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Advanced Estate Planning :: Advisory Services :: THE RETIREMENT SOURCE®
Advanced Estate Planning

Personal Values-Based Estate Planning

Estate planning is a term that conjures up the image of the two unpleasant inevitables: Death and Taxes. So most people prefer to avoid thinking about it and wind up with less than optimal plans. We prefer to think of it in more positive terms: Succession and Legacy planning, which we call Personal Values-Based Estate Planning.

The reality is that every person has an estate plan whether they have taken any action or not.

Advanced Estate Planning

Every state in the union has laws called “intestacy laws” that govern the transfer of a person's property upon death. In the absence of a will or any other valid transfer device, intestacy laws are implemented. While these laws are effective, they are slow, expensive and unlikely to bear any resemblance to what the deceased would have wanted.

In a survey reported in the September 2005 issue of Registered Rep Magazine of people with liquid assets exceeding $1 million, two-thirds said they have an estate plan of some kind. Only 11% said that it was current, 35% said it was three to five years old and nearly 40% said it was six to ten years old. Considering the incredible number of recent and pending changes and in the estate and tax laws, most experts would agree these plans are dangerously out of date.

In fact the first observation of this survey is that perhaps one third of the participants, even though they have assets in excess of $1 million, do not have a personal estate plan. The second observation is that, based on this survey, it is fair to assume that most people's current plans would not help them to achieve what is truly most important to them. This confirms my personal observation from reviewing many estate plans that most people take a once-and-done approach that ignores many important issues that may arise during their lifetime.

What Is Really Important to You?

That should be the only question that really matters when you are considering an estate plan. Unfortunately most of the planning that is done is upside down. That means people tend to start with the desire to avoid estate taxes and an assumption of the documents that might be needed. These are certainly not unimportant considerations, but this standard estate planning approach frequently leads to estate plans that may not accomplish what you really intended. We cannot blame the attorneys who draft these plans for this result because they are only translating what you say you want into documents.

That is the primary difference in Personal Values-Based Estate Planning. The process begins by concentrating on what you want the ultimate outcome to be under various circumstances recognizing that it is a multi-generational plan. As Stephen Covey said in his book 7 Habits of Highly Effective People, "Begin with the end in mind". The end we have in mind is to define as clearly as possible exactly what you would like to have under control at each stage of your plan, then to get your attorney to help you make it effective.

When we asked dozens of clients and seminar attendees what was really important to them, we received the same reply from nearly every person regardless of background or financial standing:

“I just want to be sure I will be able to sustain my family’s living standard as long as I live and if I am unable to take care of myself, somebody will do it for me the way I would want it done and when I am gone, I want to make sure my loved ones are taken care of and that all my stuff passes on the way I want it done in the smoothest, simplest and least costly way.”

As this statement suggests, real-life (right side up) estate planning has three distinct aspects: the here and now, your later life and your ultimate estate distribution. Most of the estate plans we have reviewed on initial consultation with new clients have been focused on avoiding taxes on post-death distributions. Very few have adequately covered important quality of life issues for their current situation, later life or personal values.

When we shift our focus to the important personal values embodied in quality of life, the planning process becomes far better because we have an absolute way of gauging success. Thus, when the quality of life issues are understood, the dollar-related issues suddenly become easier to resolve.

Keep in mind that all estate planning is complex — there are thousands of laws that vary from state to state and millions of court cases. All the ideas discussed in this article have been greatly simplified and should be considered as merely introductory. We are neither attorneys nor CPAs. Our job is to help you clearly define your personal values-based goals, identify potential problem areas, project your potential future financial status and to recommend strategies for your legal and tax advisors to consider. We believe that we can add a lot of value by doing the work that most other advisors do not do, but we leave the execution of these strategies to these experts.

What You Need Right Now

To most people independence means control. The worst consequences of not making a proper estate plan have nothing to do with taxes. Rather they deal with how well a person or the family can control his or her finances. The test of this control comes under adverse circumstances. When disaster strikes, it is usually too late to plan.

This is arguably one of the most important aspects of estate planning and one of the most neglected.

