Why hire a financial planner?

My friend, Abigail Hollar, is a financial planner at Conger Wealth Management.  Financial planning and estate planning often go hand in hand.  Financial planners help a person plan their finances so that they will have adequate funds to support them during their retirement years. Estate planners help a person plan the disposition of that property upon one’s death and to do so in a way that is efficient and easy on the surviving family members.  Abigail wrote the following article for me to share with you about why a person should hire a financial planner.

Why Hire a Financial Planner?

Abigail Hollar

My friend Nick asked me to talk a little bit about why you should hire a financial planner. I wracked my brain to come up with uplifting, positive reasons to hire a financial planner. That didn’t work out so well, because there’s only one powerful, all-consuming reason to hire a financial planner. It’s because you don’t want this to be the story of your life:

"At the height of his corporate career, [redacted] was pulling in a salary in the low six figures as a marketing executive and flying first class on business trips to Europe. Today the 77-year-old juggles two part-time jobs: one as a $10-an-hour food demonstrator at a Florida Sam’s Club (WMT), the other flipping burgers and serving drinks at a golf club grill for a bit more than minimum wage.

"While [redacted] worked hard his entire career, paid off his mortgage, and put his kids through college, he didn’t put enough away for retirement—like most Americans. Even many affluent baby boomers who are approaching the ends of their careers haven’t come close to saving the 10 to 20 times their annual working income that investment experts say they’ll need to maintain their living standard in old age. For middle-class households with incomes ranging from the mid five to the low six figures, it’s especially grim. When the 2008 financial crisis hit, what little [redacted] had saved—$90,000—took a beating, and he suddenly found himself in need of cash to maintain his lifestyle. With years if not decades of life ahead of him, he took the jobs he could find." From Bloomberg Businessweek

This is pretty much the worst-case scenario for most people I’ve counseled. How could something like this happen?

"So in 1980 he started a consulting company, with [redacted company] his main client. In flush years he earned about $120,000 from clients… He saved for his kids’ college and helped his elderly parents, but retirement wasn’t on his radar. “I never thought I’d live this long,” he says.

Because [redacted] was self-employed, he didn’t have a 401(k), and he has never had a tax-deferred individual retirement account. … When the financial crisis hit, [redacted]’s savings, which he’d invested mainly in stocks, shrank from about $90,000 to less than $40,000. “I was shocked by how fast I lost so much,” he says.

This. This is why you hire a financial planner. A financial planner should tell you that, yes, you should plan on living longer than age 77. A financial planner should tell you that, while caring for your parents and children is important, so is caring for yourself. A financial planner should also let you know that, no, $90,000 isn’t nearly enough retirement savings and it’s generally imprudent invest in a portfolio primarily in stocks while you’re approaching retirement. A financial planner can also help a self-employed person set up their own retirement savings plan. Just because you don’t have an employer, doesn’t mean that money can’t be put away for retirement.

Just in case you think that this is just an example of one unfortunate, unwise person, think again. I have personally met other people in similar situations; people who thought they were on track, but weren’t, or people who just didn’t realize they were so financially off course. This isn’t a case of someone’s failure of character, or stupidity. Instead a simple oversight or two were made. The value financial planners bring is that they help you make sure you haven’t made those one or two mistakes that can derail your whole retirement. Because, that’s what seems to have happened here. It sounds like the subject of the article made only two mistakes: he didn’t save enough, and he was exposed to too much risk. These are easy, easy mistakes to make. Normal, human mistakes.

Think of it this way. You hire dentists to take care of your teeth and doctors to take care of your health. I bet you even have someone else cut your hair. Sure, you take care of your teeth, health, and hair daily, but you still have professionals help you. If you’re willing to hire a specialist to help you with your hair, doesn’t it also make sense to hire a specialist to help you take care of your money?

Estate Planning from a different perspective

Death is never a pleasant topic to discuss.  Facing one’s own mortality is always difficult, and our minds seek to find ways to ignore our vulnerability to death, yet the vulnerability is always present.  Often times, attorneys will ask clients questions only about the client’s family, assets, debts, and how they want the property distributed to the family members.  I am guilty of this approach as well.  However, I find a great deal of importance to move beyond these questions.  Often times, it is important to consider deeply our own mortality.  Doing so not only helps one make a better estate plan, but often reveals areas in our lives with which we are unhappy and that we might like to change.  Below are some questions to consider and to discuss when preparing your estate plan:

1.  What do you believe will happen to you when you die? If you died today, would you be at peace in how you have lived your life?  

