Keys to Avoiding Common Estate Planning Mistakes
Five Common Estate Planning Mistakes
Quick. When you hear the words estate planning, what mental
images do you see? Do you see beautiful, tanned people with
incredible wealth, living in enormous mansions, riding in shiny
limousines and boarding private jets bound for exotic destinations?
If so, then you are only partially correct. In reality, everyone has
an estate worth planning. Some are just more complex than others. In
this article we will review five basic estate blunders common to
princes and to paupers alike, from Wall Street to Main Street.
#1 Incapacity Issues
On your 18th birthday you are
considered an adult American citizen and you become responsible for
your own personal, health care and financial decisions. Even your
parents become strangers to you, in a legal sense, should you become
incapacitated. This same legal strangerhood applies, by the
way, between spouses.
As a result, every adult American, married or single,
should appoint agents through proper Durable Powers Of Attorney
to make their personal, health care and financial decisions in the
event of their incapacity. Alternatively, a probate court process
involving at least three lawyers may be required to appoint agents
to make such decisions for you under the ongoing supervision of the
court. And this can be rather expensive and invasive of your
privacy.
#2 Minor Children Matters
Silver and gold aside, if you are
blessed with children, then they are your most valuable assets …
even if you feel like trading them for S & H Green Stamps at times.
If your minor children were orphaned, who would rear them to
adulthood and impart your morals and values to them? In some states,
only through a Last Will & Testament can you appoint the
appropriate guardians (e.g., back-up parents) for your minor
children. Alternatively, in those states a probate court process may
be required to appoint them. This court process may be expensive and
public, and the court might not appoint the same parties you would
have selected.
#3 Death & Taxes
Death is a 100 percent certainty. When
it comes to transferring your earthly possessions upon your death,
you can either make it easy on your loved ones through proper estate
planning, or you can leave it up to the probate court system by
default. Prior planning is the more efficient and effective option.
There are a variety of planning methods to accomplish this transfer.
For example, Revocable Living Trusts are commonly used to
transfer assets post-mortem, independent of the legal system in many
states.
Benjamin Franklin astutely observed that the only two
certainties in life are Death & Taxes. It is settled law that
no taxpayer should pay more than his or her fair share in taxes.
That said, proper estate planning can save hundreds of thousands of
dollars from unnecessary federal estate taxes. If you are married,
your estate plan can be arranged to take full advantage of your
available estate tax exemption through a combination Credit
Shelter/QTIP Marital Trust.
#4 Inheritance Risks
No one values the worth of a dollar like
the person who earned it and paid taxes on it. Careful consideration
should be given, therefore, to protecting and preserving an
inheritance from squandering, or simply the many misfortunes of life
that your heirs might confront. This can be accomplished through one
or more Long-Term Discretionary Trusts. Properly structured,
such trusts can protect and preserve an inheritance for generations
to come from squandering, divorces, lawsuits and bankruptcies.
Without proper estate planning, a lifetime of thrift can disappear
in a season of conspicuous consumption, or through common personal
misfortune.
#5 Procrastination Perils
It’s never easy to face the issues of
our own mortality, so many adult Americans keep procrastinating.
They lack even a basic will, or they have outdated plans that no
longer meet their needs. As a result, these otherwise responsible
adult Americans may leave a legacy of unnecessary pain and conflict
for their loved ones.
 Family
Feuds
The bloody feud between the Hatfields
and the McCoys ended well over a century ago, spanned two decades
and resulted in a dozen deaths in and around the Appalachian area of
eastern Kentucky. This famous inter-family feud had all of
the elements of a Hollywood drama.
While the Hatfields and the McCoys may have settled
their differences long ago, intra-family feuds are rather
common these days following the death of a family member. That fact
was confirmed in a survey conducted by the AARP/Scudder Investment
Program of Americans age 50 and over. According to the survey, 20
percent of the respondents cited problems among surviving family
members due to their inheritance, or lack thereof. More often than
not, these feuds are over tangible personal property and family
business interests.
Tangible Personal Property
The survey (which allowed for multiple
responses) made an interesting discovery: Cash is the most prized
asset over which family members fight, but tangible personal
property (e.g., heirlooms like antiques and jewelry) came in a close
second. In fact, respondents reported that such property accounts
for 47 percent of the feuds, followed by personal residences at 43
percent, other real estate at 31 percent and other investments at 11
percent. Fortunately, the laws of most states provide a flexible
solution for the specific distribution of tangible personal
property.
As part of your estate planning, find out whether your
state authorizes a separate writing to be made on which you may list
the specific items and who is to receive them. In most instances,
this writing may be handwritten, but it must be signed and
incorporated by reference within the estate planning legal
documents themselves. A little time spent preparing this writing now
as part of your overall planning can help avoid problems later.
Family Business Interests
Did you know 90 percent of all U.S.
businesses are family-owned or family-controlled? They represent
one-third of the elite Fortune 500, generate one-half of the U.S.
Gross National Product and pay half of the total wages earned in
this country. However, a mere one-third survive their founders.
Failure to plan adequate liquidity for federal estate taxes can be
blamed for part of this dismal survival record, but family feuds are
another common culprit.
For example, will your surviving spouse continue the
business or sell it? Who will buy it? Will any of your children take
over and, if so, will they buy it or inherit it? How will the
inheritance of your other children be equalized? Are there any
in-laws who could become out-laws, just to stir up trouble? In
short, intra-family issues can cause a family business to run
aground. Coordinating personal estate planning with business
succession planning can resolve these issues before they arise.
Not surprisingly, the survey also found that of the
respondents reporting no conflicts over an inheritance, 63
percent said they had known what to expect ahead of time, with 82
percent believing their inheritance was fair. As always,
communication is key to family harmony.
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