We need to correct our estate planning when we try to DIY our estate planning.
Estate planning disasters and how to avoid them.
There are trillions of $ in the transfer of wealth globally as ageing baby boomers pass their assets to successive generations.
These transfers, together with the ever-changing taxation rules around the world, are making the distribution of our estate more difficult for our loved ones when we die.
I’m a firm believer in do-it-yourself projects. There are many DIY car maintenance, home improvement, and financial tasks that you can pursue on your own to save money.
However, certain matters inevitably require professional assistance.
Writing a Will is one such undertaking that works best with others. Many Will-writing tools are available online, but none guarantees that your final document will be error-free. Please stay calm in your head. As seriously as completing your Will; I need professional help.
Dying without a Will
Fewer adults have a Will than should. The price can be high for individuals who are unfortunate enough to die intestate (without a will). Government and local laws determine who manages and inherits a deceased person’s property. It will not transfer by a beneficiary designation or law.
Family members entitled to inherit an intestate decedent’s estate often have to spend significant amounts of additional funds. Just to prove their relationship to the decedent or setting up guardianship or trusts for minors or disabled beneficiaries.
Moreover, relatives whom a client may not wish to benefit may inherit their assets. Disabled heirs receiving government benefits, medical assistance, or supplemental security income could have their benefits terminated or disrupted.
So writing your Will alone would save your loved ones a fortune trying to gain access to your assets.
Neglecting to plan for incapacity or disability
It is equally essential 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. Healthcare proxies and enduring powers of attorney are typically the primary means of appointing agents. This ensures healthcare and business decisions in the event of temporary or permanent incapacity.
These documents are necessary for the government and local law to determine who can make health care decisions. A guardian may have to be appointed to permit financial and healthcare decisions for an incapacitated person.
Trying to ‘DIY’ essential 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, durable power of attorney or other estate planning document. Even if the document form is valid, the client must learn how to execute the document very often.
An improperly performed Will execution ceremony, for example, invalidates the instrument. There is generally no substitute for hiring a qualified professional. This ensures that one’s documents comply with and follow the law.
Improper beneficiary designations and joint accounts
Insurance or Pension contracts with beneficiary designations or accounts/assets that share ownership. These are often attractive because they will automatically transfer to the beneficiary or joint owner at death.
Clients unaware that their will does not control the transfer of these accounts at death often title them. However, without paying attention to how the transfer fits into their entire estate plan.
For example, naming your parents as the beneficiary of your life insurance and then instructing that your life insurance passes to your sibling in your Will.
Clients engaged in estate planning should consult their professional advisors about their account titling and beneficiary designations to ensure they reflect their plan’s design and do not circumvent it.
Refrain from re-examining an estate plan.
People should not create and forget about their estate plans, as law or family structure changes can invalidate prior planning.
For instance, the birth of a child, marriage, death, or divorce will typically 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 re-examine their estate plan with an estate planning professional every five to seven years or after a significant life event such as a death or a marriage.
Forgetting that multiple marriages need planning
Entering into another marriage and blended family situation can be stressful. Couples getting remarried often do not create agreements to determine how their assets will divide at their deaths.
Without proper planning, a surviving spouse or children and grandchildren from a prior marriage can be left penniless or without appropriate resources upon the first spouse’s death.
Creating trusts, buying additional life insurance, and titling joint accounts can be necessary for second spouses to provide assets for each other and their descendants at death.
Planning can help ensure family harmony and reduce costly litigation.
Keeping secrets from your estate 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 can make suggestions to avoid future family conflict, increase the value of an estate, and minimise taxes. However, these objectives are impossible if the planner doesn’t have accurate financial information or a complete picture of the family dynamics.
Often involving other professionals (like an accountant or family lawyer) and developing a relationship with the estate planner will provide the necessary background to formulate the proper strategy.
The key to avoiding costly estate planning mistakes is generally a willingness to spend the time and the resources to ensure the family is taken care of 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.
Please feel free to contact us at www.careysuen.com if you have any questions.