2.  Are you currently happy with your life?   Are there changes that you would like to your life to improve the quality of your life?  Are there things that you want to do, but have not yet accomplished?  What do you need to do to reach these goals before your death?  

3.  What do you want your family and close friends to remember about you after your death?  What are you doing currently to invest in the lives of your family and friends?  Are you neglecting relationships that you need to reinvest in?  What competes for your time and attention causing you to neglect important relationships?  Do your relationships have the depth that you would like for them to have, or are they superficial?  What can be done to change that?

4.  What do you want your funeral/memorial service to look like?  What do you want to happen to your body after your death?  

5.  Do you want to leave your family members and close friends a personal message after your death?  What do want them to know and hear from you after your death?  Have you written these messages down?

6.  What are your top concerns regarding your family after your death?  Are they prepared financially for this event?  Do they have a network of close friends to provide emotional support?  Are there other concerns you may have about your family?  What can you do now to better prepare for your death to address these concerns?

These are a few of the questions I have begun asking clients when we discuss their estate planning.  Estate planning includes far more than preparing a trust or a will.  While that is a major part of it, identifying, discussing, and addressing concerns that may be uncovered in answering the above questions are as, if not more, important as merely disposing of one’s property after death.  

What to do when a loved one dies

When a loved one passes away, not only are you left dealing with the grief and sadness of your loss, but you may also be overwhelmed and unsure about what needs to be done.  In addition to all of the arrangements to be made for the funeral and memorial service, you may find yourself in a position of responsibility to manage  the property and bills that are left behind.  So if you find yourself in this situation, here is a short list of items to consider:

1.  Take an inventory of assets.  I urge my clients to keep a comprehensive list of assets in a safe place, and to let their family members now where that list is stored.  If you are not fortunate enough to have a list, then you will need to prepare one.   Look for any bank accounts, investment accounts, safety deposit boxes, 401(k) or other retirement accounts, real estate, life insurance policies, etc.  It is also a good idea to prepare an inventory of the more substantial items of personal property.

2.  Look for a Will or Trust.  If your loved one left a Will or a Trust, you need to find it.  Hopefully they told a family member where it is kept.  Common places to look include a safety deposit box, a safe, a filing cabinet, a desk drawer, or other place they kept their personal items.

3.  Compile a list of debts and liabilities.  There will likely be unpaid doctor or hospital bills for the last illness and ordinary household bills.  There may also be other debts such as credit card debt or bank debt.  You will need to compile a comprehensive list of these items.

4.  Communicate with family and heirs.  Talk to the family about the process and keep them informed.  Many times, there will be no conflict and the family will get along.  However, there are other times that there is a lot of conflict in a family.  Perhaps one family member is unsatisfied with what he or she was left in the Will.  Perhaps you suspect that the Will was invalid.  You will need to identify if conflict exists, determine the source of the conflict, and then discuss this with your lawyer.  

5.  Contact a lawyer.  When a person dies, their assets will need to be legally transferred to the heirs and beneficiaries.  If the decedent left a Will, this will be done through probate court.  If the decedent left a Trust, it can be done by the Trustee of the Trust.  A lawyer will help walk you through this process and make sure the legal procedures are properly followed.  

If you find yourself in this situation, I would be happy to talk to you and assist you in this process.  

Family Settlement Agreements

Inevitably, some estates will involve issues on which family members do not agree.  For example, a person may decide to contest the validity of a Will based upon the person’s mental capacity.  In other instances, the family may not be able to agree upon how to divide assets.

When people do not agree, they assert their rights by filng petitions with the probate court laying out their claim, or by submitting claims against the estate.  There will have to be a hearing before the probate court in which testimony and evidence will be presented, and a judge will make issue his ruling. 

When the rights of the heirs are uncertain, the parties should consider entering into a Family Settlement Agreement.  Families can enter into an agreement in which they may receive more or less than they would be entitled to under the Will or Trust.  These agreement are often utilized to avoid fights among families that may cause irreparable harm to the family relationships, to avoid a public hearing on issues that may be sensitive to the family, and to settle the disputes of the family members.  Once a Family Settlement Agreement is entered into by the parties, a Court will enforce it, even if it is contrary to the provision of a Will.

