Estate Planning for Today’s Modern Family

It is a sign of the times that one of the most popular TV network series is ABC’s Modern Family, now in its sixth season. The show features engaging characters who reflect many dimensions of non-traditional families. To the extent that TV reflects who we are, or who we want to be, Modern Family shows that today’s families are much more complex than the idealized nuclear family of the 1950s.

The changing composition of the U.S. family, combined with changing federal and state laws that define family relationships, present challenges for estate planning practitioners. In addition to legal advances for same-sex couples, other types of non-traditional families have become more common. They include couples with a non-U.S. citizen spouse, families with adopted and special-needs children, single-parent families, and blended families of multiple-marriage spouses.

I’ve been using situations built around the characters and family relationships in Modern Family as the starting point for an educational program I’ve shared with many life insurance financial professionals. The idea started as the topic of a take-home exam for my students at the Suffolk Law School. It seemed an idea that grabbed people’s attention, so I expanded it a bit, giving the presentation for the first time in February of 2014 at the 28th Todorovich Memorial Lecture, sponsored by the New York City Chapter of the Society of Financial Services Professionals.

The main message of Estate Planning for Today’s Modern Family program: Our clients are not June and Ward Cleaver anymore. Even if clients look traditional, today’s family dynamics are often different under the surface. We can’t make general assumptions about what clients may want or need in estate planning. Rather, we should conduct in-depth fact-finding and be willing to ask sensitive questions, politely and respectfully.

Here is an example from the program: Jay is the patriarch. After a divorce, he is re-married to Gloria, a citizen of Colombia 25 years his junior. Jay wishes to minimize estate taxes at his death. Traditionally, estate planners might have used a marital trust for achieving wealth transfer objectives, but this technique is more complicated when the surviving spouse is not a U.S. citizen. Also, if Jay uses this approach, his children will not receive their inheritance until after Gloria’s death. This is a problem because Jay’s daughter, Claire, is actually older than Gloria.

Non-traditional families often have many moving parts, and our goal is to arm financial professionals with knowledge, so they can lead clients to appropriate tax and legal advisers. The modern family demands greater technical knowledge on the part of financial professionals, as there are many planning techniques to consider. Which ones work best will depend on the objectives and circumstances of each client.

The most successful financial professionals in this non-traditional market take two hours or more to do fact-finding, not 15 to 20 minutes. Successful financial professionals also don’t shy away from asking sensitive questions. For example, I recently was involved in a situation where the clients were two men having their first child together. To appropriately design their estate plan, which included a large amount of life insurance, it was important to ask if they knew which one is the child’s biological father and if they were planning a second parent adoption.

Non-traditional households appreciate professionals who understand their unique situations, and the referral potential is huge. Some niches of the market, such as same-sex couples, tend to be educated people with high disposable incomes. They need guidance for insurance and investment planning and may be under-served by the financial industry. We are seeing financial professionals who work almost exclusively in this market. But in any case, it shouldn’t be ignored. You may not know your clients or prospects are non-traditional, unless you ask. In fact, in this day and age, everybody may be a little non-traditional.

This post is for informational purposes only and should not be considered as specific financial, legal or tax advice. Depending on your individual circumstances, the strategies discussed in this presentation may not be appropriate for your situation. The information in this material is not intended as tax or legal advice. Always consult your legal or tax professionals for specific information regarding your individual situation.
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