A critical link in the chain that makes a smooth and productive transition to the next generation is an effective estate plan. Here are a few things to review to be sure you are on track.
- Will based estate plan, or no plan -- Wills can be good estate planning tools, but they are often not used correctly. A proper estate plan should include the goal of avoiding probate. A will that is not properly used often forces the estate into probate, and will likely create added expense and hassle for all concerned.
- An unfunded revocable living trust -- Unfunded trusts can lead to as many problems as a poorly written will. Often one, or more, holdings don't get properly included in the trust. Sometimes, this negates the benefit of the trust. Review the paperwork to be sure that complex assets like real estate, intellectual property, certain types of stock, business partnerships and promissory notes are properly included in the trust.
- Exposed assets -- Assets held as joint property can pose problems if the surviving spouse has a lot of debt. Be sure assets are titled correctly and insured properly. Otherwise, the estate could be held up in court as debtors seek to get their claws on those assets.
- Assets left outright to beneficiaries – Assets left outright can be unprotected from creditors, predators, divorcing spouses, lawsuits, outside influences, and an inheritor's own bad decisions. An experienced estate planning lawyer can help you find the appropriate instrument to protect the asset and deliver it to the intended beneficiary.
- Family members as successor trustees -- One problem with naming family members as successor trustees is that many people name two, or more, co-trustees. If the family members do not get along, if they don't trust each other, or if they disagree with each other's decisions, they could end up fighting about it in court. In that case, all the inheritors will be waiting for their inheritance, possibly for years. This can be avoided by naming an institution, such as a bank or trust company, as the primary trustee and the family members as co-trustees. The primary trustee can mediate disagreements that arise, saving the family time and money in the process. Experienced estate planners say that family strife is often a significant cause of estate planning failure after the trustmaker dies.
- Outdated beneficiary designations -- Even if you have recently updated your estate plan, one common oversight is revising beneficiary designations for annuities, 401(k)s, IRAs or life insurance to coordinate with the new plan. It is also possible that a beneficiary designation has not been changed since the account was initially opened. Check the beneficiary designations for accounts you opened a long time ago. Chances are, there are some forms that need updating.
- Too much or not enough life insurance – As I mentioned in an earlier post, it's prudent to review life insurance on a regular basis for plenty of reasons. Here are a few reminders:
- The federal and estate tax exemptions have changed in recent years. Life insurance bought to help pay estate tax may no longer be needed.
- Policies bought to create income maybe be under performing.
- Policies with high cash values may be ready to provide cash flow or terminated in favor of other investments; AND
- Many younger family members may be under-insured, leaving their loved ones vulnerable to lost wages and unmanageable debt, and your business transition may be undermined.
- Lack of long-term care planning -- While many people plan for what happens after they die, a surprising number fail to plan for extended illness or deteriorating mental capacity. Statistics show that most families will need to provide some long-term health care. A good estate plan will acknowledge this risk and cope with it somehow.
Are you wondering if your estate plan is out of whack? Contact my office at firstname.lastname@example.org. I love to talk about this stuff. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.