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Approaching the Conversation of Money Management With an Elderly Parent

We often find ourselves advising adult children of the elderly on the intricacies of managing their parents’ finances. While it may seem straightforward at first, there are a lot of details and difficulties that can get in the way. There are so many things to coordinate, and often the parent is less than helpful in the process.Being somewhat prepared and having access to an estate lawyer in are two of the ways you can help avoid some of the more common pitfalls, such as:

Memory Loss –Memory loss is prevalent among the elderly, and it’s actually one of the big reasons that adult children are called in to take over finances. Unfortunately, it also makes the job that much more difficult because the parent isn’t able to answer important questions such as “How much do owe?” or “When is this bill due?”

Role Reversal –For the majority of the adult child’s life, the parent has been in charge. Taking over and being firm with the parent can be more than a little uncomfortable. On top of that, it can be frustrating and cause resentment to see the person who taught you so much no longer following their own advice

Lack of Information –Your parent may have chosen to be forthcoming about finances with a lawyer, but photothat doesn’t mean that they want to let their children in on all the financial details of their life. Previous generations found it improper to discuss money, resulting in an air of secrecy that can be difficult to break through.

So, how should you deal with these obstacles?

As with so many other aspects of life, the best way to deal with problems is to avoid them altogether. The earlier you and your parent start meeting with an attorney that you trust, the more likely you are to get the information you need. As an added bonus, your parent will have the ability to make his or her wishes known in order to offer guidance on how to handle their affairs if and when all of the responsibility is passed on to you.No matter what stage the parent is at, the subject needs to be approached. Again, earlier is better, as the parent is more likely to understand the importance of what is happening. You may choose to start the conversation by relating it to your own estate planning or by bringing up a situation you heard about recently, such as the death of a celebrity.

 

NewlyWeds, Nuptials, and the Uncomfortable Conversation of Estate Planning

Along with the birth of a child and the death of a spouse, marriages are perhaps one of the most important life events that should trigger a reappraisal (or the establishment) of one’s estate plan. Bearing in mind that annual marriage rates have been steadily increasing since the 2008 recession (albeit slowly), one would expect to find a concurrent increase in the estate planning market.

However, this doesn’t appear to be the case, since only 4 in 10 adults currently have an estate plan. The key to invigorating the lackluster uptake in this avenue of law is understanding the demographic that estate planners are serving. Here’s what current data says about newlyweds:

Annual marriage rates are slowly increasing. Marriage stats are slowly going up since the 2008 recession. Today, there are about 6,200 weddings a day (or 2.3 million annually nationwide).

Newlyweds are a diverse demographic. More marriages today contain interracial couples, international marriages, and same-sex couples than ever before. Today, 1 in 6 couples are marrying someone of a different race or ethnicity. Since the Supreme Court ruling on Obergefell v. Hodges, same-sex marriage rates have increased by 38%.

Age variations. The average age of a today’s bride is 25 (for grooms it’s 27). However, older couples do make up a large part of this demographic: 1 out of 3 couples getting married have already been married before.

Marriage and Money. Over $72 billion is spent annually in the wedding industry. Foregoing traditional funding, couples are no longer relying solely on the father of the bride to foot the wedding bill. Instead, many couples are financing some, if not all, of the wedding themselves.

These statistics are good news for estate planners. An uptick on the overall population means there is plenty of opportunity for business. With a diverse demographic, estate planners can minimize local competition by finding their own unique niche (blended family planning, same-sex couples, remarriages and asset protection, etc.) to work in. And while affordability has always been a concern, especially for younger generations, it’s clear from these statistics that if newlyweds are apt to spend a considerable amount of money on their weddings and honeymoons, then they do have the capital to invest in an estate plan.

So why do so few newlyweds make estate planning a priority? For younger couples, it could be because estate planning has always been an activity synonymous with old age. Or, they might labor under the misconception that estate planning is only for wealthier individuals. Most certainly, we can assume it’s a low priority because many couples are not too excited (or comfortable) to have what is considered to be a morbid discussion about end of life planning amidst a joyous time in their lives.

