Few would argue with the idea that hiring a financial professional to assist with your financial plan and an attorney to draw up your estate plan is a wise move.
Each professional brings specific expertise to those undertakings, knowing the best practices for achieving your goals.
But even then, pitfalls await the unwary.
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All that precise planning could collapse if no efforts are made to integrate the estate plan with the financial plan, ensuring that the two work as one.
Unfortunately, in many instances, the financial professional who works on the financial plan and the attorney who puts together the estate plan don’t communicate.
That’s when the trouble begins — trouble that might not be noticed until you’re gone and your beneficiaries are left to untangle, if they can, the untidy state of affairs left behind.
Thinking ahead and making sure those responsible for preparing the two plans are talking goes a long way toward avoiding potential problems down the line.
Failing to properly fund a trust
When the financial plan and estate plan aren’t integrated, things can go awry in a number of ways.
Here’s one example involving a revocable trust, the purpose of which is to establish a controlled distribution of your assets to your heirs. Essentially, the trust helps ensure the right heir receives the right asset at the right time.
This comes in handy when you worry that someone might mismanage — or squander — what you bequeathed if they receive it in one large lump sum.
In that case, through the trust, you could arrange for them to receive their bequest in 25% increments, spread out over a certain number of years (or however you think best to handle the situation).
But if the trust’s distribution plan isn’t funded properly, all your plans could become meaningless. When a revocable trust is properly funded, the assets are typically transferred through beneficiary designations on investment accounts.
Clearly, you don’t want something to fall through the cracks. That’s why having your financial professional involved in the process, working in tandem with an attorney, can help make sure that all the assets are accounted for — a critical factor for having the trust work as intended.
Financial power of attorney
It’s also important to designate a financial power of attorney to ensure that someone can handle your financial matters if you’re still alive but have become incapacitated. This way, your financial and business affairs can still be managed.
Integration also plays a role here. Sometimes the power of attorney is not broad enough, and the designated agent doesn’t have the full authority to make the decisions they need to.
Usually, it’s best for the powers of attorney to be written broadly, but with safeguards in place to prevent the designated person from taking advantage of the client.
For example, an incapacitation trigger can be put in place so the agent isn’t vested with authority until the client is incapacitated, with proof of incapacitation.
It’s also important to choose a trustworthy person who’ll see that the game plan is executed properly.
Two sets of professional eyes
A financial professional and an attorney both provide important services, but they can be even more effective when they work together. Each brings professional knowledge and experience to the collaboration.
One might spot an opportunity that the other would miss, or one could notice a problem that the other might have missed. It’s two sets of professional eyes and two sets of expertise looking out for you.
You, in turn, will benefit by having a financial plan and an estate plan that are integrated, helping to ensure that taxes are minimized, all assets are accounted for, and your wishes are carried out when you are gone.
Ronnie Blair contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
