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Estate Planning: Are you ready?

A Better Understanding of the Complexities of Wills and Estate Planning


By Noel LaMontagne

Discussing the subject of what happens after we are gone is rarely easy. But once we are gone, the discussion becomes impossible. So, however we want to help our families and loved ones, as it pertains to their lives after our deaths, is something that we all need to prepare for in advance.

According to a recent study by LexisNexis*, around 55% of American adults have not completed a will or estate plan. The study cites that this percentage has stayed relatively constant throughout the 21st century. Additionally, it shows that the percentage increases dramatically for minorities during the same time period. Generally, older adults at or near retirement age have been shown to be more likely to have a will or an estate plan in place to some degree.

A horrific and very public example of how big of a mistake it can be to not plan your will and estate is the death of entertainer Prince in 2016. With his assets valued at over $300 million, he had nothing in place to protect his wealth, and this left everything to be dispersed by the State of Minnesota. A state-appointed judge is now solely responsible to decide what will be left and how it will be distributed to his surviving family. Due to the total lack of a will or any planning, some individuals have even laid claims to his estate through various alleged connections to him. This confusion has led to additional court proceedings and has delayed their attempts to verify his true next of kin.

There can be a lot of confusion surrounding what a comprehensive will and estate plan entails and how to know that you have completed everything you need. Since many of our sports and entertainment clients tend to be younger, thinking about death and its ramifications is easy to put on the back burner. However, being young and earning significant amounts of money ahead of your peer group means that you must accelerate your financial education so you can think long term. Youth is not a valid excuse to escape the responsibility that comes with protecting your wealth.

For example, when former NFL quarterback Steve McNair was tragically killed at the age of 36 in 2009, he had no will in place. His children were all very young, and with his estate valued at approximately $20 million, there was no plan in place to provide for anyone after he passed. The State of Tennessee was left to sift through everything and deal with the complexities of his children being from three separate relationships along with his widow, his property, childcare payments, taxes, and a plethora of other related considerations.

Estate planning and wills are personal, and they need to be designed around the specific wants, needs, and unique characteristics of your life, business, and financial holdings. In many cases, these documents need to be a mixture of fixed and variable components. The pieces of the estate puzzle that determine what gets passed on to your family, your charitable and outside interests, and your responsibilities that remain after you pass, can be outlined in your last will and testament and trust documents. Your “living” will is also a piece of the overall puzzle that determines the “what” and the “who” as it pertains to medical decisions for you. A healthcare proxy can be established to help make decisions for you if you become incapacitated but eventually recover. These items do not control anything outside of your medical care, but they are important pieces of your overall plan.

Another very public example of the complexities of estate planning was the death of actor James Gandolfini in 2013. Gandolfini actually had a plan was in place, but it resulted in over a third of his estate going to taxes. Despite having good intentions, his planning did not maximize the unlimited marital deduction efficiently, and instead, the plan distributed significant portions of his assets in ways that were more beneficial to the State of New York and the Federal government than to his own family. Additionally, adding insult to injury, this information is all known publicly because his will was not protected as a private document.

Putting what you need in place at an early age, whether a simple or complex estate, does not absolve you from reviewing and staying on top of your plans as you get older and life changes occur. Families and fortunes grow, estates can fluctuate over time, and your needs, wants, and wishes can change, with all of these requiring potential adjustments to different aspects of your existing estate plan. The language, type, or structure of trusts you have established may need to be adjusted, insurance levels or beneficiaries may change, your last will and testament may need to be fixed or your living will altered. Regardless of what needs to be done, you need to think of your estate plan as a living entity that needs regular care and attention.

The untimely death of Whitney Houston in 2012 serves as an important lesson when it comes to regularly updating your will. Earlier in her life, she had a basic will drafted just before the birth of her only daughter Kristina. A few years later, she adjusted the original will to pass the bulk of her estate to Kristina in portions as she reached certain age milestones. If Kristina passed away, the remaining estate would transfer to her mother with a small portion going to her husband at the time. Upon Whitney’s divorce, per the language of her will, her now ex-husband was invalidated as a beneficiary. No other adjustments were made prior to Whitney’s death, and sadly just three years after this occurred, Kristina also died. Since Kristina herself did not have a will and had no children, her vested piece of her mother’s estate was passed to her father, Whitney’s ex-husband. After two unexpected tragedies, and without a properly designed structure, the exact person with whom Whitney did not want to share a piece of her estate benefitted anyway.

Complex wills can involve trusts for many reasons, including to help the beneficiaries of the estate avoid tax implications, to protect the inheritance of minor children until they are mature, or to pass money to designated charitable interests. Trusts can be complex entities that need to be designed and created by qualified professionals with the experience to know how to match the form and function to the desired result. Trusts are not a part of every estate plan, and they may be added later for many reasons, such as when wealth grows or a family unit changes. It is important to understand their purpose and how they may benefit or protect you and your family from expected or unexpected consequences.

When actor Philip Seymour Hoffman died, he had a young family that he wanted to protect from what he personally considered the ills of inherited wealth. He wanted his kids to grow up normally and not as entitled monsters that were spoiled by his money. He believed that trusts for his kids would create the exact situation he feared; trust-fund-babies. He was unaware that trusts can be designed to prevent blind inheritance using specific requirements and milestones that must be met before receiving money. Additionally, had he not avoided using trusts due to these false assumptions, he could have prevented the sizeable estate tax bill that his surviving family had to pay on his nearly $40 million in assets upon his death because he was not married to the mother of his 3 children.

It is also vitally important to understand that term or life insurance plans and annuities are not estate plans. Given specific circumstances, they can be potential pieces of the overall puzzle, but they are not stand-alone solutions. These can help plan for or protect an estate from costs associated with death, taxes, remaining mortgages or education costs or even lost future wages, but there are other costs, like commissions and fees, that play a major role in how insurance products and annuities function. These considerations need to be factored into the amount of an estate that is tied up in these types of products. Anyone purchasing insurance or an annuity should be fully versed in the value, payout restrictions, and all fees and penalties associated with the policy. You should also be fully aware of how much the person recommending or selling you one of these products is earning based on the purchase. You want to ensure that your wealth passes to your designated beneficiaries. Your wealth should never be eroded by the costs associated with recommendations that are not suitable for you.

At Verdence we always focus on the client and partner with the team of professionals that our clients need in order to protect and grow their wealth. Once any of us are gone, we cannot control what happens next for our loved ones. But before we go, with the right resources, advice, forethought and planning, we can help make sure our loved ones will be ready for it.

*”Majority of American Adults Remain Without Wills, New lawyers.com Survey Finds Significant Increase Seen in Adults with Medical Directives in Place, Research Shows” April 3, 2007 — New York, NY