Five Estate Blunders

     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 estates just are more complex than others. In this article we will review five basic estate blunders common to princes and to paupers alike.

#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 court process involving at least three lawyers may be required to appoint agents for you, with ongoing court supervision. This can be both invasive and expensive.

#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? Only through a Last Will & Testament can you appoint the appropriate guardians (i.e., back-up parents) for your minor children. Alternatively, a court process would be required to appoint them. This process is not only expensive and public, but the court may not appoint the same parties you would have selected.

#3 Death & Taxes

     Death is a 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 court system by default. Prior planning is, without fail, 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.
     Taxes are the other certainty of life, as Benjamin Franklin so aptly observed. That said, proper estate planning can save hundreds of thousands of dollars from unnecessary federal estate taxes. If you are married, is your estate plan taking 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. Have you arranged your estate to impart your work ethic to the next generation and beyond? Careful consideration should be given, therefore, to protecting and preserving an inheritance through one or more Long-Term Discretionary Trusts for your loved ones. Properly structured, such trusts will 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

     Some 58 percent of adult Americans lack even a basic will* (and many others have an outdated plan that no longer meets their needs**). Simple procrastination is the primary reason. Sadly, as a result, these otherwise responsible adult Americans may leave a legacy of unnecessary pain and conflict for their loved ones.

* Lawyers.com study (May, 2004)
** Anecdotal experience

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. Oftentimes these feuds are over tangible personal property and family business interests.

Tangible Personal Property

     The survey 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, these states authorize a separate writing to be made on which you 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 legal estate planning documents themselves. A little time spent preparing this writing as part of your overall planning can help thwart 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. Sadly, only one-third survive their founder. Although federal estate taxes can be blamed for part of this dismal survival record, family feuds are as likely the culprit.
     For example, will your surviving spouse continue the business or will they sell it? Who will buy it? Will any of your children take over the reins and, if so, will they buy it or inherit it? If they 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. Only by carefully coordinating your personal estate planning with your business succession planning can these issues be resolved before they arise.
     Not surprisingly, the survey 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.