December 12, 2023

Q&A: The Importance of Estate Planning, With Derek Hamblen

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Benjamin Franklin is sometimes credited with the saying “If you fail to plan, you are planning to fail.” This couldn’t be truer when it comes to planning your estate. Estate planning is an essential part of financial security, but not many people know when — or how — to start. At Brookdale, we want to provide opportunities and information for our current and future residents and their families to navigate the process of creating a successful estate plan. We sat down with Derek Hamblen, CFP®, ChFC®, RICP®, private wealth advisor and partner at Sterner Financial, to learn more about the “when,” the “how” and the “why” behind estate planning — including the importance of starting an estate plan early, the most common estate planning mistakes, and ways to avoid unnecessary taxes and waiting periods.

1. How would you define “estate planning”?

Estate planning helps get the right assets to the right people, at the right time, with the least amount of tax. Estate planning is an essential part of financial security. Having the right documents in place ensures your wishes regarding your health and wealth are followed in the event that you aren’t able to communicate them.

2. At what age should you start planning your estate?

You can start planning your estate as early as age 18! You should have a healthcare directive, a durable power of attorney for healthcare and a durable power of attorney for finances. If you’re over 18 and don’t have these in place, you should work on setting them up as soon as possible; if you have children over 18, you should talk to them about it too.

3. When is the right time to start planning your estate?

People often begin their estate planning surrounding major life events, like starting a business, getting married, having children or getting divorced.

4. What would you say to someone who assumes that estate planning is just for “the wealthy”?

A lot of us think of estate planning as something that only the very rich need to worry about. We think of huge bank accounts, maybe multiple homes, luxury cars, or lots of large assets being passed down to future generations. But while there is a financial component to estate planning, it’s not just about the money. And it’s not just for people with vacation homes. Estate planning covers so much, like your niece getting the quilt that Grandma made for you, and larger things, like making sure that if you pass away, your kids are taken care of by the people you’ve chosen. These are issues that can affect us no matter our age or tax bracket, which is why everyone should have an estate plan.

5. What will happen if you pass away without a valid estate plan?

If you die without a valid estate plan, you are considered intestate. If you are intestate, then whatever intestate succession laws exist where you live will go into effect. Any assets with a beneficiary will go to whomever you listed, and anything that’s legally jointly owned will go to the other party. But you won’t have any say in what happens to anything else you owned — including your savings, your mementos, your digital assets — everything will follow the laws set by your state, regardless of what you want or what you may have told your family and friends. And if you have children, the state will decide who the guardian will be. That’s right — you won’t be able to choose who raises your kids after you’re gone. You won’t be able to decide what money or assets go to them. You won’t have a say in when they’ll be able to access the assets, either. That’s all decided by the courts and by the laws of your state.

6. What do you need to do to prepare your estate?

First, you need to create an inventory of what you own and what you owe. Then, you need to define your estate planning goals and expectations. Following this, you need to provide income protection in the event of illness or injury. Fourth, you need to identify who you want to carry out your wishes if you are not able to do so. You then need to design and implement appropriate strategies to meet your needs. Finally, you should regularly review your plan to keep it current.

7. Do you need an estate planning attorney? Why or why not?

Most of the time, it’s too risky to handle legal estate matters yourself. The one exception to that rule is the healthcare power of attorney. These forms are usually standardized at the state level. Otherwise, it’s important to hire an estate planning attorney who can explain all your options, make recommendations based on your particular circumstances and make sure that your estate plan covers everything you need it to. Make sure you choose someone with a background in estate planning. There are nuances to this special area of law, so you want to make sure you work with someone who knows what they’re doing.

8. Your family makeup and financial circumstances can change over time. When — and how often — should you review and update your estate plan?

Your estate plan should be a living set of documents. As your life changes, or as your priorities change, as your kids get older, or as your wealth grows, you need to review your estate plan regularly to make sure it still reflects what you want. For example, if your family grows, or if someone who was listed in your will passes away, you’ll probably want to change your will to reflect that. If your financial power of attorney moves to another state or country, maybe you want someone closer to take on that role now. Hopefully, it’s something much more fun, like you bought your dream vacation home or you sold a business and now you have more money or assets to pass on to your family, friends or the nonprofits you support.

9. What are common estate planning mistakes?

Common mistakes include forgetting to include digital assets in your plan, not updating your plan after major life events, not discussing your plan with beneficiaries and trustees, and improperly titling your assets.

