Estate Blunders Abound

I recently came across article on morningstar.com, entitled "Avoid These Estate-Planning Pitfalls." Author Christine Benz interviewed a top Chicago estate-planning attorney named Susan Jones and they discussed the following estate-planning pitfalls: misunderstanding beneficiary designations on retirement plans; improper inheritance arrangements for family members with special needs or disabilities, adult children with substance abuse issues, spendthrift/financial mismanagement issues, and/or minor children; failure to leverage lifetime giving (wealth transfers); and failure to use retirement funds for charitable giving in place of after-tax assets. It is an excellent article that makes many important points. I certainly commend it to your reading. However, to round out their discussion, allow me to add a few points of my own.

Incapacity Planning: Everyone age 18 and older needs to appoint agents through proper "Durable Powers of Attorney" to make their own personal, health care and financial decisions in the event of their incapacity. What happens if you fail to do so? Can you say "Terri Schaivo"? You likely would not know her name had she executed Advance Medical Directives (i.e., a Health Care Treatment Directive/Living Will and a Durable Power of Attorney for Health care Decisions) prior to February 25, 1990.

Guardians/Back-Up Parents: In Kansas and Missouri, the only way parents can appoint the Guardians (Back-Up Parents) for their minor children is through a "Last Will and Testament". Period. Otherwise, a Probate Judge (who may not know you and your family) will decide for you. By the way, those signed, written instructions you left on a cocktail napkin in the airport watering hole before your last flight will not stand up in court, even if witnessed by two semi-sober fellow travellers and a notary public.

Death & Taxes: Death is a 100% certainty (according to every actuarial table I have consulted and ample anecdotal evidence). However, each of us has a choice when it comes to how our assets will pass to our favorite charities and to our loved ones upon death. Whether your estate passes through the local Probate Court (e.g., via a Last Will and Testament) or outside of Probate (e.g., via a fully-funded Revocable Living Trust), one fundamental key to a smooth transition is the organization of your legal, financial and personal documents. For access to practical, complimentary organizational tools you may download and share, visit our website. As far as Taxes, it is settled law that no taxpayer should pay more that his or her fair share. As I write this there is no Federal Estate Tax, but remember: No taxpayer's wallet is safe as long as there is a Congress and a President in Washington, D.C. (and don't forget their counterparts at the state and local levels, too!).

Inheritance Risks: One matter over which I do part company with attorney Susan Jones is how to protect an inheritance "from" and "for" loved ones. In the above referenced interview, she suggests using a "trust to parcel out the assets over a period of time" with "half the assets at 25, but leave the other half in trust until they're 35. If they make some mistakes at 25, then at least it's not their entire inheritance, it's only a part of their inheritance." While I agree, that certainly is better than an "outright" distribution in one fell swoop, once the toothpaste is out of the tube... it's tough to get it back inside. Accordingly, I prefer to keep the inheritance in a Long-Term Discretionary Trust with Supplemental Needs, Substance Abuse and Spendthrift Protection provisions for as long as permitted under the applicable state Rule Against Perpetuities. As Oliver Wendell Holmes put it: "Put not your trust in money, but put your money in trust." In my opinion, why not "keep" it there as long as permitted.

Procrastination Perils: Many adult American fully intend to get their estate plan completed "someday". However, as Zig Ziglar notes, "Someday Isle is not a dream vacation spot." Despite such good intentions, a recent survey conducted by lawyers.com found that "Only 35% of Americans now report having a will and only 21% have a trust arranged." Without a doubt, the #1 Estate Planning Pitfall is good, old-fashioned Procrastination. Why? Here are a couple observations for you to ponder: (1) Estate Planning confronts us with our own morbidity and mortality. Given the option to confront such cheery matters or to do "anything else", most of us would elect anything else; and (2) Estate Planning is not something we do for ourselves, but for the folks we love most, because it is a lot easier (and cheaper) for us to make proper plans today than it will be for them to clean up a big old mess later on.

Bottom line: The act of making proper estate plans is, when you get right down to it, an act of unselfish courage (much like purchasing enough life insurance to provide financial security for your loved ones in a world without you). As estate planning professionals, it is our pleasure and privilege to work with such uncommon, everyday heroes.

[Well, I really did not intend for this posting to run this many paragraphs, but there you have it. However, feel free to read the online version of our February 2010 estate-planning newsletter for more, to include an article about avoiding "Family Feuds" and family business succession problems.]

Comments

[James Morgan - Puritan Financial Advisor]

I certainly commend it to your reading. However, to round out their discussion, allow me to add a few points of my own.