Therefore, where there are contested issues, and where the rights of the parties are uncertain, the heirs should consider how they might reach an agreement.  Doing so will require some negotiation, but in the negotiation process, some of the differences of the parties may be resolved. 

The Supreme Court issued an interesting opinion last year involving family settlement agreements in the case ofMachen v. Machen, 2011 Ark.App. 47 (2011).  In that case, the decedent had made handwritten changes to a Will, and signed the Will.  His wife and son had signed the Will as well agreeing to the changes.  The handwritten changes to the Will were likely invalid because the changes were not made and signed in accordance with Arkansas law.  However, the legal analysis of the Court did not address the validity of the changes.  Rather, the court held that the wife and son signed the Will to agree that they would divide the assets in accordance with the changes.  The court held that their signatures constituted a Family Settlement Agreement, and thus enforced the agreement. 

Click the link above to see a post by a fellow Arkansas attorney summarizing the elections for the Court of Appeals coming up next month.  I note that Richard Lusby, whom I worked with during my time in Jonesboro, is running.  He would make an excellent appellate judge, and has my full support.  I wish him luck in this race. 

Mental Capacity

Most of the time, I deal with clients where mental capacity to sign a Will or Trust is not at issue.  However, sometimes I see people where I am unsure they are mentally capable to sign a Will.  If a person does not have the mental capacity required to sign a Will or Trust, the Will or Trust will be invalid.  There are two primary ways that Wills or Trusts are challenged on the grounds of mental capacity.

First, the actual mental capacity of a person may be challenged.    To have legal capacity to sign a Will, a person must know who his or her family is, must know the extent of his or her property, and must be able to express their intentions of how to dispose of their property at his or her death.  A person may have a mental incapacity, but can sign a valid Will or Trust during a period of lucidity.  For example, a person may have been diagnosed with Alzheimer’s disease, but still be able to know their family members and the extent of their property during a period of lucidity. 

If a person has dementia or Alzheimer’s and wants to sign a Will or Trust, precautions should be taken to prove that they executed the document while having the necessary legal capacity.  Perhaps their physician should be present and perform a simple test of their capacity.  Video taping the Will execution may be appropriate to show that they had mental capacity.  If a person is really concerned, they can file their Will with the Court during their lives and have the Court determine that they are mentally capable to sign the Will, and this decision will be binding upon their death.

Second, Wills or Trusts are often challenged under the legal doctrine of undue influence.  Undue influence is often found where there is a confidential relationship between the person signing the Will and another person, and the other person exerts his influence to a degree such that the language in the Will does not reflect the intention of the person signing the Will.

For example, if Dad has four children, and Child 1 lives next door to Dad and is Dad’s caretaker, the other three children live out of town, and Dad’s Will leaves all of his property to Child 1, undue influence may be present.  Factors used to establish undue influence include whether a person is in a position of authority or power over the other individual, such as a caretaker, whether there was a confidential relationship, whether the person signing the Will was mentally or physically weak, etc.  Given the right facts, undue influence may be present, and if present, the Will would be declared invalid.  There have been cases involving undue influence of a child, of a charitable organization, of a caretaker, of a friend, etc.  It can arise in a number of situations. 

I have learned in my practice to watch for situations when mental capacity or undue influence may be present, and to be careful to make sure a Will or Trust I have prepared reflects the intention of the person signing the Will. My goal is minimize the risk of a challenge to a Will or a Trust in potentially hostile situations. 

If you  are in a situation where you have been excluded from a Will and suspect mental capacity or undue influence, the Will may be challenged by appropriate court action. 

For completely non political reasons, this case is fascinating to me.  The decision the Court will reach will have major implications, either way.  To reach a decision, the court must navigate and decide a series of legal issues.  This link is a very good summary of the issues that the Court must address to reach a decision. 

Power of Attonrey and Guardianships

While Wills and Trusts often take the forefront in estate planning, a Power of Attorney is a very important document for a person to consider.  A Power of Attorney is important because in the event a person becomes incapacitated, another person will have the authority to make financial and/or health care decisions on behalf of the incapacitated individual.  In the absence of a Power of Attorney, it is necessary to file a Petition with the court to ask the court to appoint a Guardian to make these decisions.   A Guardianship proceeding is a public proceeding in court, and people are often do not like filing documents in court claiming that a family member or loved one is mentally incapacitated.  In contrast,  Power of Attorney gives authority to a person to make the financial or health care decisions of a person when that person becomes incapacitated without court action.

