Feb 6, 2023
Top 5 mistakes in estate plans: Does yours have any?
Not everyone has an estate plan—or one that’s up-to-date and reflects current circumstances—but we believe they should. The primary purpose of an estate plan is to provide for the thoughtful, efficient transition of asset ownership to intended heirs. After an estate plan is drafted, mistakes can creep in and upset a carefully drafted plan. Below are five of the more common problem areas to consider and, if required, address in your plan.
1. Misusing joint ownership
Joint tenancy is a common form of ownership that automatically transfers ownership to the surviving joint owner. Very often, a widowed parent will add a child as a joint tenant on a bank account so that the child can access the parent’s cash should the need arise. When the parent passes away, the joint owner child is the sole and outright owner and is not required to pass the assets according to the parent’s (i.e., the decedent’s) will or trust. The easy solution is to let the child have access via a power of attorney (POA), which provides access but not ownership.1
2. Failing to title assets in a revocable trust
In our experience, revocable living trusts have become the estate planning document of choice since they help avoid the costly court proceeding known as probate. These trusts also help address a person’s affairs if they become disabled. When a trust is drafted, a person should work with their attorney to make sure the ownership of appropriate assets is changed into the trust name so that the trust terms will apply as planned. Leaving assets in a person’s name only may be appropriate in some circumstances, but doing so will likely trigger the need for probate.2
3. Failing to update beneficiary designations
Beneficiary designations transfer ownership of assets to the named beneficiary. The more common assets that utilize beneficiary provisions seem to include life insurance, IRAs, 401(k) plans and annuities. The named successors to such assets should be reviewed periodically with an attorney and financial advisor. Perhaps the owner’s revocable trust should be the beneficiary, so its provisions continue. After all, the trust usually contains a person’s main planning strategies. The surviving spouse may be the best choice for IRAs or similar assets. Making the surviving spouse primary and the owner’s trust a contingent beneficiary may give the surviving spouse the most planning flexibility.3
4. Not keeping up with the times with powers of attorney
A POA for property authorizes a person (agent) to act for the principal (i.e., the person granting the POA). Such instruments are critical when a person is unable to tend to their affairs, and it’s important to have financial matters tended to. POAs can become outdated, such as in the case of digital assets and website access credentials. Unless a POA specifically states that the agent may access the principal’s digital assets and websites, the agent may be prevented from doing so. Having health care POAs with current provisions is important, too, given the ever-changing health laws, such as those concerning privacy in HIPAA (the Health Insurance Portability and Accountability Act) legislation. POAs are easy to update and should be reviewed often to ensure they remain accurate.4
5. Distributing assets to children too early
Parents generally leave assets in trust to their children. A child’s trust can delay the outright receipt of assets until a given age or place other constructive restrictions to help a child make good financial decisions and not squander the assets. Parents are often under the misconception that a child has no access to trust assets until the specified age for outright distribution. Before such age (or ages), the trust usually permits distributions for “health, education, maintenance and support.” Why not delay the outright receipt to a later age, so long as a child has access for necessary expenses? This would help ensure the money can last longer and be used for the intended purposes.5
An estate plan has many important aspects to it. Consulting with an attorney to make sure all aspects of your plan are in good order is critical for the plan to accomplish your estate-related objectives.
ABOUT THE AUTHOR
BDF LLC is a private wealth management firm. We provide personalized investment management and financial planning. We manage approximately $5.9 billion in assets for business owners, women, individuals and families, and institutions.
We also have Practice Groups that specialize in the unique needs of:
- Financial Professionals
- Insurance Brokers and Agency Owners
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