Looking beyond a will: Estate planning as end-of-life planning

Estate planning is a lot bigger than just the financial aspects of the estate. It includes family, feelings, values and goals. I like to call it end-of-life planning, instead of merely estate planning.

We guide our clients to plan for a good retirement, and we should also be doing this for the broader end-of-life discussion. The question this article hopes to address: What is the process for your end-of-life planning with clients, and are you keeping up to date with proposed legislation that could affect it?

Good end-of-life planning encompasses a variety of things, including utilizing goals-based planning, discussing care alternatives, working with families on their values and legacy, updating estate planning documents and keeping abreast of how current or future legislation might impact clients’ estate planning. When it comes to end-of-life planning, it’s also important to know where we’ve been so we can know where we’re going.

IDENTIFY AND PRIORITIZE GOALS

Start the process with goals, knowing that they are always moving. That means financial and estate plans are going to continue to move. They’re living, breathing and changing.

Starting with goals is important because if we don’t know where we want to go, it’s very hard to set a plan. Without goals, we’re just shooting in the dark. Starting with our goals, then prioritizing them, gives us a clear path.

I also try to talk to advisers and clients about the different types of goals we can have. There should be a focus on personal financial and family goals. For instance, you might have an investing or spending goal. But you also might have a goal to instill certain values in your children or grandchildren. Both of these are relevant when it comes to end-of-life planning.

There are different aspects to identifying and prioritizing goals, including the following:

• Involving the family. I think we should involve the family much sooner than others might think. In some situations, this means involving them as part of the planning process; in other cases, the goal might be to not include them in conversations because of the lack of trust. We need to talk though with clients what their goals are in regards to their family. This can also include a conversation about values, charity and legacy — which could take place in a broader, family planning-style meeting.

• Financial assessment. We’re really tying the goals to the family and outcomes, not to the money. The money and cash flow parts come later. We also know our finances in retirement and toward the end of life impact our ability to accomplish our goals and live our preferred lifestyle. For many, reducing taxes and leaving a specific bequest are also important goals.
• Review housing and care alternatives. These two are crucial. Where do we want to live? How do we want to live? How are we going to fund that care? Both of these topics don’t get enough attention, but are so crucial to living a good end of life. The house is typically an American’s largest asset and liability. Long-term care can also deplete a retirement nest egg quickly, leaving legacy plans in shambles.
• Review the current plan. Setting goals before we get to the current plan is good, because I don’t know if the current plan works unless I understand the goals. Remember, everyone has a current plan — it just might not be a good one.
• Establish advance directives. This step includes setting up wills, trusts, power of attorney documents, living wills and more.
• Implement a plan. What do we need to do to move the plan forward? This could involve retitling assets and funding trusts, converting assets from an IRA to a Roth, or buying additional insurance.
• Communicate the plan. Communicate the plan to agents and family members. This depends again on desired outcomes. Some plans are held more closely, and others shared more broadly. Also, each aspect of the plan might not be communicated in the same way to everyone. For instance, a doctor might be included in some of the planning, but need not know of charitable giving or legacy bequests.
• Distribute documents. Distribute relevant documents to those agents. This could be to financial advisers, hospitals, attorneys, tax professionals, trustees or family members, depending on the complexity and depth of the planning.
• Update and review as changes occur. I changed my estate planning and amount of life insurance when we had our first kid. We changed it again when we had our third kid. Our plan wasn’t the same and the risks were different. Did you get married? Buy a new home? Move to a different state? All of these are changes that could impact our planning. Even the goals we start with will change. If I get pushback on goal-based planning, it’s often because someone tells me that goals will change, so you can’t set a plan for them. Of course goals will change — plans are not static, nor is life. We must look to the future with the certainty of today, but with the unknown of tomorrow in sight.

GET UPDATED

I ran into somebody recently who said, “I have a trust, but I don’t have a will.” This person had minor children.

I told them they needed the will because there are things that could fall through the cracks if a will isn’t in place, creating challenges. Having a will in place is especially important if you have minor children to protect a plan for.

This person isn’t alone in not having a will. A recent survey from Caring.com found that while the number of young adults with a will in place has increased 63% since 2020, the overall percentage of American adults with a will remains steady at around 67% — despite the COVID-19 pandemic.

This is something we have to watch out for. Know that even though it’s our last will and testament, it’s not really the last — we’re going to make updates and modifications.

KEEPING UP WITH THE CHANGES

Estate planning is constantly evolving. As we look at all that’s going on right now, things aren’t as straightforward as they were five years ago. We had a good 30-year period where estate planning got stagnant and wasn’t changing much.

But 2019, 2020 and the impact of COVID-19 changed the way people view estate planning and drove some action. People went out and got updated estate planning documents because people they knew were passing away during the pandemic.

There was also a big impact on nursing homes and end-of-life care decisions, because COVID-19 hit especially hard in nursing homes, leading to high numbers of deaths. The end-of-life care conversation changed because people are now more reluctant to go to nursing homes.

Another factor to consider is the digitalization of the world, which accelerated during the pandemic. I think we realized we weren’t ready for all of it. We have Zoom fatigue, webinar fatigue, digital event fatigue — people are burned out. They don’t want to do it anymore.

Think about all the things that have moved to a digital world — buying your groceries, Uber Eats and other food delivery. Along with this is the digitization of assets — cryptocurrency, NFTs and even art. The rules around these are vastly different than those around traditional assets.

Read up on digital estate planning, and make sure documents are updated to reflect the changes in law under the Revised Uniform Fiduciary Access to Digital Assets Act, which has been adopted and passed into law, in some form, in almost every state in the past five or so years.

Lack of estate planning in general is where we’re coming from. Where we’re going is to a world of proposed tax changes, capital gains increases, changes to step-up in basis rules and forced recognition of gains upon certain events that we haven’t in the past.

Legislation in recent years has changed things. The Tax Cuts and Jobs Act in 2017 doubled the lifetime exemption amount, allowing couples to transfer $23.4 million without paying estate or gift taxes. With potential changes coming under the Biden administration, some people will want to maximize this exemption and make large lifetime gifts in the near future.

We’re still in the proposals phase from multiple parties, and these aren’t full policies yet. There’s still a lot to be discussed, but the expectation is that the current administration and Democrats in Congress are going to try to get something done by the end of the year.

Some of the potential proposals we’re keeping our eye on: the American Families Plan Act and the 99.5 Percent Act. These are separate ideas, but there are some commonalities and themes, as both could upend current estate plans substantially.

That brings us to what we can get done, and what goes into that. At the end of the day, we don’t know yet. We’re just trying to keep ourselves aware of the knowledge as best as we can and keep our eye on the moving target so we and our clients are not totally shocked when something happens.

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Jamie Hopkins is director of retirement research for Carson Group and managing director of Carson Coaching.