We live in uncertain times. From the weather to financial markets to medicine, the desire to predict future outcomes and manage associated risks is a fundamental human endeavor that pervades our personal and professional lives. Just as the medical profession strives to manage health and disease risks to ensure sound health, the estate planning profession strives to manage risks to ensure a client and his or her family’s financial health and wellbeing. Whereas the practice of medicine focuses on the health of the individual, estate planning focuses on the financial health of the individual and the family and decisions made today can significantly impact family wealth for generations.
For best results, each profession requires a collaborative team approach. Whereas the medical practice engages a team of physicians, nurses and technicians, the estate planning team consists of attorneys, accountants, corporate trustees, investment advisors and life insurance professionals.
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Robert Uzzo, MD, professor and chairman of surgery at Temple University’s Fox Chase Cancer Center in Philadelphia, has developed an innovative approach for understanding, communicating and managing patient medical risk. Based on his model, all forms of patient risk can be categorized into one of the following “quadrants of risk” (figure 1): 1) biological risk, 2) patient risk, 3) hospital risk and 4) physician risk.
This quadrant model can provide a parallel track for estate planning advisers to follow with corresponding quadrants: 1) discovery risk, 2) client risk, 3) institutional risk and 4) adviser risk. Just as understanding and managing the quadrants of medical risk can result in better medical outcomes, understanding and managing the quadrants of estate planning risk can result in superior estate planning outcomes.
1. Discovery Risk
For physicians, the first quadrant is “biologic risk” or the biological risk of a tumor or disease. It represents the range of how a tumor or disease may behave.
For estate planning, the first quadrant represents “discovery risk.” Discovery is a process that identifies and defines the client and his or her spouse’s primary goals and objectives and serves as the foundation of a well-designed estate plan. The goal of estate planning is to first ensure that the client will not outlive his or her resources, then plan for the orderly and secure transfer of wealth to children and succeeding generations. Discovery identifies family members and their unique needs, reviews existing planning, inventories assets and liabilities (and their ownership), determines the need for creditor and divorce protection, trusts and more sophisticated planning, and explores charitable intentions and goals.
Substantial discovery risk is introduced if the process does not involve the frank and honest exploration of many personal aspects of a client’s life. It is therefore essential for the adviser to build trust to facilitate open and engaging communication to minimize this risk and set the stage for an effective planning process. In addition, just as an individual has a need for lifetime medical care, discovery is an ongoing process that takes place throughout the client’s and family members’ lifetimes.