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 18^th 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.