There are several situations in which you may not be able to handle all of your affairs for yourself. The probability of encountering these situations increases as you get older. Some of these are physical injury, disability, incapacity, dementia and just plain lack of knowledge regarding new issues. Your best defense is to use a combination of Advance Directives and Planned Succession Management. We define “advance directives” in a much broader way than the legal and medical communities. We use Advance Directives to mean any documented strategy written in advance that will help you to solve any problem before it happens.

It is absolutely crucial to establish in advance Who Can If You Can’t!

That is who can take care of all the important personal business you handle if you are unable to do it. This applies to everything from the mundane issues of who pays the bills and balances the checkbook to the more demanding issues of making investment decisions or running a business. If you do not have these authorizations established prior to the need, it may require legal action. Undefined matters of both person and property are handled by the Probate Court, which is an expensive and time-consuming place to have personal and financial control issues settled. This is true in dealing with both estates and matters of incapacity. Intelligent use of Advance Directives can reduce the emotional and financial burdens in these matters.

Advance Directives

There are two types of Advance Directives, those regarding your finances and those regarding your person. Let’s consider first those issues which affect your person because this is one of the most neglected area and one of the easiest to address. Some Advance Directives that may help avoid disputes regarding your person are:

  • Durable Power of Attorney for Health Care
  • Living Will
  • Guardianship

There are also several advance directives that will help alleviate some of the problems and stress in handling financial matters. Some of these are:

  • Durable Power of Attorney
  • Joint ownership
  • Living trusts

In all of these instances you must involve at least one other person. We recommend using Three-Deep Planning whenever possible. That means having one person appointed with two potential successors named as a backup. A good agent or trustee needs three things:

  • Head for the knowledge required
  • Hands to do the clerical work required
  • Heart to know what you would have them do

Since it is difficult to find one person with all of these qualities, you may want to choose two people to work together. For instance you may have one relative who is not great with technical matters, but understands your wishes. Another relative may be just the opposite. Together they could make a good team.

As with all important documents, you need to review them periodically with your attorney to make sure they stay current with your wishes and that the appointed agents are still available and willing.

There are three ways that property can pass upon death:

  • By Contract – This means that ownership passes by way of a beneficiary designation as in the case of life insurance policies or retirement accounts. 
  • By Law – There are certain survivorship transfers established by statutes such as joint tenancy, pay on death accounts and trust agreements. (Both of the above pass property without going through the Probate Court. This does not mean avoiding state or federal estate taxes. Should the above methods fail for any reason (such as naming someone already deceased), then it does prevent to probate?)
  • By Probate – If you use a Will to pass property, it guarantees a requirement to pass property through the Probate Court. If you do not have a will, any property not transferred by contract or by law will go to probate under the state intestacy statutes. (In other words, if you do not have a will, the state has one for you, but you probably would not like it.) Since probate is about proving ownership and transfers, it is often a slow, costly and public procedure. Many people prefer to use various alternative methods to avoid it. Sometime this creates more problems than it solves. One example is that completion of probate closes out future claims of heirs and creditors; other methods frequently do not bring closure and do leave the estate open to later claims.

A Will is only effective upon death. It is an Advance Directive that allows you to state how you want your property distributed upon your death. It has no role for the living. Use of a Will guarantees property will pass through probate. Despite the tendency of many planners to totally avoid probate, there are certain advantages including clearing all potential creditor claims. Arguably everyone should have a current Will that is written for their own specific needs and coordinated with all other legal documents.

Four favored methods of avoiding probate are:

  • Joint Tenancy
  • Living Trust
  • Beneficiary Designations
  • Pay on Death (POD) or Transfer on Death (TOD) Accounts

Planned Succession Management

Merely having the proper legal documents is insufficient. To maintain your quality of life by assuring the continued control of your assets, it is necessary to make it possible for others to act in your stead.  In our Asset Control strategy section of our S-T-A-R-S System for Retirement SuccessSM, Advance Directives are one half of the equation. The other half is Planned Succession Management. That includes having your financial management system and your legal empowerment documents accessible and understandable to those whom you choose to become successors. That, in turn, means they would not only have the power to do the job, but also would know what the job is and how to do it.

