The Estate Tax Law Does Not Change the Three S’s of Basic Needs

INSURANCE PLANNERS must not lose sight of the fact that estate planning isn’t just about the new $5 million exemption and, for that matter, isn’t just about taxes. Everyone needs to take adequate steps for their future because everyone—or almost everyone—has three things for which provision must be made. Think of the three S’s: Self, Stuff and Survivors.

Clients must consider what will happen if they should for any reason become unable to handle their own affairs or to make decisions related to their personal care. In addition they must consider, under those circumstances or upon their deaths, who will manage or distribute their property and see that provision is made for any dependents.

If You Don’t Plan, It Will Be Done for You

“Nature abhors a vacuum.” So does the state. And every state in the union has passed legislation containing guidelines and procedures to do your planning for you when you can’t or won’t. Following is a short description of those actions that can be taken on your behalf if you do nothing. Terminology, and certainly the specifics, of each will vary from jurisdiction to jurisdiction.

  • Your Self – If you become legally incompetent without someone to handle your affairs or make your personal decisions, then conservatorship proceedings can be initiated on your behalf, wherein a person is appointed who has the legal right to make those choices.
  • Your Stuff – If you die without leaving directions, the state’s intestacy laws will govern who receives the property in your probate estate.
  • Your Survivors – When you die, most states will hold hearings to determine who will have authority over the person and/or property of minors or other dependents for whom you were the guardian. If the minors are children of your marriage, the hearings occur after the death of the remaining spouse

The Three Basic Building Blocks

The laws in each state also provide that in order for people to take their affairs into their own hands, certain written instruments must be put in place that fulfill statutory requirements regarding such things as con-tent and execution procedures. Most allow for three different types of documents that together allow people to make arrangements for self, stuff and survivors reflecting their own personal preferences and desires.

1.      Power of Attorney – An attorney-at-law is someone who is licensed to act on your behalf in legal proceedings. An attorney-in-fact is someone you have given authority to act on your behalf as spelled out in a written power of attorney. Traditional powers of attorney could only grant power to perform acts that the principal could legally perform. This rendered the document useless if the principal became legally incompetent—a time when he or she probably needed an attorney-in-fact the most. To remedy this, most states allowed for execution of a “ durable” power of attorney. This allowed for powers to survive the incompetence of the principal until a time or event stated in the document. If the principal does not want the power to take effect until the time of legal incompetence, or some other triggering event, then a “springing” durable power of attorney can be used. Powers granted are generally very broad and inclusive, but can also be very particular, even to naming just one or two specific acts.  

2.     Health Proxy – Granting an agent the right to make health care decisions for a principal can be done in a document that goes under different names in different states, e.g., health care directive, living will, or durable power of attorney for health care. While most statutes allow for giving broad discretion to an agent about how much or how little health care to proscribe, including matters of nutrition and hydration, the laws stop short of allow-ing an agent to assist in euthanasia or suicide.

3.     Last Will and Testament – As the most common of all planning documents, a will is used by the maker, or testator, to direct the distribution of property at death. Additional important functions include the appointment of an executor to manage the estate and expressing preferences for the guardian of minor children to be considered by the court in guardianship proceedings. It is important to remember that a will does not take effect until the testator has died. Changes can be made at any time, and property that might eventually be governed by the will can be used in any manner the testator chooses during life. As one comic reminded us, “A will is a dead giveaway.”

Jack of All Trades, Master of One

An insurance agent is put in the legally tenuous position of having available for a client the products necessary to man-age the risk associated with most of the life events that the three basic planning documents address. However, the agent is not permitted to practice the craft associated with counseling a client concerning the execution and maintenance of a power of attorney, a health proxy or a will. At best, an agent should describe the purpose of these planning devices and encourage the client to seek an attorney to discuss implementing all three. If the client has executed documents that have not been reviewed recently, the agent should suggest that an attorney be revisited and the documents reviewed. In fact, in situations where a product is sold, the agent should direct the client to an attorney because coverage has been placed that will almost unavoidably have an effect on the directives in those documents.

In addition to the laws pertaining to these documents, agents should also be acquainted with such things as their jurisdiction’s intestacy law, any domes-tic partners law and, if applicable, the community property law.

Insurance agents are often the most centrally located advisor in all matters relating to a client’s estate plan, and they are usually the ones who have contact most frequently and are most aware of changes in the client’s life circumstances. Consequently, it is often more important than with other advisors that they have some understanding of these areas.

Concern for and a level of competency in the broad range of issues that affect your client’s full planning needs will quickly distinguish you from agents who simply make product recommendations—and will lead you more quickly and accurately to those needs where appropriate product recommendations should be made.

Tom Virkler, JD, CLU, is director of CPS Advanced Markets, where he assists brokers, as well as other professional advisors.

Comments are closed.

%d bloggers like this: