We’ll fight the online content trend of opening with boilerplate and making you hunt for the gist, so here it is: if you’re not regularly updating your estate plan to reflect life events, you’re likely passing a heap of trouble onto your heirs.
Unless you’re devilishly perverse – we’ll still take your business, though we’ll urge you to see sense – that’s not a recommendable strategy.
It’s curious how momentous life events can pass without clients making adjustments to their estate plans, and even curiouser that their advisors allow it to happen. Consider some common cases:
A marriage ends and neither party adjusts the beneficiary structure of their will – the wrong person gets your money and someone truly beloved gets stiffed.
A son or daughter tragically falls prey to drug addiction. Your will leaves substantial cash and assets to the stricken child. Establishing a trust to fund addiction treatment is a sound plan; leaving money and fungible assets in this case is a form of assisted suicide. The regular review process is clearly a serious affair.
We see several common mistakes in estate planning. The one true howler is not having a plan at all. Three key documents lay the foundation: a will, power of attorney for financial affairs, and a similar assignment to cover a healthcare emergency involving physical or mental impairment. If a client doesn’t have these three things in place, it’s time to get busy.
No will means your state will determine who receives a person’s assets. Even if there’s evidence of what a client wished, officials are unlikely to give it much consideration. Related court procedures are expensive and prolonged, a poor legacy to leave to loved ones. If illness or accident strikes during life, failure to establish powers of attorney can lead to terrible squabbling among family and friends and all manner of legal hassles. Indeed, it’s even possible that a person’s medical treatment could be bungled as a result, so take care while you can.
Do clients know that a will doesn’t control all of their assets? Life insurance and retirement accounts like IRAs and 401(k)s, commonly left as legacy gifts to heirs, require a named beneficiary, whether an individual or trust. This information should be kept current at all times with an annual review as a recommended minimum.
If spouses hold assets in common they need to familiarize themselves with the two key forms of ownership: Joint Tenants with Rights of Survivorship (JTWROS) and Tenancy in Common (TIC). Under JTWROS, when one half of the couple dies, the survivor inherits all assets. Let’s say the decedent’s will assigns a portion of his or her wealth to a charity. This transfer will never take place, as all assets will automatically go to the surviving spouse, who then has complete control and no legal obligation to follow anyone’s wishes. If you want to make an independent determination of how to disburse your fortune, establish a TIC.
Revocable living trusts are popular with many clients, as they reduce or even eliminate the impact of post-mortem probate procedures. They keep the whole process private, too, helping avoid any further legal complications. The revocable living trust is a good strategy, but practitioners commonly stumble into an odd mistake: they create the trust, but fail to legally transfer assets into it. You’d think this unthinkable, but we see it all of the time. Creating a trust is hard work involving mountains of paperwork, and while it isn’t surprising that something would be overlooked, this one is potentially momentous. Don’t let it happen to your clients.
For more information, please read:
Is Anything Wrong with Your Estate Plan? Here are 5 Common Mistakes | Kiplingers