The concept of estate planning brings forth images of legal documents, insurance policies and litigation.
However, the process of estate planning for a client goes much further than dealing with the death of a person. The heirs to an estate need to be prepared, educated and ready to inherit. A will does not do that.
Dealing with the death of your parents is hard. It is a time when you should be grieving and reflecting upon the life of your parents. It is a time for family. A time for quiet.
It is not a time to go poking through cupboards, coat pockets and wardrobes trying to unravel the mess.
Every person should have all of their important documents in one location. Or one location that tells a beneficiary where the important documents can be found – who has the wills, who has the tax returns and so forth.
However, it is hard to start. So help by starting at a very high level. Include an organisation chart of the deceased’s business affairs and a statement of net assets.
If that is all that is done it is great.
The next step might be to to include tax returns, financial reports and legal documents outlining the structures and their tax history. With many structures spanning over 50 years or so the history of these documents can be long and convoluted.
Many clients “assume” that we, as accountants, hold these documents. But that is often not the case. It is not unusual for us to go back through 4 different set of former accountants simply looking for original documents (or even to find a copy).
It is also important for a client to be independent of their advisors. Professional relationships can break down. A clients should position themselves so that they are not beholden to any one advisor.
The process of consolidating the legal documentation and the organisation chart for a client is not difficult when the advisors are competent. However, the extension of that process is to then include relevant legal documentation for the individual – passports, birth certificates and marriage certificates.
The documentation and identifying or relevant paperwork for a family can continue. How can we prove ownership of the car? How many personal bank accounts are open (Bitcoin?) and what is the monthly automatic debits on the accounts? Who are the professional advisors for the client and how can they be contacted? Why was an asset purchased and what should happen to it?
Ultimately an accounting firm will prepare a “Family Emergency Plan”. It is essentially a “book of you” – your life will be documented in such a way that your kids can take over “you” and deal with your financial affairs.
A family emergency plan is a documented and systematic plan on how to manage your personal, business and investment assets. It allows us to hand over what is going on. And many of us do not die when we hand over – we simply get older and potentially lose our ability (and desire) to manage a complex web of assets.
If you create a family emergency plan you have created a succession document. It is a document that allows the next generation to review and understand their obligations when they take over their parent’s affairs.
Doing this document while the parents are in full control of their finances is important. Many people do not realise they have lost control until a significant event makes it clear that the capacity has gone.
It is often very difficult to prepare such a document at that time.
However, the document should not be put in the cupboard once prepared. Children have a right to gain an understanding on what to do and how things work over a period of time. It is not fair to expect kids to go on a crash course once Mom and Dad have died.
The family emergency plan should be shown to the family. Accountants are ideally suited to explain the family emergency plan – how it works, the legal structure, the history, the tax profile, what the financial reports mean, upcoming taxes and significant events that are occurring each and every year.
If you get a family emergency plan working properly the next generation know what is happening and what to expect. The communication and transparency of the family is increased significantly. And you, as the most trusted advisor, will have taken away a significant source for conflict among the family when the parents die.
And to me that is infinitely more valuable than preparing a will.