Expert Estate Planning Insights from Laura DiFiglio, CFP®, ChFC®

How do you envision your affairs after you pass away or become incapacitated? Who will receive your assets or wield decisive authority over carrying out your wishes? It’s not an exciting topic in the slightest, but an essential one for people of all ages and life situations to consider.

Creating and managing an estate is critical in financial and legacy planning. It provides clear written documentation of your preferences about what will happen to your belongings and to whom they should go. Without one, your desires may not be fulfilled, and beneficiaries may not receive what you intended to pass on to them.

While vital, estate planning can be complex and easy to put off as something to handle when you’re older or have much more money. To help clear up some of these misconceptions and emphasize the importance of proper planning, we spoke with Laura DiFiglio, CFP^®, ChFC^®, a financial advisor at Northwestern Mutual with personal and professional experience in estate planning.

Having an aunt who is an estate planning attorney whom she worked for in college, DiFiglio was introduced firsthand and early on to the importance of having an effective plan in place. Drawing from her experience working with clients at Northwestern Mutual, a firm which she highlights “is known for legacy planning,” and dealing with nuanced financial strategies, DiFiglio shares unique and valuable insight into how estate planning evolves at various stages of life and wealth.

Q&A With Laura DiFiglio, CFP^®, ChFC^®

Our interview with DiFiglio begins by exploring why estate planning can be overshadowed among competing short- and long-term financial priorities. Next, we learn more about the planning process and how it takes shape in different phases of life. This includes an overview of how a plan may look, including components and strategies that may comprise one, and the value of consistent attention and updating over time. Finally, DiFiglio explains the importance of planning and how one can get started.

Below is the Q&A format of our interview with DiFiglio:

Do you think estate planning is an often-overlooked area of building a financial plan? Why is this, and how can it take shape in different phases of life?

DiFiglio: “Yes, I believe estate planning is often overlooked when building a financial plan and I believe it is in part due to the misconception that estate planning should come towards the end of your life. There are so many small things you can do at any stage of planning.

“In early stages of planning, it’s good to know which assets you can designate beneficiaries on and which ones you cannot. Being able to designate a beneficiary will ensure an asset passes to your intended heir. Usually, liquid assets allow for beneficiary designations, think savings and investing accounts. Assets that do not allow beneficiary designation need to be handled with more care. For these assets to pass in accordance with your wishes, you will have to use one of the following tools – joint titling, trusts, and/or a will. Real estate is an example of an asset like this.

“As you start setting up accounts and acquiring assets, it’s helpful to keep in mind how you would want these assets to pass in the worst case scenario. This way you gradually build your estate plan and adjust as your life changes.”

What are some of the biggest issues you notice when people delay estate planning?

DiFiglio: “Some of the biggest issues we see are family feuds, and elevated costs associated with legal expenses and administrative charges. Feuds usually ignite when accounts don’t have beneficiaries assigned or are not in a trust. What happens is this account goes through probate which is a state’s legal process to validate a deceased person’s will and oversee the distribution of assets. Each state has its own order of operations on who would get what. There is a common saying that if you do not have an estate plan, the state has a plan for you. But it may not be the one you want.

“Other issues we see are high taxation. Estate tax brackets are much less favorable than ordinary income tax brackets. For this reason, you rarely want to have a trust as a beneficiary on a retirement account (such as an IRA).”

Can you share examples of estate planning tools that solve different financial challenges?

DiFiglio: “Direct Beneficiaries – these are individuals or entities that are explicitly named to receive assets upon the death of the asset’s original owner. They are entitled to the specific asset without need for intermediaries or additional legal processes. Having a direct beneficiary listed helps avoid probate which can be costly, communicate clearly who the asset should pass too, help with tax efficiency, and allow for privacy as the asset is transferred.

“Contingent Beneficiaries – these are individuals or entities designated to receive assets, benefits, or proceeds from financial accounts, insurance policies, retirement plans, trusts, or estates if the primary beneficiaries predecease the asset owner or are otherwise unable or unwilling to accept the inheritance. They serve as a backup to the primary beneficiaries, ensuring that the asset owner’s wishes are fulfilled even if the primary beneficiaries cannot inherit.

“Transfer on Death account – A Transfer on Death (TOD) account is a type of financial account that allows the account owner to designate one or more beneficiaries to receive the account assets upon the owner’s death, bypassing the probate process. The owner retains control of the account and its assets during their lifetime, and the designated beneficiaries have no rights to the assets until the owner’s death. Making sure all non-retirement investment accounts have the TOD (or transfer on death) designation is a simple way to start estate planning.

“Per Stirpes – this is a legal term used to describe a method of distributing an estate (or asset) such that if a beneficiary predeceases the testator (the person who has made the will) of the asset owner, that beneficiary’s share of the estate passes to their descendants. The term literally means ‘by the roots’ in Latin, indicating that the inheritance follows the family lineage. You can add this designation to any investment account.

EXAMPLE:
Imagine a testator has three children: Alice, Bob, and Carol. If the estate is to be divided equally among them, each would receive one-third. If Bob predeceases the testator but leaves behind two children (David and Emma), Bob’s one-third share would be divided equally between David and Emma.

