Do you know how much transfer of wealth is currently under way as aging baby boomers pass their assets to successive generations throughout the world?
Without efficient instructions, a lot of this wealth could take time to handover to loved ones.
Dying without a Will
For individuals who are unfortunate enough to die intestate (without a Will), the price can be high. Government laws determine who manages and inherits a deceased person’s property that is not transferred by a beneficiary designation.
Family members who are entitled to inherit an intestate decedent’s estate often have to spend significant amounts of additional funds proving their relationship to the decedent or setting up guardianship or trusts for minors or disabled beneficiaries.
Moreover, relatives who you may not wish to benefit may inherit their assets, and disabled heirs receiving your financial assistance would have to wait, sometimes months, for your continual distribution.
Neglecting to plan for incapacity or disability
It is equally important to establish documents appointing agents to manage one’s health care and business affairs in the event of incapacity as it is to have a valid Will. Health care proxies and powers of attorney are typically the primary means of appointing agents to make health care and business decisions in the event of incapacity, whether temporary or permanent.
Without these documents, Government law will determine who can make health care decisions and a guardian may have to be appointed to permit financial and health care decisions to be made for an incapacitated person.
Trying to ‘DIY’ important documents
Documents or plans made by clients who think they can accomplish their planning on their own or from self-help websites are frequent sources of estate planning mistakes.
Often clients ask whether their printed form or handwritten document can constitute a Will, power of attorney or other estate planning document. Even if the document form itself is valid, very often the client will not know how to correctly execute the document.
Improper beneficiary designations and joint accounts
Bank and brokerage accounts with beneficiary designations or accounts that are jointly owned are often attractive because they will automatically transfer to the beneficiary or joint owner at death.
Clients who are unaware that their Wills do not control the transfer of these accounts at death often title their accounts without paying attention to how the transfer fits into their entire estate plan.
Not re-examining an estate plan
People should not create and forget about their estate plan, as changes in the law or family structure can invalidate prior planning. For instance, the birth of a child, marriage, death or divorce will normally change the emphasis of a plan, whereas an increase in the amount that can pass free of estate and gift taxes may change the type of documents needed.
To avoid obsolescence, families should typically re-examine their estate plan with an estate planning professional every five to seven years or after a major life event such as a death or a marriage.
Forgetting that multiple marriages need planning
Entering into another marriage and blended family situations can be stressful, so couples getting remarried often do not create agreements to determine how their assets will be divided at their deaths. Without proper planning, a surviving spouse or children and grandchildren from a prior marriage can be left penniless or without proper resources upon the death of the first spouse. Creating trusts or buying additional life insurance for second spouses to provide assets for each other as well as their descendants at death.
Planning ahead can help ensure family harmony and reduce costly litigation.
Keeping secrets from your estate/financial planner
Sometimes people are reluctant to provide complete information regarding their family or finances and only provide incomplete or vague details. An accomplished estate planner may be able to make suggestions that will avoid future family conflict, increase the value of an estate and minimize taxes. These objectives are not possible, however, if the planner doesn’t have accurate financial information or a complete picture of the family dynamics.
The key to avoiding costly estate planning mistakes is generally a willingness to spend the time and the resources to ensure the family is protected in the event of their death or incapacity. Often, a little time and money spent planning can prevent spending a lot of time and money later correcting planning errors.
We’re here to help and answer any question you might have. We look forward to hearing from you.