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American households can avoid common estate planning pitfalls by ensuring they have conversations about how the process will play out upon a loved one’s death.
Lorne Maltenfort, national director of private wealth planning at Wells Fargo, told FOX Business that there are two parts, in particular, of a wealth transfer to understand.
“There’s the documents and preparing the documents and making sure that they’re in place, and then there’s the second half, which is conversations that are traditionally not happening,” he said.
Maltenfort said that it’s important to shift from “documents to dialog and then dialog to action in order to prevent these pitfalls or gaps in wealth transfer.”
Maltenfort said that the estate planning process should begin with creating an inventory of assets and drafting the documents, along with the knowledge of the plan’s goals and objectives and that the process “doesn’t end with a signature, it ends when the assets are transferred, retitled, confirmed and, most importantly, understood.”
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He added that typically when understanding breaks down among people who are party to an estate plan, it can be a fault of the system “where perhaps people are talking about this and assuming people are understanding, rather than really coaching people in ways that resonate,” which can include things like visuals or other ways of depicting how wealth is transferred.
“Having the conversations after a death are oftentimes the worst times, that’s where people are vulnerable, they’re dealing with grief,” Maltenfort said. “You really don’t want to have to think about: Is the plan in place? Are there going to be taxes, estate taxes? What are the consequences of the transfers? Is it fair, is it equitable?”
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Maltenfort thinks one of the reasons that people are reluctant to have discussions about estate planning is because “they think the wealth transfer is about a dollar amount.”
“While there are dollars transferring, it’s really about the shared values, the family legacy, the financial security. Those are the things where you can start the conversations with your kids and grandkids about your wealth transfer plan and not necessarily focus on a dollar amount,” he said, adding that a lot of parents are afraid of over-promising and under-delivering in terms of the dollar amounts.
“You can promise X amount of dollars, what happens if there was a long-term care event where those dollars were spent down? Parents don’t want to have their kids rely on dollars and then not have them show up, but that’s where the conversation needs to focus on the shared values, not on dollar amounts,” Maltenfort said.
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Financial advisors can assist in the estate planning process by using a client’s documents to run a hypothetical example that shows how the dollars are transferring.
That process can, in turn, prompt conversations about the plan, such as whether enough money is going to heirs or to charitable causes.
“Being able to put pen to paper and actually drive visuals for those families is the critical element in being able to drive a decision for a family going from no plan or an unsure plan to understanding exactly what their plan does,” Maltenfort said.
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