The art of having the estate planning conversation

While attorneys can alleviate some of the misconceptions around estate planning by educating potential clients (no, it’s not just for the wealthy or elderly), the inherent morbidity that surrounds this topic is difficult to overcome.

As estate planning is often considered a morose topic, it can be especially difficult to discuss with clients who are going through an acutely happy time in their life. Regardless of what type of newlywed client you may have, putting them at ease and encouraging open lines of communication are the keys to not only the creation of a thoroughly researched plan (and avoidance of a malpractice suit), but also the retention of satisfied clients who will hopefully become your business’ advocate, as well as a source of repeat business.

The client interview becomes the most important aspect of the estate planning process. Contrary to what some may think, apart from collecting the facts surrounding a client’s estate, equally important is ascertaining the client’s feelings regarding their hopes, worries and goals surrounding their estate plan. To do this takes tact and sensitivity on the attorney’s part.

Making clients feel at ease. Estate planning conversations from the client’s perspective can be tough. They must confront their own mortality and divulge very personal details about their life to a stranger. Should a client be reluctant to discuss any financial or personal details with their estate planner, missing or incomplete information can seriously undermine your estate planning strategy. Thus, making a client feel comfortable and establishing open lines of communication are integral to any well thought out and thorough estate plan.

Be vulnerable. Come down from your professional tower and show clients your humanity. You are asking them to be very vulnerable, so be vulnerable yourself. While this may be work for you, for the client it’s utterly personal. Don’t be afraid to sympathize with and actively listen to your clients. Without derailing the interview, relate to their situation with a short story of your own.

Ask the hard questions. Once you feel like trust has been established, drive it home by showing your clients you really care by asking them the hard questions. Deciphering problematic family relationships is an important part of protecting clients from contentious family battles during the probate process.

Estate planning tools to consider when working with a newlywed (or soon-to-be) couple

Helping couples manage and protect their assets should be every estate planner’s bread and butter. However, what tools you should use are completely dependant upon the couple in question—the extent and complexity of their estate; will they be creating a blended family or not; is it their first time getting married or a second marriage later in life; do they want to commingle their assets or keep them separate; and what estate plan best shields their estate from federal and state taxes? With these questions in mind, below are a few estate planning tools to consider offering your newly and soon-to-be wed clients.

Separate vs. joint trusts

One estate planning tool to consider offering to your newlywed clients would either be a joint or separate trust. However, deciding between the two trust types has been a conundrum within the estate planning community for a long time. While many attorneys swear by one trust over the other, there are many factors—such as, the state in which the couple resides, the value of their marital estate, and the couple’s relationship itself—that contribute to the decision of which trust is more suitable for married clients.

Historically, joint trusts have been popular among married couples due to their cheaper start-up costs, ease of management, and their reflection of the traditional view of a marital estate as a singular unit. However, separate trusts have some great (and often superior) benefits for a married couple in regards to asset protection, management flexibility, and cost savings after the death of the first spouse.

Asset protection

Generally, separate trusts are superior in their ability to protect a client’s assets from creditors. Depending on state law, separating the marital estate into two separate trusts may insulate the assets of one spouse from any financial risk brought on by, or actions taken against the other spouse. Since the innocent spouse’s assets are in a separate trust, they may be out of reach from his or her spouse’s creditors. This is in contrast to a joint trust where all marital assets are located in one trust, making all assets vulnerable to creditors, if a judgment over either spouse is obtained.

Trust administration and flexibility

Each trust has strengths and weaknesses when it comes to trust administration and flexibility over the course of a couple’s life and death. Joint trusts tend to be easier to management during a couple’s lifetime. Since all assets are rolled into one trust, trust management would be very similar to pre-trust ownership, in that both spouses control their separate assets in the trust and have equal say in the management of the joint assets held by the trust. Since each spouse, however, has the right to revoke the trust as to his or her separate property or trust share, this may not be a safe solution if there exists any volatility between spouses.

