Financial planning knowledge to help you better serve your clients.

The typical estate planning process entails inviting clients to decide what will happen to their wealth when they are no longer alive (i.e., "who inherits what"), and the selection of individuals who can make financial and health care decisions on their behalf in the event they are incapacitated (whether due to accident or disability or dementia in their elder years). For most clients, these decisions are relatively straightforward: their primary heirs are their children and grandchildren, who can also step in as their medical and financial attorneys-in-fact in the event of incapacitation and serve as executors and trustees after the client passes away. Yet the reality is that nearly 25% of the adult population is "Childfree" – whether by choice or by circumstance – and for those clients, the traditional estate planning process breaks down the moment they realize that there are no children (or other immediate family members) to be named as executor, attorney-in-fact, or trustee.

In this guest post, Dr. Jay Zigmont, founder of Childfree Wealth and Childfree Trust, explores how the unique circumstances of Childfree clients turn traditional estate (and long-term care) planning upside down, to the point that relying on traditional estate documents and their standard provisions can actually cause outright harm to the Childfree client's planning goals.

The starting point is to recognize that for Childfree clients who don't have children, 'just' coming up with someone to serve as attorney-in-fact, executor, and/or trustee, can be a remarkably difficult decision. In the event of having no "obvious" choices in their immediate family, many will defer planning altogether, resulting in a stalled estate plan. In other cases, they may choose a more distant relative, not recognizing the problematic conflicts of interest that arise when their financial and medical decision-maker is also the one who will inherit all the dollars not used (and therefore have a direct incentive to minimize how much of the individual's own money is spent on their care, increasing the risk of elder financial abuse).

In addition, because the focus of estate planning for Childfree clients is disproportionately focused on enjoying and utilizing their money while they are still alive (as there are no children to prioritize for an inheritance), traditional estate planning clauses like limiting distributions for HEMS (Health, Education, Maintenance, and Support) are unnecessarily limiting to trustees of Childfree clients' trusts. Instead, "Exhaustion for Care" provisions (that explicitly grant permission to the trustee to use most or all of the trust funds for the grantor's care while still alive) become crucial to ensure trustees really can  safely use the Childfree clients' funds for their needs. And long-term care insurance also becomes a more integral part of the plan, when there are no children (or often any other immediate family members) to provide care.

Fortunately, though, there are a growing range of options for Childfree clients to find proxies who can serve to fulfill their key roles (without putting advisors themselves into the awkward position of serving as trustee and making end-of-life decisions about their own clients). Some states like California and Arizona have state-licensed fiduciaries. Many advisors have local bank and trust companies that are willing to serve (albeit not always for the unique pet, exhaustion-for-care, and other circumstances of Childfree clients). And Zigmont himself created a service called "Childfree Trust" to help solve for the gap for Childfree clients in states that don't have effective local solutions.

Ultimately, the key point is to recognize that the traditional estate planning approach just doesn't work for Childfree clients. Not simply because they don't necessarily have children as immediate heirs that they wish to preserve for and pass on assets to, but because the lack of children often means a lack of caretakers (in the event of long-term care needs), and potentially paralyzing uncertainty about who to name into key attorney-in-fact, executor, and trustee roles, while traditional estate planning documents include terms that can outright limit trustees from fully utilizing a Childfree client's assets for their actual care. As a result, planning for Childfree clients requires a more tailored approach to the unique challenges and goals when serving such clientele.

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