes.

Answer: True. Many clients view creating an estate plan as a one-and-done event. This perception is not accurate, however, as a client’s changing circumstances require that an estate plan be periodically reviewed to ensure that it will function as the client intends when the time comes. As an advisor, you may be aware of changes in the client’s life before the estate planning attorney is. You can add a great amount of value by keeping the client’s comprehensive planning top of mind. When a client experiences a significant life event such as a marriage, divorce, retirement, change of occupation, or birth or death of a loved one, a change to their estate plan is often required. Even if no change is required, a periodic review will give the client peace of mind.

Also, the ever-changing laws governing taxes and estate planning may necessitate an update to a client’s estate plan. As an advisor who stays aware of estate planning and tax law changes, you can provide additional value to the client by alerting them to changes in the law that may necessitate changes to their estate plan.

Question #3: True or false? If the client has a pour-over will naming a trust as a beneficiary, then there is no need to worry about funding the trust.

Answer: False. When a client fails to fund their revocable living trust, they have essentially destroyed the primary reasons for creating such a trust during their lifetime, which is to avoid court involvement in the event of the client’s incapacity and to avoid probate at the client’s death. A pour-over will serves the essential purpose of providing a fail-safe in case an account or property is not properly owned by (i.e., funded to) the trust. However, the pour-over will must be submitted to a probate court to transfer the property that is outside of the trust into the trust. Thus, if the trust is not properly funded, the client’s loved ones will be required to go through probate even though the client intended to avoid probate by creating the trust in the first place.

Further, a pour-over will has no effect during a client’s lifetime. So, if a client becomes incapacitated and the trust is not funded, then the client’s loved ones will be forced to go to court to have someone appointed who can deal with the property on the client’s behalf. For example, Son wants to sell Mom’s home to help pay for the cost of an assisted living facility for her. If Mom’s home was not funded to Mom’s trust, then Son has no power to sell the home, even if he is named as successor trustee in the trust. This situation might be avoided if Son was named as an agent under Mom’s financial power of attorney, but relying on this as the only method can sometimes be problematic. If the property was not funded into the trust and Son was not named as Mom’s agent, Son must go to court and be given the authority to act on Mom’s behalf. On the other hand, if Mom’s home were funded to her trust, then Son, acting as successor trustee, would have the power and authority to sell Mom’s home without any court intervention.

As an advisor, you can provide A+ service to your clients by actively participating in the estate planning process and alerting your clients to the possible pitfalls that could result from not properly reviewing and updating their estate plan or funding their trust. We are here to educate you to help you provide your clients with the best possible service.

Law Offices of J.R. Hastings • 1003 Third Street, San Rafael, California 94901 • 415-450-6692

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