Estate Planning = Risk Management

When recently challenged to describe “what I do” in a few words, it occurred to me that I could refer to myself as a “risk manager”.

It is commonly accepted that insurance is the “go to” tool to manage every day risks. Life insurance, liability insurance and property insurance are all commonly used tools to plan for life’s “bumps in the road.”

So why equate estate planning with risk management? Think about the risk of becoming incapacitated during lifetime and needing to rely upon others to attend to our living needs and to care for and manage our financial assets. Incapacity is of course a risk that cannot be controlled by “estate planning”! That risk is managed by the medical profession to the extent possible. In the estate planning context, the “risk” to be managed is the risk of not having appropriate and capable “helpers” armed with legally effective and efficient tools to allow them to attend to our needs without having to resort to the expensive and time consuming use of our court system. This “risk” is “managed” with the design and implementation of a thoughtfully designed and deployed Durable Power of Attorney. Similarly, the “risk” of being unable to properly direct our medical care is “managed” by appointing appropriate “helpers” and arming them with legally effective powers via a thoughtfully designed and deployed Health Care Surrogate instrument.

What about liability risk that we face in our everyday life? Driving a car is a classic example of an activity that can unexpectedly give rise to liability exposure. In the estate planning context, we help to “manage” this risk by appropriately utilizing state laws to protect assets from unknown and uncontrollable liability exposure. Establishing tenancy by entireties ownership between married couples is one easy example of managing this risk. Properly “lining up” beneficiary designations of retirement assets and life insurance also helps minimize exposure to unintended liability exposure.

What about the “risk” of delivering “too much” wealth “too soon” to an heir who may be ill prepared to handle wealth in the event of an untimely death? A well designed estate plan can effectively “manage” this risk by thoughtfully designing “beneficiary protective trusts” for our young or incapable beneficiaries. What about managing income tax and estate tax exposure, managing the risk of beneficiary disputes at death and managing our loved ones wealth exposure to failed marriage or creditor exposure?

While there are plenty of other examples – the overriding risk that we seek to manage through a thoughtfully designed estate plan is the “risk of chaos”! Minimize the risk of chaos by taking the time to design and implement an estate plan that is appropriate for your personal life situation!

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