There have been lots of articles, books, white papers, etc. written on the merits of planning. Whether it be planning for taxes, debt reduction, retirement, or a vacation, planning is key to a positive experience or outcome. Nothing new here. But what about the unexpected? Planning for risk, or unexpected outcomes, is a critical piece of one’s overall financial plan.
I listened to a teleconference about estate planning yesterday (August 21st). It focused on planning for married couples who reside in non-community property states – of which there are only nine. I was interested on behalf of a high net worth client that lives in one of those states, and, while I gained valuable information to discuss with their estate planning attorney, my primary take-away from the teleconference was learning about yet another layer of complexity in the estate planning world.
Estate planning is important regardless of one’s net worth. Sure, the more you have, the more complex the plan, but to folks with modest means as well as the very wealthy, the disposition of assets according to one’s wishes is an extremely important and personal concern. It might be a collection of stamps or comic books, an old car, a savings bond, or a large portfolio of stocks or real property, it is all wealth to those leaving it behind, and “wealth transfer” is an important component of estate and financial planning for everyone.
The folks who presented the teleconference are in an elite group of estate planning attorneys who teach other estate planning attorneys how to do good work for their clients. They would be overkill for most people but can clearly add value to those with potentially taxable estates above $5,000,000 or more. There are tons of attorneys fully capable of drafting wills for the people with the stamp collection or old car so they can avoid probate (a very frustrating and time-consuming process in which the court oversees the disposition of assets) and get those personal items to the intended recipients.
Let’s talk about the process. First, take an inventory of all your assets and decide who gets what. Next, have a will drafted to ensure that your wishes are carried out. For higher net worth folks, the estate plan will involve sophisticated tax planning. More on that next time… If you have young children, caretakers need to be identified to raise them while someone else might be identified as a trustee to oversee the management of their assets. Adult children and other heirs should be told about your intentions and the scope of wealth to be transferred to them or others. A family meeting is a good forum for this. Christmas dinner? Not so much… You don’t want to ambush people. More importantly, you don’t want to leave family or other heirs with surprises, mysteries to solve, or potential for conflicts. You would not believe the heated arguments siblings will have over a favorite chair, tea service, brooch or other collectible, regardless of its value. If conflicts are anticipated, or you don’t feel comfortable having the discussion in the first place, consult with someone skilled in such matters. Good wealth advisors will know of specialists that can help families discuss their wealth and avoid conflicts before they occur.
For all the excellent planning one can put in place, surprises or even disasters will most likely present themselves. With investment and retirement planning, there can be events like the great recession or a death that are real deal changers, or, less critical challenges such as a flood in one’s office, a car accident, the loss of a great staff member and so on. In between, there can be illness or disability, bad business decisions, or wacky family members that create stress. Planning for catastrophes or other unexpected challenges is “asset protection” – another important component of financial and estate planning. For dentists, asset protection, or risk management, will include malpractice insurance along with all the other insurances a solo business owner/breadwinner needs like life, disability, health, property & casualty, workers’ compensation, employment practices & liability (EPLI), and an umbrella policy along with homeowners’ and auto, etc. Dentists might also protect themselves with a corporation and a disability/death group to keep the practice viable until a buyer is found. I like families to have a list of who’s who (your professional advisors) so that the appropriate person(s) can be contacted about a death or disability thereby minimizing the amount of time it will take to put certain wheels in motion; primarily, the disposition of the practice which can go down in value each day it does not have an owner. Shock, grief and bewilderment are not emotions that enable one to make sound and expeditious business decisions, especially concerning something as complex as the sale of a dental practice. A spouse or child should not be expected to do anything but make the initial call to their dental wealth advisor who, as the leader of their group of professional advisors, will work on their behalf to ensure that the practice transfer is facilitated along with all the other important matters that require immediate attention during such a difficult time. While you won’t be able to anticipate every bump in the road, by working with the right advisors who speak “dentist” most of the obstacles a dental family will face can be anticipated and planned for.