UTILIZING A HOLISTIC APPROACH to estate planning is critical, particularly when determining how property will be distributed and the associated tax consequences. The role of advisors is to work in harmony with the client in order to understand the client’s testamentary objectives and what the client wants to accomplish with his or her wealth while alive.

The holistic approach focuses on the importance of a thorough review of each client asset: how it is owned, its cost basis, when the asset will pass and to whom, how it will pass (by will or by operation of law), what taxes are attributable to such asset and who will pay the taxes and with what money. Once these facts are determined, a proper estate plan can be implemented. Additionally, the importance of an estate tax allocation provision cannot be overlooked if the estate plan is to best reflect the client’s desired intentions.

A will only controls the distribution of so-called “probate assets.” If the client or attorney fails to include all the professionals the client employs, the resulting estate plan can lead to unintended or even disastrous results. Attorneys, accountants and financial advisors who stay in close communication after an estate plan is established are able to communicate changes in the client’s life that may require an adjustment to the plan.

When developing an estate plan, it is extremely important to know how assets are owned, or the title of the assets. The holistic approach — including determination of the current asset ownership, future appreciation/depreciation, income potential and so on — provides an attorney with the knowledge necessary to prepare the most comprehensive estate plan for a client. When identifying each component of a client’s taxable estate, the advisors not only gain a better picture of the estate today but also a better representation of the estate in the future when the documents will actually be utilized to settle it.

Too often clients hire an attorney only to draft estate planning documents and fail to communicate this to their other advisors. Consequently, the attorney might rely on sparse information or recollection from the client about assets, how they are owned and their values. If the attorney develops an estate plan and prepares documents based on inaccurate information, the result might run afoul of the client’s goals. Clients may not understand certain taxable assets or interests, such as holding a general power of appointment, having a qualified terminable interest property or an incident of ownership in a life insurance policy. Worse, the client may not be aware of such interests. By employing a team approach, the attorney stands a much greater chance of learning about the entirety of the client’s assets and circumstances. If this does not occur, the result might be disappointment or controversy when beneficiaries discover certain heirs benefit in a disproportionate manner.

It is unfortunately common to see disastrous outcomes like this when a holistic approach is not utilized in developing an estate plan. Professionals should be encouraged to communicate with each other — not just the client — when preparing any part of an estate plan. Clients are typically fee-conscientious and reluctant to get all of their advisors involved because they do not understand the significant added benefits they receive in the end.

Next month we will discuss the difference between probate and non-probate assets and the importance of estate tax allocation provisions.