Four Keys to a Great Estate Plan

You are going to die. So am I. We all intellectually understand that our time is limited, and that we should prepare for that day. So why is planning for that day one of the last things that we want to spend our time and money on?

For most of us, the barrier to death planning is that we know it is decades in the future. Distance from something decreases the urgency to act upon it. Over my career working with entrepreneurs and wealthy families, there are typically only a few things that compel our clients to take action on estate planning and life insurance:

• They add a child to their family.

• They create a new business or exit one.

• They end up serving as executor or power of attorney (PoA) for a parent at their death or as they move into assisted living.

Spouses and children

The first event makes sense. We realize that our actions up to this point no longer work. We want to make sure our family is set up for financial success, in case we unexpectedly pass away or become disabled. We ask ourselves the following types of questions:

• Can our spouse keep the house and put the kids through college?

• Will all my assets pass to them as they should?

• Will my business equity value pass to my spouse, and what does that process look like?

We want to solve for those problems and make sure our family will be OK without us. People in this position are still not excited about spending time and money to think about bad things happening to them, but the risk that their family might be harmed is greater than the cost of getting the work done, so they act.

Business developments

Business changes can and often do serve as a convenient push to take a look at your estate plan. This is typically because you are working with an attorney to create business ownership documents or sale documents for an exit transaction. We cannot help but wonder, “Should I update this in my trust?” We might also wonder, “If I get hit by the proverbial bus, can my spouse manage the business without a legal holdup?” Again, we realize that what we had in place previously no longer works and we need to look at the plan again.

PoA or executor

The third event, being the person responsible for executing the wishes of their parent, is the true eye opener for most of us. There, we get to see the quality, or lack thereof, of an estate plan and how it works. We get to be the ones working with funeral homes, memory care facilities and financial institutions under the rules written into the documents.

The best estate plans allow those empowered to act with clear guidance and needed authority in order to execute that guidance. Badly constructed estate plans lack clarity on intent. They may require multiple parties to act together, when there should be individuals empowered. They also may have conflicting provisions or be outdated, which waste money and time. If you have ever been in this situation as an executor or PoA for an ineffective estate plan or know someone who has shared their story about it, you understand the pain it can create.

A good plan

In all three of the above scenarios, you notice that we are talking about the impact on those around the person with the estate plan and not on its originator, for he or she is dead or disabled, and therefore cares little about how the plan is executed. Estate planning is about ensuring that we care for our loved ones in advance of dying or being disabled, and it is also about giving clear guidance for our legacy.

So what does a good estate planning process look like? There are four keys to a great estate plan:

1. Be clear

2. Be flexible

3. Be easy to maintain

4. Be funded

Be clear

A good estate plan is always clear about what we want to happen, who is asked to execute those wishes and what authority they have to do so. A good estate planning attorney and financial team will design the structures needed. They will advise us not to get hung up on individual documents and whether we need a will-based plan or trust-based plan. They will ask us to write out in plain language what we want to happen to us and our assets if we become temporarily disabled, permanently disabled and when we pass away. They will ask us who we assign as the people that carry out key decisions and who else we would want if the first choice person passes away before we do (or cannot or will not serve in those roles)?

The following types of instruction are statements that attorneys can format properly:

• “If I am permanently disabled, I want my sister Alice to have full control of my assets in order to hire care managers, so that I can stay in my house.”

• “I would like to stay in my home unless I can no longer dress myself. At that time, I want Alice to move me to a living facility and sell my house.”

• If Alice can’t do it I would like my nephew Mike to be that person.”

Alternatively, vague instructions like, “I want my three kids, Melanie, Macy and Marshall to act together to make sure I am taken care of,” can create all kinds of issues. Would each child have to agree on living location, care managers and what “taken care of” means? The list of questions can be endless when there is ambiguity.

Be flexible

Documents should be flexible enough to accommodate changes to law and specifically the tax code. We are in a period of time where the estate tax exemption amount is historically very high at almost $13 million per person as I write this. That means that a married couple can pass up to about $26 million to their heirs without federal estate tax being imposed. However, that amount is set to change in 2026 without action by Congress, and it could be substantially lower in the future.

Do we write our estate plans for the exclusion amount as it exists today or for what it is likely to be in the future? The answer is to create flexibility in our strategies, where the estate will be tax-efficient at all points. Similar to putting in backups for key people, documents should instruct and empower the trustee or executor to take the most tax efficient action when they are executing their duties.

Be easy to maintain

An estate plan should never be something that is signed and put on a shelf for the next few decades. Families, assets and wishes will all change over time. Occasionally, there may be a need to entirely replace an estate plan, but ideally, amendments should be created and simply updated. This method is significantly less expensive and less time consuming. We should be meeting with our financial team each year and with our attorneys every three-to-five years or as big changes come up. Think of an estate plan as a vehicle that needs maintenance to ensure that it is ready to drive at a moment’s notice.

Be funded

This is where we work extensively with our client families here at Entrepreneur Aligned. Here are key questions we dig into on the funding side:

• What are the outstanding debts our clients have personally and inside their business?

• What about operating expenses and working capital to enable their business to continue operating without them?

• Who are the key members of their business’s team and what are the agreements in place to empower and incentivize them to stay with the company?

• Will the business continue with the client’s spouse and family as owners, or is there a sale or transfer provision in place?

• How is that transfer funded?

• What type of life insurance is in place for our client’s family and within the business?

• Will there be any seller-carried financing used by successor owners?

The list could go on and on, but being properly funded to execute an estate plan is critical to it succeeding. We must ensure that there will be enough liquid capital available to allow the business to move forward or keep it operating until transfer. There must be enough liquidity available for remaining family to operate their lifestyle, meet all personal debt obligations and pay estate tax at the state or federal level, if needed. Most estate plans are funded through a combination of cash reserves, liquid investments and insurance.

If an estate plan is clear, flexible, easy to maintain and fully funded, it ensures that our wishes are carried out, and remaining family members can focus on our care and celebrating our lives. This is not the most fun part of entrepreneur wealth but one that creates tremendous value for those we care about most.

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DISCLOSURE: Jarrod Musick is an officer of Destiny Capital and Entrepreneur Aligned, a DBA of Destiny Capital. This article is for informational purposes only and should not be relied upon as a basis for your investment, business, or personal financial decisions. We recommend consulting with your wealth advisor, CPA/tax advisor and/or attorney, as applicable to your situation, prior to implementing any new tax, legal, or investment strategy.

ABOUT JARROD

Jarrod was born into financial planning and solving financial problems. With his financial advisor father Steve telling stories about finance around the dinner table from an early age, the idea that everyone has a different financial situation was always there. After an early professional career spent in nonprofit and government, Jarrod came back to his roots helping people plan and invest in 2011. Since then, he has worked with individual clients, led internal teams and ultimately became partner and the CEO of Destiny Capital in 2017. With a passion for helping entrepreneurs change the world, Jarrod ultimately oversaw the creation of Entrepreneur Aligned in 2020. With both Destiny Capital and Entrepreneur Aligned, Jarrod leads teams that help people live lives of abundance where money is simply a tool to let everyone be a positive force for the world around them. When he isn’t working with the talented teams for EA and DC you can find him chasing his twins, wily trout or a podium spot at an OCR race.