Separate trusts on the other hand provide more flexibility in the event of the first spouse’s death because the trust property is already divided when the trust is funded. Separate trusts preserve the surviving spouse’s ability to amend or revoke the assets held in the surviving spouse’s trust.

Separate trusts also allow each spouse to designate exactly what they would like done with their assets—who inherits what, if they would like to provide for their surviving spouse—all while protecting their assets from being inherited by new children from another marriage (should their spouse ever remarry).

Separate trusts may be a more suitable option for: couples getting remarried who may differ in their beneficiary designations; couples who own individual property prior to the marriage; couples who expect to receive an individual inheritance that they would like to keep separate; and common law marriages and couples who have already signed a prenup agreement.

Joint trusts may be a more suitable option for: first marriages that have the same beneficiaries, the same distribution patterns, and the same trustee; and for couples who wish to keep their marital estate as a singular unit.

Domestic Asset Protection Trusts (DAPT) vs prenups

While part of an estate planner’s job is to help a newlywed couple build a unified legacy, it is also incumbent upon attorneys to make sure clients are prepared for the worst. The dreaded D word—divorce, while not a romantic notion to discuss with a newlywed client (or soon-to-be newlywed), it is still a statistical certainty for almost half of your married clients, and more than 60% of clients on their second and third marriages.

When it comes to protecting an individual’s assets from the financial ravages
of divorce, prenups have long held the spotlight. However, prenups often come with unwanted emotional side effects for the party being asked to sign. The spouse on the receiving end of a prenup discussion often feels as if their spouse does not trust them or is already preparing for the worst (divorce), before even tying the knot. DAPTs are a good option for clients that are uncomfortable with having the prenup discussion with their spouse. However, that’s not the only reason to consider using them.

Contestation

When relationships sour during divorce proceedings, prenups can be susceptible to legal challenges by an upset spouse. A judge may even invalidate the agreement if they find any reason to suspect that the document was signed under duress, if it is found to be financially unfair, or if a prenup is executed too close to the wedding ceremony.

DAPTs are much less likely to be challenged in a court of law, so long as the funding of the trust does not violate the applicable fraudulent transfer laws.

Functionality and Criteria

DAPTs function similarly to prenup agreements, in that the assets transferred to the trust are protected against future creditors and from equitable division of assets in divorce proceedings. To be an effective tool, they must be created and funded prior to getting married. Yet, unlike a prenup, the creator or beneficiary (which can be the same person) is not required to disclose the DAPT or its assets to their future spouse.

To be considered valid, a DAPT must meet certain criteria:

  • „  Must be irrevocable;
  • „  Should appoint a trustee (or trustees) with the discretion to administer the trust;
  • „  Must appoint a trustee, whether corporate or individual, that is a qualified trustee of the jurisdiction in which the trust is formed; and
  • „  Must contain a spendthrift clause, which restricts the transferability of a beneficiary’s interests in the trust property.

 

DAPTs can also be used in conjunction with a prenup to form a stronger asset protection plan. And clients with “high-risk” assets, such as real estate holdings, can combine their DAPT with underlying entity structures, like a limited liability company. The individual would in turn have the LLC membership interests owned by the DAPT, while also adding additional protections against any creditors or divorcing spouses.

 

Estate Planning Checklist for Newlyweds

This checklist may be used by an estate planning attorney or can be replicated to be given to newlywed clients as an estate planning to-do list.

  • Last Will and Testament

„ Add your spouse as a beneficiary
„ Nominate your spouse as the executor of your estate (optional)
„ Ensure children from any prior marriage are taken care of
„ Include marital deduction options to minimize estate tax potential

  • Insurance Policies

„ Designate your spouse as the primary beneficiary of your life insuranceRetirement Assets

„ Designate your spouse as the primary beneficiary of your 401(k) plans, IRAs, 403(b) plans, and other retirement assets

  • Financial Assets

„ Update your durable financial power of attorney to name your spouse as agent

  • Medical Directives

Newlyweds, Nuptials, and the Uncomfortable Conversation of Estate Planning

„ Update your health care directive to name your spouse as your health care agent

„ Add your spouse to your HIPAA Authorization

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