This Planned Succession Management includes:

  • A money management system that a successor could understand and assume
  • Written financial and estate planning goals
  • A defined investment and management policy
  • Legally empowered successors
  • A regularly scheduled progress review

You Can’t Manage What You Can’t Find

Most people in the process of accumulating assets have scattered them all over. The problem seems to compound with age and wealth accumulation. One of the biggest problems for many in getting an effective financial and estate plan on track is simply getting all their data together and organized.

Lack of a clear understanding of your financial situation results in several costly problems including:

  • Lack of control
  • Missed tax savings opportunities
  • Poor investment management
  • Inability to have someone else take over in an emergency
  • Waste of valuable personal time

You really need to know:

  1. What you own.
  2. Whose name it is legally registered in.
  3. How much is it worth.
  4. Who could deal with it if the owner were unable to do it?
  5. What is the current income tax status?
  6. How would it pass in the event of owner’s death?
  7. What would the income and estate tax status be?
  8. What controls are in place to assure that it fulfills your personal value-based goals?

Before even considering extensive estate planning, it is important to have a solid knowledge of all your assets. You will benefit from reviewing all of these characteristics of your current assets with the ASSET CONTROL - Personal Values-Based Estate Planning Control Record

Know the Tax Position of Your Money

In our experience we have noticed that most people having high income and/or high net worth are overpaying taxes now or will be in the future. Different types of asset ownership may have dramatic differences in the tax treatment of cash flows, income and profits. In the process of accumulating wealth most people think about the taxes going in, but few consider the tax costs of getting money out. For example, virtually everybody has been advised to put as much as they can into deferred accounts so it can grow “tax free”. Because they ultimately must take distributions, they unknowingly take the IRS and other tax agencies on as partners in their growth.

We call this the “Reverse Rumpelstiltskin Effect” because it spins gold into straw (taxes). As an example, high growth assets outside deferred accounts could be taxed at capital gains rates, or not at all if passed through an estate with a stepped-up basis. When the gains are withdrawn from a deferred account, they are taxed as ordinary income at perhaps twice the capital gains rate. Rumpelstiltskin!

Certain deferred accounts can be veritable “tax traps” for some people. On the other hand, there are ownership forms that may offer benefits of both income and estate tax advantage. In fact, over the long-term, the efficient tax position of a given asset may mean more to your bottom line than your raw rate of return.

Maintaining Control and Access

Freedom from fear or worry that is the meaning of the French root word for “security”. Fear is often equated with lack of control and things unknown. Independence is nearly synonymous with control; dependence means having someone else in control. Planning for your family’s security means reducing the unknown and increasing your feeling of control.

In fact, advisors who deal with super-wealthy immigrants fleeing persecution or war torn homelands often report that such people are primarily interested in only two things: Control and Access. Having personally experienced the near-loss of both, these people understand the importance of control and access as no others can.

For here and now planning, these are two very critical issues. If you are not personally able to exercise control, then who will? Likewise, if you are not personally able to access the resources for immediate needs, who can?

Control and Access are also extremely important in estate planning. In order to reduce costs and gain an estate transfer advantage you need to know how much control and/or access you will have to give up to implement any given strategy.

The answers to these important questions vary greatly depending on the type of asset, whose name it is in, and what asset control strategy is used. Even though you may have more than enough resources to meet any problem or emergency, it is still a disaster if they cannot be used effectively. This is another strong argument for using the ASSET CONTROL - Personal Values-Based Estate Planning Control Record.

Let Your Values Be Your Guide

Personal Values-Based Estate Planning means getting your money where you want it to go in ways that foster your unique values system. The entire area of estate planning, especially the tax aspects, is very unsettled now. Anyone with substantial assets who has not had a complete review of their estate plans in the past three years is very likely to be in need of several revisions. There is little doubt that more important changes are ahead. For this reason, it is wise to build in as much flexibility as possible.

It is important to keep in mind that every financial decision (and most other life decisions) involves trade-offs - such as financial risk, loss of control, loss of access or personal stress. There is no “right” way to resolve these conflicts.

