An Estate Plan is for Everyone
An Estate Plan is for Everyone
October 25, 2018
Estate planning is an important part of a good overall financial plan. Here is a list of common estate-planning mistakes we see in the office from time to time.
A first mistake is thinking that you don’t need an estate plan because you don’t have gobs of money that you’re leaving behind. This unforced error is rooted in the misconception that estate planning is just for the uber-rich who might be subject to inheritance taxes. While the wealthy may indeed have more complex planning, the core reason for estate planning is to develop a plan for the distribution of assets, during severe disability or ultimately death, according to the wishes of the individual, in the most expedient, efficient and least cost possible. As a local attorney once said, “You want to be looking down from heaven and all is transpiring the way you envisioned.” Estate planning involves more than just trusts and a Last Will. Nearly every good estate plan includes documents such as Durable Powers of Attorney, a Living Will and specific provisions for dependents that may be left behind.
One of the next biggest mistakes is the failure to title assets properly. You can have an attorney create the most effective, beautiful estate documents in the world, but they might be ultimately useless if the assets involved are not ‘re-titled’ in the name of said trust(s). For example, if the George & Martha Trust is designed to distribute the George and Martha Investment account in a certain way, but the investment account is not retitled in the name of the trust and has an old beneficiary designation that names George’s first child from a prior marriage as the sole primary beneficiary, guess who gets the money?
Which segues into the next big mistake; no or old beneficiary designations. Life insurance, IRA accounts and retirement plans are often the largest assets on one’s estate. Life happens and changes occur which often require updating beneficiary designations. These updates are critically important during major life transitions, such as divorce, marriage, new children, changing objectives regarding heirs, or even just creating an estate plan. A large insurance death benefit may be better off within a separate trust than going to the estate and an IRA beneficiary as one’s estate may result in unnecessary taxes paid.
Another less common, but important, mistake is naming inappropriate fiduciaries, such as executors, trustees, etc. Naming your eldest sibling to take care of administering your estate is a common default many people use, but is your eldest sibling the right person? He or she may not be all that organized, too busy with their own life or live in another part of the country where taking care of matters after you’re gone would be a huge (and costly) burden for them. For trustees to your trust, some people are just not able to handle the myriad details of trust administration (or may not want to). So when you name executors and trustees, consider these designees carefully and ask them first.
These are just a few of the errors that can occur after it’s too late. Have a written plan and exercise great care in the planning.