A Power of Attorney is signed while a person has full mental capacity.  Typically, a Power of Attorney does not take effect until a person becomes mentally incapacitated as certified by their physician.  A person needs to give careful thought and have important conversations with the person they name as their representative under the Power of Attorney.  The person named as representative will be making important health care and financial decisions, so the wishes of the person signing the Power of Attorney need to be clearly expressed to the representative. 

Failure to sign a Power of Attorney prior to a mental incapacity can lead to unnecessary hardship.  Financial instituations will require a Guardianship to be established before accessing any accounts.  Physicians and hospitals will require the same.  As mentioned above, setting up a Guardianship requires filing a Petition with the Court and offering testimony of mental incapacity to the court.  This can be a sensitive topic better dealt with privately as opposed to publicly in court. Therefore, talking to your attorney about a Power of Attorney is a very important part of your estate planning.

Rights of a Surviving Spouse

Upon the death of a spouse, the surviving spouse has certain rights and interests that he or she may assert in the estate of the deceased spouse.  There are times when difficulties arise in the probate administration process, and it is important for the surviving spouse to know how to protect his or her rights in the estate.  A couple of the important rights are discussed below.

1.  The Right to Elect to Take Against the Will

A surviving spouse has a right under Arkansas law to elect to take against the Will.  This means that instead of receiving the assets that the survivor is entitled to under the terms of the Will, she has a right to receive an amount of assets equal to her dower in the estate.  Under Arkansas law, the dower rights of a surviving spouse is equal to a 1/3 life estate in any land, and 1/3 of the personal property owned by the decedent. 

Most times, a surviving spouse will want to take under the Will.  The most common scenario is for the decedent to leave everything to his surviving spouse.  However, even in that situation, there are instances when electing to take against the Will is beneficial to the surviving spouse.  If the estate has a lot of debt and claims against the estate, the surviving spouse will want to take a close look at electing to take against the Will.  In one case that I worked on, the husband ran a business as a sole proprietor, and he had incurred a large amount of debt associated with the business.  Upon his death, the business had to be sold and liquidated.  If the spouse had taken assets under the Will, after payment of the claims against the estate, nothing would have remained.  Therefore, she elected to take against the Will.  In that scenario, she received her dower interest, free and clear of the debts of the estate.  By taking against the Will, she moved from the back of the line to the front of the line to get paid.  The creditors suffered the majority of the loss, and the surviving spouse was protected.

This option should always be considered to determine if a spouse is better off to take under the will or against the Will.  The option must be considered quickly, because the election must be filed within a certain time period after openning the estate.

2.  Dower.

A spouse has a dower or curtesy right in the interest of property held by his or her spouse.  A spouse has the right to a 1/3 life estate in any real estate owned by his or her spouse during the marriage, and to 1/3 of the personal property owned during the marriage.  With respect to real estate, a spouse must relinquish his or her dower in the real estate if the property is deeded or mortgaged.  If the spouse does not relinquish her dower in the real estate, then she has certain rights in that property, even if the property is sold to a third party.  With respect to personal property, the dower right vests at death, and a spouse is not required to relinquish her dower upon the sale of personal property.

Dower can provide much needed protection to a spouse.  In one case that I have handled, a woman’s husband was diagnosed with Alzheimer’s.  He owned a substantial amount of real estate, and it was all subject to a mortgage related to his business.  She had obtained a guardianship over him.  Due to his incapacity, his income went down, and the mortgages went unpaid.  The banks were foreclosing on the property.  She had not signed the mortgages and had not relinquished her dower in the property.  The banks tried to argue that since her husband was still living, her dower interest had not vested.  She claimed a dower interest, and demanded payment for the value of her interest before she agreed to sign any deed to the property.  The banks were unable to foreclose on the property due to her assertion of her dower interest.  After much negotiation, the banks ultimately recognized her right to dower in the property.  They agreed to pay her for her interest in the real estate in exchange for her signing away her interest.

