Well, When You Put It That Way: Getting in the Right Frame of Mind for Your Estate Planning

It is easy to find excuses to put off estate planning, no one really wants to sit down and think about end-of-life planning. But answering those questions now and formalizing them into a plan will make life easier for your loved ones. 

Have you ever tricked your children into thinking they’re getting more pizza than they asked for, just by cutting up the pizza into smaller pieces? No? Just me? Okay. Well, you’re welcome for that parenting tip.  

The occasional sleight of hand I pull with my children and pizza is purely a real-life example of what is called framing bias, played out in its purest form. Framing bias, as defined by Michael Pompian, is “the tendency of decision makers to respond to various situations differently, based on the context in which a choice is presented or framed.” (Pompian, 2012, p. 143). You see, when a 7-yearold asks for “lots of pizza”, she needs to see a plate full of pizza, even though she may be getting the exact amount as her brother, just with a different frame around it. If I place one large piece on her plate, she will accuse me of not listening to her request. However, if I slice up that one large piece into 10 smaller pieces, she will assume she’s just hit the pizza jackpot! I have framed the pizza in a positive light, so she’s excited about it, and now I can use it as an example in our blog. 

How does this refer to anything related in financial planning, you may ask? Everywhere actuallyyet today we’re going to learn how framing bias can be detrimental in your estate planning. 

Estate planning refers to the planning you complete while you’re living, to determine the direction your assets will go upon your death. It also determines, if you have minor children, who would act as guardians for those children if you were to pass away and who can serve in roles such as financial power of attorney and healthcare power of attorney – meaning who can make financial and healthcare decisions for you if you were unable to make them yourself. When it’s listed out as it is above, it’s a wonder anyone avoidtheir estate planning. Yet, they do. 

Granted, it isn’t fun to sit down with your loved ones to talk about what happens in the event you become incapacitated or die. No one wants to think about such things. Layer in the time and cost of meeting with an attorney and financial advisors and you can see how it easily falls to the bottom of your to-do list. It becomes a situation where you frame the importance of an estate plan in a negative light and essentially shove its importance aside. 

The most widely used excuse for avoiding the execution of an estate plan I have seen is the cost. Clients will frame the cost to themselves in a negative light, then exercise a second branch of framing bias, called narrow framing to further reinforce their decisionTo frame narrowly, is to “focus too restrictively on one or two aspects of a situation, excluding other crucial aspects and thus compromising their decision making.” (Pompian, 2012, p. 145).  

Let’s break this down: client John has a semi-complex estate. He’s got rental houses in Nebraskaa rollover IRA, an active 401(k), investment accounts, bank accounts, vehicles, a lake house in Minnesota, farmland in Iowa and a primary home in Nebraska. He has a wife and three children, two of them minors, and no estate plan. Depending on how the idea of executing a large estate plan is framed, John could very easily look at the potential cost of executing his estate plan in a very negative light. Heck, why put together a trust and other possible entities, when he could go online and execute a simple will outlining his wishes? Well, there’s lots of reasons as to why that probably isn’t appropriate, but we don’t have time to go through all of those right now. John would be narrowly framing his decision here – focusing too restrictively on the cost and the effort and not on the importance in the present and the negative long-term effects of his inaction.  

Instead, what John and I would focus on is the positive frame of investing his time and money into the execution of his estate plan, so that he can view the planning process as proactive and important (see example regarding pizza and my daughter). 

  1. If the price tag out of his estate is what concerns him, then we could talk at length about the cost of probate. Where does John think that cost comes from? Yep, his estate. Often, beneficiaries must liquidate assets they’ve inherited to pay probate fees and it’s a process that can take months, sometimes years, to settle. All of that can be avoided by paying costs now (which will be less expensive than probate), instead of creating headaches and liquidity events for your family later. 
  2. The guardianship of his two minor children would be decided by he and his spouse now, not by a probate judge later. 
  3. His wealth could be passed on to his family exactly as he has intended. How is the lake home, the rental properties and the farmland to be divided, if at all? John can decide all of that while living and can adjust his wishes as he gets older and his situation changes. 

Spending time on these three topics alone, although there are many more to consider, is a positive way to frame the investment John is making in his family by creating an estate plan in the present, not pushing it aside for the future 

I have never sat down with a family member after having lost a loved one and had them tell me: “I wish my mother/father would not have been so organized.” By properly framing in your mind how you approach your estate planning, you will provide your loved ones with the peace of mind that your wishes are honored and that you are proactively managing your assets to benefit them as much as possible in future years.  

BerganKDV has a team of wealth advisors who can help you navigate your estate planning. Want to learn more about what we can do for you? Start here. 

The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. 

The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor. 

 

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