What You Need to Know Before You Go
Interview by Stephen Frank with attorney Daniel Hicks
Putting a plan in place for the end of life is something you know you should do, but have you actually done it? If you answered ‘no’, it seems you are in good company. According several surveys, roughly 60% of Americans have failed to execute a plan for when it’s their time to leave this world. I get it. It’s not a fun conversation. It may seem daunting to even think through all the complexities. That is why I recently sat down with Dan Hicks, an estate planning attorney in Greenville, SC.
We talked about several issues concerning end of life planning, and I want to share that conversation with you. Dan has a lot of experience in this field, so I hope this interview may be of some help to those of you reading it. Of course, this is not intended to be specific legal advice or opinion, and you should consult your own attorney before making any decisions or executing any documents.
Stephen: “Thanks for sitting down with me today, Dan! Let me first ask you, how did you get started in your law practice”?
Dan: “I joined a firm called Nexen-Pruitt, and was able to learn from some of the senior partners what it actually means to do estate planning and tax planning, and I started that about 17 years ago. I enjoy it because it’s one area where you are still very much a family lawyer. I have a good number of clients where I represented the parents, and then their kids, and now the grand kids.”
Stephen: “What does estate planning mean from your perspective?”
Dan: “I’m glad you asked that, because it’s a term that a lot of people don’t understand. And some attorneys say, ‘yeah, we do that’, but they don’t do it very well. All estate planning boils down to 2 things: Incapacity and death…. Incapacity deals with ‘Who speaks for you when you can’t speak for yourself? If you become incapacitated, who will speak for you? Will it be a spouse, or a family member, or will it be a document?’ And the second event is death. Who gets my stuff? Where does it go, how does it get there? Who doesn’t get it? The job of an estate planning attorney is to know everything you could possibly know about those kinds of events. Like tax law: what effect will taxes have. Real estate law. Property law. All of those different things have an impact. Whatever you are willing has to be documented and as clear as possible with as little government interference and taxation as possible.”
Stephen: “So, who would need an estate plan, and why?”
Dan: “Everybody over age 18. Obviously the more you have, the more important it is. But for an 18-year-old, if they become incapacitated, their parents technically have no legal authority to make any financial decisions or health care decision for them. It’s important that they have documents in place that speak to their wishes. Even if they have very little, they have their health. So, if I have an 18-year-old and they have an accident and the parents want to make medical decision for that child, they don’t have that right. Not unless they get appointed as guardian, and that’s time consuming and expensive.
Stephen: “I’ve seen a lot of online template services for wills. Is that sufficient, or do I need to engage an attorney?”
Dan: “Well, it sounds some-what self-serving, but the problem with the online is one, they say that they are state specific, but they rarely are. The second thing, at the risk of sounding insulting, there are very few things you read on a legal form and know what it’s talking about…. If you get a room full of attorneys, we will all tell you war story after war story where someone did their own will, or did it on one of those forms, and it was a disaster. It’s kind of like going to WebMD when I’m sick. No matter what the symptoms are, I will either have the common cold, or tuberculosis, and I don’t know how to make the difference! You can go to lawyer.com and create a disaster, and you won’t know.”
Stephen: “Well then, what are some of the major pit-falls you see in the estate planning business?”
Dan: “I’d say number one is not keeping plans current. It sort of needs to be an evolving thing. You can’t just do it once, and then you’re done for 10-15 years. There are births, there are deaths, there are marriages, there are divorces, increases in assets and values, law changes. So, you need to keep your estate plan current, probably every 3-4 years, to be sure it’s accurate and up to date.
“Second would probably be failing to keep beneficiary forms updated. So many things can pass through like IRA’s, 401k’s, and life insurance, but just failing to make sure your beneficiaries are listed can really impact them tax-wise. And I can’t have certain things passing to my 12-year old child, because they can’t handle it, so there will be a court process to get it all sorted out. Do I really want my life insurance to go to my 25-year-old who can’t seem to make good financial decisions?”
Stephen: “In regard to inheritance, should parents treat their children equally, equitably, or in some other fashion?”
Dan: “I know this is one of those assumptions that many people have, and to an extent I understand, that parents want to treat their children equally. But why do you want to turn all of your stuff over to them this way? If they’re all doing well, and they’re of equal means, then that makes sense. But I guarantee you didn’t raise them equally. When you raise them, you love them equally. But I can guarantee you that if you have four kids, when they are little, I may have one kid that when I discipline her, she learns quick and she won’t do it again. But then I may have another kid that when I discipline her the same way, and she’s just gonna keep doing it. So, you aren’t going to raise them equally, so I think you need to consider that in your estate plan. And parents will sometimes make a mistake because they will spend so much time trying to make it equal when they really don’t need to. If you have a child with special needs, they aren’t getting treated the same as everyone else because there are special considerations, and everyone understands why. But if you have a child that’s an alcoholic you might ought to leave him less. Certainly, leave it in trust so he can’t drink himself to death. But maybe you need to leave him less, because frankly, it’s likely to get wasted. I don’t advocate treating children unequally, I just challenge [parents] thinking that through. ‘Why am I saying everything has to be equal? Is that really right?”
Stephen: “How important is it to choose the right trustee or executor?”
Dan: “It has to be someone that you can trust, someone that is good with handling many important details. They don’t have to know everything, as they can rely on someone like me to guide them. The role of an executor is limited. It’s usually from 9-12 months, and then they’re done, and then it’s overseen by the court. The role of a trustee can easily be 25-30 years. It’s a much longer period of time. So, you need to give careful thought to if there’s not an individual you feel can being a trustee, you may need to look more to like a trust company. You pay more for that, but then they are also very good at what they do.”
Stephen: “If I appointed an individual trustee, or an executor of my estate, what kind of relationship would you have with them upon my death or incapacity?”
Dan: “So the executor, or we call it the Personal Representative in South Carolina, is sometimes very familiar with the process, they’ve done it before, they feel like they can go thru the probate process with very little help, but I would say that’s the exception to the rule. In some cases, the personal representative just needs limited guidance from the attorney, but then others need help in every aspect. Personal representative also gets to pick the attorney. They don’t have to use the attorney that the deceased person used to prepare the will.”
Stephen: “What other professions should be involved in the estate planning process?”
Dan: “The financial adviser, for sure. The financial adviser typically is the one that is going to meet with [the client] on an ongoing basis. The nature of lawyers is that we meet with them, create the estate plan, and then we are done. We also typically want to terminate the relationship rather quickly so we aren’t responsible or liable for ongoing changes. So, in that sense, the financial adviser is kinda the quarterback. They’re the one that is most likely to know about any changes and keep up with all that stuff, so the financial adviser is critical. Also an accountant, but only for some people, not everybody.”
Stephen: “How does life insurance play into estate planning?”
Dan: “It’s obviously a great leverage product, especially when you have children with special needs. But it’s on a case-by-case basis. Now it’s excellent for business owners to provide liquidity in cases of buy-sells and similar cases. For most people, you’re worth more dead than you are alive! I use it also to fund trusts. Insurance is something that [pays out] in a matter of weeks, it’s very fast. You fill out a death claim and [the money] can come straight to the trustee. It’s the asset that I rely on primarily, and I tell clients that’s the asset to rely on primarily for estate planning. You may have stocks, or IRA’s, or a house, but that stuff is going to take time to deal with. Especially when there are young kids, again even with special needs, you don’t need the process to take time. You need money now.”
I hope this interview prods you to action. Whether it’s updating an existing will, or executing one for the first time, don’t put it off! If you have not put together a financial plan, let’s talk. If you don’t already have an attorney, you can call Dan Hicks – he’s the man to know before you go!