3.  Conclusion

A person should always be vigilant about his or her rights under Arkansas law in the estate of his or her spouse.  Releasing a dower interest should never be done without giving careful thought to the consequences.  If family is bickering over an estate, the spouse of the decedent should look carefully at her rights under the Will and her rights if she were to elect to take against the Will. These rights provide important protection to a spouse.

The Role of a Trustee

A Trust is a common form of estate planning.  A Trust is essentially a contract between the Settlor (the person who creates the Trust), the Trustee (the person who holds the assets), and the Beneficiaries (those who benefit from the trust assets).  When preparing a Trust, one important decision for a person to make is to decide who will serve as the Trustee.  Initially, the Settlor will often serve as the Trustee.  After the Settlor passes away, it is important to have a responsible, trusted person to serve as the successor Trustee of the Trust. 

The role of the Trustee is very important.  Many people are unaware of all of the duties, obligations and work that are required of a Trustee.  Many people who create a Trust will simply name a family member as a Trustee without giving the decision a second thought.  However, it is important for a person think about all of the duties of a Trustee in making the decision about who to name as the Trustee.  Considering the extensive duties of a Trustee, naming a professional Trustee is a prudent decision in many cases. 

The following is a brief list of some of the duties of a Trustee:

  1)  Locating Gathering the assets of the Trust

Upon accepting the role of a Trustee, the first step of the Trustee is to locate all of the assets of the Trust.  This may include bank accounts, investment accounts, real estate, life insurance proceeds, stock or other business interests, personal property, etc.  It is very important for the Trustee to compile a detailed inventory of each and every asset of the Trust.  The inventory should list a description of the asset as well as the value of the asset on the date that the Trustee took control of the Trust. 

In some cases, the Settlor may not have transferred all of his or her assets into the Trust.  In that case, it may be necessary to probate the Settlor’s will in order for legal title of assets to pass from the Settlor’s name into the trust. 

   2)  Understand the Trust Document. 

The Trustee has a duty to carry out the terms written in the Trust document. Many times, the terms will be clear.  Other times, the claims may be ambiguous.  It is of utmost importance that The Trustee understand the terms of the Trust.  What may appear to be clear instructions at first glance may prove to be ambiguous when the Trustee tries to apply those instructions to the assets owned by the Trust.  For example, the phrase, “My house shall pass to my Son” may seem clear at first glance.  But what if the Settlor sold the house during his life and purchased a condominium to replace it?  The Trustee should consult with an attorney to fully understand the trust document and to identify any potential sources of conflict.

  3)  Manage the Trust Assets. 

A Trustee has a duty to manage the assets in a prudent manner.  If a Trustee is not prudent in his or her management of the assets, the Trustee may be personally liable for the loss in the value of assets.  If the Trustee is too aggressive with the investments causing a loss to the Trust assets, the Trustee may be held personally responsible for the loss.  If the Trustee is far too conservative with the investments, the Trustee may be liable for not investing the assets well.  For a non-professional Trustee, this can be a daunting task.  The Trustee should consult with a financial advisor in making investments on behalf of the trust to make sure al investments made are prudent.

  4)  Manage the Beneficiaries. 

Many times, a Trust will contain numerous beneficiaries with competing interests.  A beneficiary may be named as a life income beneficiary, but another beneficiary may have the remainder interest.  A Trustee must be very careful in the distributions made.  A beneficiary may not understand that his or her interest in the Trust is limited, and may become upset if a Trustee refuses a distribution request.  On the other hand, the remainder beneficiary may be upset if a Trustee distributes too much money to the income beneficiary.  This can create substantial conflict among family members when a family member is named as a Trustee.  If a family member is a Trustee, it can put the Trustee in a very difficult position.  

    5)  Provide Annual Accountings

A Trustee is required to provide an annual accounting to the trust beneficiaries.  This accounting will show any income of the trust, if any assets were sold or purchased, any losses, any distributions to beneficiaries, etc.  It is very important to provide a detailed accounting of all trust activity. 

These are only a few of the many responsibilities of a Trustee.  As these duties illustrate, the role of a Trustee will require substantial time, effort and responsibility.  In many situations, naming a professional Trustee can be very beneficial to a family.  A professional trustee has experience in administering a trust, and can help avoid sources of family conflict.  So in establishing a Trust, a person should think carefully about who they would like to name as the Trustee of their Trust.