deadly estate planning mistakes (Forbes article)

April 24, 2018 - Posted by: admin - In category:

taxes - No Responses

One can learn much about writing catchy headlines from websites like Forbes and  Similar to the CNBC article mentioned the last post, last week, Bob Carlson posted “Avoiding 7 Deadly Estate Planning Mistakes” on  Let’s be real, the mistakes referenced by Mr. Carlson in his article are not really going to be deadly to anyone.  Even so, the title is a good play on words and the article it is a worthwhile read for anyone who has an estate plan or who may have one in the future (i.e., that’s just about all of us).

Most estate planning mistakes tend to be fall into one of several categories. Every estate plan has unique features, but the same problems and mistakes recur. Many mistakes don’t vary with the value of an estate and other factors. Each of the classic mistakes is avoidable. All that’s needed is knowledge of what to beware of and a little time working with your planner.

Well said.  Here are the main topics/common mistakes covered by Carlson in his article:

  • not understanding the estate planThis is sometimes due to poor explanation by the attorney and/or failure of clients to try to understand and ask enough questions.  But regardless of why, the fact is that a high percentage of folks with estate plans have an incomplete or inaccurate understanding of how that plan works.  Does that mean you are expected to become an expert on every single detail, every word, every legal doctrine and statute?  No, of course not.  Just as I don’t understand how to fix my own car and need the auto mechanic to help with needed repairs (and even to explain to me what all those wires and parts are under the hood), a non-lawyer is not expected to be an expert on trust law.  Even so, I know enough about my car to be able to use it appropriately, what required maintenance I should handle myself and when I need to take my car back to the mechanic for assistance.  By analogy, the estate plan owner should have a solid understanding of the main points of their trust and how it works generally.  Some trust maintenance can be done by the client and some update work requires assistance from a qualified estate planning attorney (as well as an accountant, at times).
  • outdated beneficiary designations:  Assets which never make their way to the distribution network of the Will or trust because of improper beneficiary designations often eventually end up somewhere or with someone unintended.  It is vital to remember that insurance policies/products (including annuities), investment accounts, retirement accounts and some bank accounts which utilize payable upon death designations must direct such asset to be payable to your trust upon your passing.  Otherwise, it makes no difference what you have provided in your estate planning papers with regard to such assets.
  • improper trust funding, or at least incomplete and outdated trust funding: In my experience, this is the most pervasive problem with existing trusts.  Attorneys most often draft estate planning papers, including the trust agreement(s), and then give clients instructions about how to fund assets to the trust(s), along with a stern exhortation that the job is not done until assets have been funded to the trust.  The clients will often nod their heads in affirmation of understanding that such additional work needs to be done.  And yet, a shockingly high percentage of trusts are either partially or totally unfunded.  This is something that can be remedied if done prior to disability or death and it is actually fairly simple in concept.  But it does take some effort and the right steps with regard to each type of asset.
  • lack of coordination between estate plan generally and retirement accounts:  For years, financial advisors have been told/trained that trusts cannot be used as a conduit for qualified retirement plans.  Accordingly, many such advisors have passed such information on to their clients.  However, such advice is very often outdated and incorrect.  Trusts can be appropriate beneficiaries for retirement fund accounts without negative tax consequences as long as such trusts are properly drafted and maintained as “see through” or “qualified beneficiary” trusts.  This means the trust has the requisite provisions to permit it to pass IRS scrutiny and still enable trust beneficiaries to use their respective life expectancy in the calculation of required minimum distributions (RMDs).  Trusts can provide significant asset protection benefits not available when individuals are named outright as beneficiaries.
  • lack of or inadequate powers of attorney:  Powers of attorney, both for assets (a/k/a durable power of attorney for property) and health care decisions (a/k/a living will or advance health care directive) are important parts of every estate plan.  These documents, like trust agreements and Wills, are governed by applicable state law and should be customized to the person and the circumstances as with all other estate planning documents.  
  • stale plans, covered with dust:  Even the very best, the most customized, the most ornate and the most “modern” estate plan will become outdated as time goes passes.  As a general rule, we recommend that clients look at updating their estate plan every three to five years.  However, if there are significant changes in life circumstances (including a new house, new investments, new business, etc.) in the interim, the estate plan should be updated to account for such changed circumstances.

Once again, here is a link to that article by Bob Carlson.

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