10. What are the essential elements of estate planning (e.g., wills, trusts, powers of attorney, living wills)?

a. Living Will: A living will, also known as an advance directive, is used to communicate your wishes regarding certain end-of-life medical care. This document is often accompanied by or contained within a healthcare power of attorney (POA).

b. Powers of Attorney (POAs): These documents give another person the authority to make decisions on your behalf in the event you are no longer able to do so. Two common types of POAs are a financial POA and a healthcare POA, or proxy. In your POA, you should name someone you trust. If you don't have these documents and you become incapacitated, a court will name a guardian for you.

c. Beneficiary Forms: Beneficiary forms are used for retirement accounts, life insurance and annuities to specify how you would like these assets transferred upon your death. These forms are important because they supersede a last will and allow assets to transfer without probate. It's important to name both primary and secondary beneficiaries because there may be instances where the primary beneficiary is no longer able to receive the assets.

d. Will: A will outlines your wishes for how your estate will be handled upon your death. If you don't have a will, your assets are distributed according to state law, which may go against your wishes and can cost more time and money. If you have minor children, a will is critical for naming a legal guardian if you can no longer provide care. Your will is also a good place to specify how you would like your digital assets — such as email accounts, social media, and devices — handled, as these may contain valuable or private information.

e. Trust: A trust is a legal arrangement where assets intended for a beneficiary or beneficiaries are held by a trustee. There are many, many uses for trusts, but some of the most common reasons people use trusts are for probate avoidance, to prevent the estate from being contested in court, to control when beneficiaries gain access to assets, and for strategic tax planning for sizeable estates. Trusts can also be used for charitable giving or planning for children or relatives with special needs.

11. In what ways is estate planning more than just writing a will?

When you think of an estate plan, you may be focused on preparing a will — essentially, your instructions for how you would like your assets distributed and your affairs handled after your death. A will allows you to name an executor — the person who will be responsible for carrying out your wishes — and to appoint a guardian for your minor children. For most people, a will alone is not enough. That’s because a will is limited in what it can achieve. For example, it can’t meet the needs of a person who is alive but incapacitated. It also cannot provide the cash needed to take care of your family at your death. That’s why a comprehensive estate plan often includes a combination of other planning tools and techniques.

12. What is the best way to set up your family for minimal conflict while estate planning?

One solution to minimizing family conflict is to have an independent, third-party trustee to carry out your estate. They can be unbiased toward any one family member and help truly execute the wishes of the decedent.

13. What is the difference between an estate tax, an inheritance tax and a gift tax?

An estate tax is levied at death, a gift tax applies to transfers while someone is living, and an inheritance tax is imposed on heirs of the deceased.

14. How can you avoid unnecessary taxes and waiting periods while planning your estate?

There are strategies to remove value from your estate and thus reduce taxes. These include annual exclusion gifts, lifetime exemption gifts, valuation discounts, and income tax payments for grantor trusts. You can also remove appreciation from your estate, also known as estate freezing strategies. These include installment sales to grantor trusts, self-canceling notes, grantor retained annuity trusts, and charitable remainder or lead trusts. Implementing these strategies can be effective ways to reduce taxes and be more efficient with your estate planning!

Derek Hamblen, CFP®, ChFC®, RICP®, is a private wealth advisor and partner at Sterner Financial, an affiliate of Northwestern Mutual based in Nashville, Tennessee. At Sterner Financial, Hamblen and his associates help people define, build and enjoy meaningful lives as they prepare for retirement. Hamblen works with individuals and families who have publicly traded or privately held company stock. Prior to his time at Sterner Financial, Hamblen worked as a financial representative at Northwestern Mutual for 12 years. Hamblen earned his business degree from Belmont University, where he was a four-year starter for the baseball team. Following his schooling, Hamblen had a brief stint in the minor leagues with the Kansas City Royals.

To learn more about Brookdale Senior Living services, contact a representative today.

^{The above content is shared for educational and informational purposes only. The content is not intended to be a substitute for professional legal or financial advice or counseling from an attorney or financial advisor and should not be relied upon for making legal, financial or other decisions. Never disregard professional legal or financial advice or delay in seeking it because of something you have read on our site. Please consult your attorney or financial advisor before acting on any content on this website. Reference to any products, services, third parties or links to third-party websites does not constitute an endorsement, sponsorship, or recommendation of such products, services, or third parties by Brookdale or its affiliates.}

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