We’ve all heard the estate planning horror stories, known someone who spent years trying to untangle a legal mess when a loved one died, retold stories of family in-fighting and hurt feelings because someone’s wishes weren’t made clear.
Proper estate planning is so important to formally arrange how a person’s assets will be managed and distributed after their death or incapacity — often through the creation of legal documents such as trusts, wills, a power of attorney and a health care directive. Yet, too often I’ve seen well-meaning clients make crucial missteps that have led to, at best, unnecessary inconvenience or, at worst, years of legal battles and massive expense.
The good news is with a little forethought and some solid estate planning advice from your wealth advisor, you can not only protect and provide for your loved ones but also minimize taxes and avoid probate.
I want to highlight three actual client stories to demonstrate a few important lessons everyone should keep in mind as they approach estate planning. The more you learn about the pitfalls, the more empowered you’ll be when creating your own plan — and the greater your own peace of mind.
I once worked with a married couple who set up their estate plan in 1999 when their two daughters were small — and never revisited the plan as the kids got older. Here’s why that can cause a problem.
The children grew up, and while one became a successful and responsible adult, the other daughter was not able to manage her own money and would burn through anything she could get her hands on.
When the father died in 2013, part of the trust changed from revocable to irrevocable, meaning it could no longer be changed. The mother realized that also meant when she died, half of that money would go to the second daughter. The mother knew the second daughter would not be responsible with that money because she really couldn’t even take care of herself. She was terrified the money would be wasted almost immediately.
As a result, the mother was forced to undergo an expensive process known as decanting — a complicated estate planning maneuver that shifts assets from an existing trust to a new one. She wanted to create a special needs trust overseen by a trustee that would allow the second daughter to receive regular amounts of money to cover living expenses without allowing access to the full amount. The process was long, complicated and expensive.
The lesson: By not regularly reviewing their family’s economic, financial and emotional health – along with how their heirs are developing as they grow up – this mother wasn’t prepared to distribute her assets like she wanted. An estate plan is meant to be a living and breathing thing, so remember to review and update it regularly with your estate planner.
One wealthy client was unfortunately facing a dire cancer prognosis and made an appointment with me to make changes to his estate plan. (He was previously working with his sister-in-law, which he thankfully realized included numerous conflicts of interest.)
We met, gathered all the current paperwork, and got the attorney involved to clean up the situation. We handled all the investment accounts, but the client notified us he also had a sizable chunk of money in a separate bank account. He promised he would handle making all the necessary changes to that account himself. Unfortunately, he procrastinated and died before he could.
Because he didn’t get around to titling the account properly, that money was forced to go through probate. While he wanted that cash to go to his sister-in-law and nephew, the probate process would mean that when that nephew (who had special needs) received the money, the windfall would have disqualified him from federal aid.
We had a lot of cleanup to do on this one and were forced to involve a second estate planning attorney to get it all corrected.
The lesson: One small misstep in the estate planning process can have major ramifications to your assets. Follow the instructions of your advisor to the letter (or let them handle all the necessary steps for you). That way you can be sure everything is done correctly and in plenty of time.
The third lesson is about simplicity. In a family I recently worked with, dad had already died, and mom was in an assisted care facility. Her four children helped her set up a simple will, with all assets payable on death and each of the four kids receiving 25% of the total amount.
Because the children all got along and were on the same page as their mother, everybody gets their equal share, and nothing needs to go through probate. This is an example of an estate plan without a trust with properly titled assets for a non-probate estate — all accomplished with beneficiaries.
The lesson: Don’t let a misperception of the estate planning process keep you from acting. Often, the simplest plan is the best one, and you can achieve your end-of-life financial goals without a lot of fuss or expense.
Learn from these client experiences! Proper estate planning allows you to truly take control of your legacy, ensuring your wishes are honored and your loved ones are protected. The last thing you want is to burden those left behind with a complicated legal process or a lot of expensive paperwork.
With a little proactivity and a trusted advisor, we can establish a plan based on your specific goals: provide for your children, support a favorite charity, preserve a family heirloom or just divide your assets fairly to keep your kids from fighting over it. The best first step? Don’t wait another day to get started.
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Tony Moeller is a partner, senior advisor and chief compliance officer for MN Wealth, and a dedicated professional with more than 35 years of experience providing a personalized approach to investing. Drawing from his past accounting experience and fee-only environment, Tony can create investment recommendations and manage funds completely objectively. Tony has been awarded the Five Star Wealth Manager Award multiple times as well as Best in Client Satisfaction for the Kansas City metro area.