You will most often achieve your highest level of personal satisfaction with your plans if you remember to Let Your Values Be Your Guide

Estate planning in the 21st century bears little resemblance to the planning done in the 1950s. In the first place the definition of family is radically different from the old notion of a husband and wife, two kids and a dog. Since people are living longer, many middle aged people are finding themselves in the position of having to assist in the care of aging parents as well as adult children and sometimes grandchildren at the same time. With a national divorce rate of 50%, many families have become blended. That is, there may be a Brady Bunch configuration of his, hers and our children. In addition there are far more unmarried people living together, frequently with children from other relationships. These nontraditional configurations raise mind-boggling complexity in designing a values-based estate plan. Due to the fluidity of these relationships it is imperative to keep plans flexible and review them frequently. One method that many people find helpful is to sketch out a family tree of living members then decide how you would want each member treated in your estate distribution.

Many people are deciding to write values-based statements and directions into their ultimate distribution documents. Out of concern for the welfare of surviving family members, they are putting in place protective covenants and restrictions to assure that their values are passed along. Recognizing that having a large chunk of money dumped upon adult children who have had little experience with money may not be wise, many people choose one of several means of protecting heirs from themselves. These are done by using a trust (to be discussed later) with a trustee authorized to carry out the terms of these arrangements.

Sprinkling Distributions: One method is to have the inheritance sprinkled over a number of years. For example, the decedent's will or trust may stipulate that the heirs are to receive one-third at age 35, another third at age 45 and the balance at 55. During the periods between distributions they may receive income only.

Spendthrift Provisions: Sometimes people have a concern that their heirs are too loose with their money and might squander an inheritance and get into credit problems (The lottery winner effect). Or they might be too gullible and susceptible to be conned out of it through a bad investment, a bad marriage or a phony charity. This provision in a trust provides protection by trustee control over large distributions except under strict terms and prevents trust assets from being pledged for a loan or any other action that might imperil the principal.

Incentive Trusts: Some people are using their legacy to inspire certain positive behaviors in their heirs by placing incentive terms in their trusts. These provisions are enforceable only if they are in accord with public policy. For example, they cannot be used to keep an heir from marrying outside the deceased’s race or religion. They can be used to grant an additional bequest to an heir upon completing a college education or any other definable positive action.

Ethical Will: More and more people are becoming concerned with the idea of leaving a legacy of more than money to their heirs to make a difference that they had lived. An ethical will is a way to share your values with your family in the same way that a will or inheritance provides instructions for bequeathing your property. In it you can make personal comments to and about individual heirs and express your wishes and hopes for their future. You may choose to comment on things that were important to you such as the charities you supported. More information on this concept is available at

Most people would prefer to see their estate go to family members or their favorite charities, not court costs, legal fees and taxes. Recognizing that all financial planning involves reviewing the alternatives and assessing the trade-offs, we developed the Values-Based Distribution GRID to illustrate the potential disposition of an estate. Those who plan improperly will have much of their financial legacy wind up on Quadrant IV. That is, going to pay lawyer fees, administration costs and taxes.

When you look at the Values-Based Distribution GRID, you will see that it is fruitful to make the effort to move estate transfers out of Quadrant IV into Quadrants I and II. In the process of making such adjustments to your plans it is important to realize that many alternative strategies require significant tradeoffs in Control and/or Access. So it is worthwhile to review each potential strategy with respect to its impact on your Control and Access GRID.

Once you have your values-based guidelines firmly in mind, you will be better prepared to discuss potential strategies with your attorney if you are familiar with a few of the many available planning techniques. While tax issues are one of the considerations that could move a portion of your estate into Quadrant IV, few people will need to address that right now. So we will reserve the tax discussion till a bit later in this section. Since most people say, they just want all their stuff to pass on the way they want it done in the smoothest, simplest and least costly way, reduction of legal and administration expenses is of more immediate concern to virtually everybody.

Family Values
Community and
Charitable Values
Social Values
Questionable Values
(Taxes and Expenses)


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