What (exactly) Is “holistic” Estate Planning?: (PART 1)

May 31, 2016
I am often asked, encouraged, or dared to define what “holistic” estate planning is? Why? I attribute it (in not-so-equal parts) to the advent of LegalZoom, public naivete’, and poor marketing by estate planners, to name a few.

LegalZoom offers the ability to create your own legal documents online, with the creation of a Will being one of the front-page offerings. The Wills and Trusts offering features bundles for Wills and associated documents and includes a 30-minute phone consultation with a LegalZoom-provided attorney starting at $149 and a similar bundle for Living Trusts starting at $299. Essentially, what you get is an attorney’s recommendation, based on information you’ve provided, as to which bundle you need (Will or Living Trust) and, based on the bundle you choose, an associated set of documents.

More often than not, during an initial contact with a potential client, I hear them say, “I need a Will” or “I need a Trust, can you help me and what will it cost? . . . because I don’t want to pay a lot. After all, I can get one on LegalZoom for $299!“ When I ask them why they need a Will or a Trust, a common response is, “my brother-in-law says he has a Trust and I need one too.” The truth is, you might need a Will, you might need Trust (which should come along with a Will with a pour-over provision), and you might not “need” either. And, everyone should have powers of attorney for financial and healthcare decisions (the “associated” documents). But, regardless of what mix of documentation is required, EVERYONE SHOULD HAVE A “PLAN.”

In some cases, that “plan” might be “no plan,” but, if you have minor children; special needs children; are facing a long-term care situation; have a home, life insurance, money in the bank, a retirement account, a pension, or any other assets to speak of; or, you simply have another loved one that must be cared for once you’re gone (or incapacitated); you should probably have a plan that includes, at a minimum, a will and powers of attorney, and, maybe, a trust. That plan should protect and maximize assets (including your health, relationships, property, and finances) and should not be created without the input of key advisors—including an estate planning attorney, a financial advisor, a Certified Public Accountant, and an insurance agent. And, in some cases, other professionals (i.e. business, divorce, or disability attorneys and, oftentimes, physicians) may be required contributors to effectively create a holistic approach—one that covers as many contingencies as possible while minimizing uncertainty and properly managing risks.

In Part 1, let’s look at a fairly common family scenario.

Sarah is a divorced mother of two young children, a 14-year old son, Adam, and a 12-year old daughter, Zoe. Sarah makes $55,000 annually as a registered nurse working at the local hospital and receives $850 per month in child support. After the divorce, she decided to stay in the family home to minimize disruption for the children.

Unfortunately, Adam has never been the same since the divorce. His grades have suffered, he has already had some run-ins with school administrators and, more recently, with police. He struggles with anger issues, has threatened suicide, and has a penchant for destroying property. Sarah suspects that he may already be sexually active and experimenting with alcohol and/or drugs. He is currently in counseling.

Zoe, on the other hand, has shown signs of being a gifted student and excels in both school and on the soccer field. She is the leading scorer on her local travel team. She dreams of one day going to Stanford to play soccer while pursuing her dream of becoming the researcher who solves many of the mysteries associated with adolescent suicide. Her coaches say she is a “good” soccer player at this stage, but probably not skilled enough to warrant a Division 1 scholarship offer. She might, however, be a good enough student to warrant at least a partial academic scholarship at a school like Stanford.

Sarah covers the children on her medical and dental plan at work, she has a $55,000 life insurance policy through work, a disability policy pays that 2/3 of her income in the event she is disabled, a 401(k) plan worth roughly $75,000, and has religiously put the $850 per month in a savings account at the bank for the kids’ college (current balance = $42,500). She has insurance on the home and the car, but has no personal liability insurance. And, if she lost her job, or went to part-time, she would lose her life and disability insurance and would have to contribute more to cover the cost of her medical and dental benefits.

Sarah is concerned about Adam’s behaviors, wonders if she should work less and spend more time with him, but wants to make sure she provides for at least a sizable portion of college costs for both kids. She is also worried that Adam might do something really bad and cause some serious damage to himself, another, or to some property. She is also concerned because, if something happened to her, the kids’ alcoholic dad is the last person she would want to care for them.

There are several issues that “holistic” estate planning can address for Sarah. Generally, an initial consultation with Sarah will help her to identify her goals-- providing for the kids’ welfare in the event she passes away (or is disabled for that matter) while also providing for their education—evaluate her current family and financial situation and what options are currently available, based on that information, to help her meet her goals. From there, a team of professionals can be assembled to work with Sarah toward her goals.

First, a financial planner and an attorney provide guidance to Sarah in maximizing the money she has set aside for the children’s education. A savings account is probably not the best option. Next, they might be able to give some guidance and counsel as to how she might lessen her workload to spend more time with Adam by petitioning for more child support and structuring her finances a bit differently. The financial planner might also suggest purchasing some non-term life insurance with a long-term care rider that will provide for the children in the event of her death or disability.

Second, a savvy property and casualty insurance agent might suggest that Sarah review her home, auto, and personal liability needs to make sure she has the appropriate coverage; particularly, in regard to liability, as parents can be held financially liable for the deeds of their children.

Third, the attorney should discuss the amount of control Sarah would like to have over any funds that pass to her children after her death. If she is concerned about who might have access to the funds and when, she might consider employing a revocable living trust. The attorney should also look at passing some assets, maybe the home or the 401(k), outside of the trust while still avoiding probate to take advantage of some benefits that might be available by doing so. And, as part of her estate plan, Sarah can nominate a guardian and a conservator (or trustee) to look after the welfare of the children until they reach the age of majority (and maybe beyond).

Fourth, consultation with Adam’s health care providers might shed some light on what his current issues are and the types of resources, including more time spent with his mother, will be needed to help address them.

Finally, a Certified Public Accountant should be consulted to identify any potential tax issues and to prepare any needed tax returns should the plan necessitate them.

The primary objective should be to involve all of the potential moving parts to ensure that the plan operates as closely to Sarah’s wishes (within the boundaries of the law, of course) while Sarah is alive, if she becomes disabled, and upon her death. All the while, the plan should act to protect and maximize her assets while also building in a buffer for life’s unexpected events.

Remember, We’re in this together . . . your family and ours!