“Revocable Trust – A revocable trust, also known as a living trust or revocable living trust, is a legal arrangement where the grantor (the person who creates the trust) transfers ownership of their assets into the trust, retaining the right to alter, amend, or revoke the trust during their lifetime. The trust’s assets are managed by a trustee (who can be the grantor during their lifetime) for the benefit of the trust’s beneficiaries. Upon the grantor’s death, the trust becomes irrevocable, and the assets are distributed according to the trust terms. Having a revocable trust in place helps avoid probate which can be costly, communicate clearly who the assets should pass too, allow the grantor to retain control of the assets during their lifetime, and allow for privacy as the assets are transferred.

“Irrevocable Trusts – An irrevocable trust is a legal arrangement in which the grantor transfers ownership of assets into the trust, relinquishing control, and ownership rights permanently. Once established, the terms of an irrevocable trust cannot be easily altered, amended, or revoked by the grantor. The trustee manages the trust assets for the benefit of the beneficiaries according to the terms set forth in the trust document. A few problems that irrevocable trusts solve for are high estate tax liabilities, asset protection, Medicaid planning, charitable giving desires, special needs planning, and business succession planning.

“Charitable Lead/Remainder Trust – A Charitable Lead Trust is an irrevocable trust designed to provide financial support to one or more charitable organizations for a specified period, after which the remaining trust assets are distributed to non-charitable beneficiaries, such as family members. While a Charitable Remainder Trust is an irrevocable trust that provides an income stream to one or more non-charitable beneficiaries for a specified period, after which the remaining trust assets are transferred to designated charitable organizations. These trusts offer great tax benefits such as helping reduce estate and gift tax liabilities, giving an income tax deduction, and allowing for capital gains tax deferrals when using appreciated assets to transfer into the trust – since the asset isn’t sold, there is no realization of the gain at the time of gifting.

“ILIT – An Irrevocable Life Insurance Trust (ILIT) is a type of irrevocable trust specifically designed to own and manage life insurance policies. Once established, the grantor (the person who creates the trust) cannot change or revoke the trust. The trustee, who is appointed by the grantor, manages the trust according to its terms for the benefit of the trust’s beneficiaries. These trusts are handy when wanting to plan for an estate tax liability. By having the trust own a life insurance policy, that death benefit amount will be kept out of a decedent’s estate and can be used to pay any tax owed on other assets help in the decedent’s estate.”

How do you help clients figure out which estate planning strategies best fit their needs?

DiFiglio: “It all starts with identifying a problem. Before any strategies are discussed you want to have a deep understanding of what a client is trying to accomplish. The basics will involve ensuring assets pass to the intended heirs in the most tax efficient way possible, however there could be other considerations and concerns a client has. For instance, a client who has a special needs child. Not only will their goal be to pass assets to this child and provide financial aid, but it will also involve making sure these transferred assets won’t disqualify the child from receiving any government aid. Another example would be clients with blended families. They may have specific wishes on how much is passed to who, and when it would pass.”

How often should someone review or update their estate plan? What might be a cause for evaluation?

DiFiglio: “I would say annually, regardless of the size of your estate. If you keep up with small changes (like beneficiary designations or per stirpes elections) your plan will always be up to date. For those with larger estate, it will be helpful to have an easy to read flow chart to know which assets are held where and how/when they will transfer. This way, as things change and need to be updated, you will know which documents to update.”

If someone hasn’t started estate planning yet, how can they get started?

DiFiglio: “Starting can be as simple as making sure all bank accounts, savings accounts, and investment accounts have direct and contingent beneficiaries assigned. If you are starting later in life and have grown children with the potential for grandchildren, adding a ‘per stirpes’ designation to the account would be recommended. This means that if a child outlives a parent who is a direct beneficiary on an account, that parent’s share would pass to the child or to their children in equal shares.

“Next would be to establish a revocable trust for any assets you cannot designate a beneficiary on, like real estate. Along with drafting appropriate powers of attorney and a last will and testament.”

Conclusion and Key Takeaways

As our interview with DiFiglio illustrates, estate planning is integral when building a complete financial strategy, ranging from the short- and long-term, and beyond life. Though it’s not uncommon to believe it’s only for later in life or the highly wealthy, preparation can begin much earlier for anyone, with steps as basic as naming beneficiaries on accounts and assets. Lacking a documented plan for your estate can cause your investments and belongings to face a costly and time-consuming probate process, which the state will conduct without regard to your intentions.

Another key takeaway, according to DiFiglio, is that estate planning isn’t a one-time task. Instead, it involves various legal documents and financial tools—such as revocable or irrevocable trusts—with different ways to protect assets and direct wishes. It requires frequent consideration and updating when life changes occur (e.g., marriage, having children, home purchases, or divorce).

Because of the complexity surrounding estate planning, it’s a good idea to work with one or more professionals, such as an attorney or financial advisor. An expert can help you put a plan in place, create documents, set up trusts, and provide perspective and tailored guidance on which strategies best fit your situation and needs.