The two most important steps in the estate planning process are initiation and completion. Getting this job done, in whatever way suits you and your family, is the single most important step. Furthermore, depending upon your personality, family makeup, advisor group and business circumstances, the steps in the estate planning process may vary significantly. However, 25 years as a participant and student of the estate planning process has led me to several profound conclusions. Aggressive, state-of-the-art estate planning is an essential facet of business succession planning. Estate planning in the business succession realm is a formidable challenge demanding significant commitments of time, energy and financial resources. The steps followed in the estate planning process has a significant impact upon the quality of the final product.
Before you undertake a significant challenge of any nature, it is wise to have a plan. Otherwise, as mentioned above, it is very easy to become distracted, discouraged and fall short of your initial goal. Therefore, I strongly suggest you consider these time-proven steps for your succession planning process.
1. Make a commitment to get started and communicate this commitment to someone who will hold you accountable. Estate planning is one of the most popular subjects to postpone. Procrastination may relieve current anxiety but long term, the problems will only be compounded. There is no hope for successful completion if you never get started. There is no better way to get started than to authorize someone whom you respect to hold you accountable for your commitment.
2. Select qualified advisors to facilitate your estate
planning efforts. Regardless of your personal convictions and confidence in your decisions, the quality of your estate plan will be substantially dependent upon the quality of your advisors. Estate planning is a professional discipline requiring a solid foundation of training, constant experience and ongoing continuing education. There is no reasonable room for "generalists." Effective business succession estate planning requires specialists.
3. Establish a time target for the initial implementation of your plans. With the input of your advisors, make a realistic assessment of the time required to design, develop and implement your estate plans. This assessment should provide you peace of mind during the process, that you are working within the reasonable time boundaries. This assessment should also serve as an accountability tool to assure that your advisors diligently pursue their action items to achieve implementation within the allotted time period.
4. Close each meeting with a scheduled commitment for the next meeting and a reservation time for the following meeting. Maintaining momentum is one of the biggest challenges during the estate planning process. If you can end each meeting with a commitment for the next meeting, you have reasonable comfort that your planning process is moving forward as expected. In light of the demanding nature of contemporary business and professional schedules, identify tentative times for these subsequent meetings so everyone in the planning team is committed to the next meeting. Pursuing scheduling with this diligence substantially relieves one of the greatest challenges in the estate planning process, getting all critical parties together in the same room.
5. Develop and understand a schematic diagram of your estate plan before drafting any documents. At this point in the estate planning process, a picture is worth more than a thousand words. Actually, to have a schematic picture of what you are trying to do is imperative to understanding the far-reaching implications of your plan relating to your business, your spouse, specific children, all children and employees.
6. Prior to drafting documents, develop and refine simple document summaries that stipulate pertinent document provisions. Simple summaries of the proposed documents following the schematic diagram provide better understanding of the structure of the future documents. This process will enable you to further refine your thinking and, without wasting legal fees, confirm important provisions such as trustees, executors, guardians, asset divisions and distribution dates.
7. Discuss estate planning intentions with those who will be impacted by your plans, such as spouse, children, key managers, franchisers, and lenders. Keep in mind that the estate planning process is a sacrificial effort. You are expending the time, energy and money for the benefit of others. Within reason, prior to implementation, it is prudent to discuss your intended plans with those who will be impacted. "Pandora's box" is not as ghastly as you may presume. Sharing your estate planning intentions may well generate a negative remark. However, positive or negative remarks about your estate planning intentions will be either instructional or educational. Rational, well thought out comments by loved ones may help refine the plan. Irrational, self-centered comments by loved ones can also help you modify or reinforce your plans to deal with resentment or self-centered emotions.
8. Refine plans and document summaries as dictated by discussions with those who are impacted by the plans. Going through the process of refining the schematic diagrams and the document summaries will confirm the virtue or uselessness of what you learned from discussing your estate planning intentions with your spouse and children.
9. Draft, affirm and execute the documents. Having followed the above steps, the actual preparation of the documents, and more importantly the refinement of those documents, will be greatly simplified. Moreover, you will have avoided substantial confusion due to the awkwardness of legal documents. Ideally, this step simply confirms that the documents prepared for execution conform with the previously affirmed document summaries.
10. Conform property and plans with documents. Generally after designing, drafting and executing documents, the fun just begins. "Fun" relates to the detailed process of establishing asset titling and beneficiary designations to empower the documents to achieve the estate planning objectives. In most cases, intended gifts or sales also require asset appraisals, asset transfers and the filing of gift tax returns, Crummey notices, etc. This is a very busy step that demands diligence in order to achieve the initial estate planning objectives. Usually it will be your CPA and/or attorney that will lead you through this process.
11. Make final review of documents and conform property. This step assumes that something will fall through the cracks. A final review of the executed documents and related property administration is essential to give yourself the peace of mind that all the preceding efforts fulfilled your estate planning goals.
12. Make a commitment to periodic review. The shelf life of estate planning is two years on the outside. In the absence of periodic reinvestment of time, energy and financial resources to confirm circumstances and implement needed update, plans will become outdated and ineffective. It is very important to understand that in complex family and business environments, estate planning is not in any sense a project, it is a never-ending process.
Loyd H. Rawls, CFP, CLU, ChFC, MSFS, of The Rawls Company in Orlando, Florida, and has specialized in family estate and succession planning for closely-held, family owned businesses since 1973. Well respected in his field, Mr. Rawls is a highly requested speaker and has contributes to many publications on this subject.