Financial advisers working with aging and elderly clients can add value by better understanding what qualifies a person as being mentally competent, according to Benjamin Feder, an estate and tax planning attorney with Strauss & Malk.
Speaking Thursday in Chicago at the
IMCA Private Wealth Advisor Conference, he talked about avoiding “the second level of tragedy” involving a family fighting over an estate after a loved one has died.
Mr. Feder said a starting point for
creating estate plans for clients in the “twilight competency” stages typically boils down to three simple questions.
Do the clients know the names of close family members, do they generally know what their assets are, and can they make a plan for distributing those assets?
If the answer is yes to each of those general questions, Mr. Feder said, “Congratulations, you can sign an estate planning document.”
“It doesn't matter if they don't even know who the president is,” he added. “And you may not be able to balance a checkbook anymore, but that's not the competency test.”
Mr. Feder cited one example of a woman who was imagining firemen in trees outside her widows, but that didn't matter because she was able to meet the three basic criteria for
competency.
The message he stressed was to create estate planning documents that line up with the client's wishes and become as iron clad as possible to prevent lawsuits and fighting among family members after the client passes away.
One strategy to help strengthen an estate plan, he said, is to create multiple follow-on estate plans that are essentially identical. The fact that the plans are established over several months or years, yet remain consistent with the original document, makes it more difficult for legal challenges, because the suits have to be taken against each document in reverse order.
“Doing second and third plans creates a poison pill,” Mr. Feder said. “That's the way to think about adding value and protecting your clients from that second tragedy.”
On the subject of a client not wanting to leave anything in their estate to a close relative like a child, Mr. Feder said it is best to not snub that person with something like a token $5 inheritance.
“Your clients will probably talk to you, as financial advisers, more than they will talk to a lawyer about it, so please dissuade them from leaving token inheritances or making negative statements about close family members,” he said. “All of these documents can be made public and that will just invite challenges and controversy.”
Instead of leaving an estranged family member a small insulting amount, Mr. Feder said it is better to leave that person enough money so that they will not be able to challenge the estate without forfeiting what they have already been given.
“When you leave somebody nothing, they have every incentive to fight,” he said. “But when you leave them something, you disincentivise them.”
Then there is the issue of clients leaving something to their financial advisers in their estate.
Even though Mr. Feder recognizes that clients and advisers often work together for many years and can become close, he said for the sake of making the plan lawsuit-proof, advisers should dissuade clients from gifting to them part of their estate.
“If a client wants to leave you something, it's very sweet of them but probably something you should discourage them from doing,” he said. “Don't be in position where you have to rebut presumption.”
