In last week’s article, I covered five common estate planning mistakes, including beneficiary errors and naming specific investments in your will. Here are six more issues to consider and discuss with your estate planning attorney.
1. Failing to plan for the death of a beneficiary
If one of your two beneficiaries dies, where does that person’s share go? Does it go to the surviving beneficiary or to the deceased beneficiary’s family?
Choosing the first option could unintentionally disinherit grandchildren by leaving everything to the surviving beneficiary and that person’s family.
This involves the difference between per capita, Latin for “by heads,” meaning per person, and per stirpes, Latin for “by branch,” meaning each branch of the family receives a share.
One way to state your wishes might be to leave your assets to “all lawful children equally, per stirpes.”
2. Making ownership mistakes or creating imbalances
Holding too many assets in one spouse’s name could accelerate or increase certain taxes. Consult your tax adviser about your situation.
Often, one spouse has worked longer and accumulated a much larger IRA. That spouse may also hold a vacation home or investment accounts solely in his or her name.
Moving ownership of a house or investment accounts to the other spouse may create a more balanced estate and reduce the possibility of taxes being owed after the first spouse dies.
3. Failing to think through a well-intended gift
One client wanted to make sure her three daughters always had a home to visit at the Shore after she died. Her will stated that the children could not sell the house unless each of them owned a home in that town.
Two of the daughters lived in the same town. The third had moved across the country to San Diego several years before her mother’s death and did not want to own a home at the Shore.
Because of the way the will was written, the heirs went through a lengthy court process before receiving permission to sell their mother’s home. During that period, the property’s value declined dramatically. By the time the house was sold, the heirs had lost more than $500,000, in addition to paying legal fees.
4. Failing to plan for the unexpected
Your health or your spouse’s health could suddenly decline, or the value and type of your assets could change.
What would happen if one of your children divorced or faced creditors? Can your heirs responsibly manage a large inheritance? Many circumstances can arise that you may not have considered.
These concerns are commonly addressed by directing assets into a trust. A trust can control how, when and to whom money is distributed, unlike an outright inheritance through a will.
My assets, for example, will go into a trust. My children will receive distributions at ages 25, 35 and 45 unless the trustee determines that a distribution would make them a danger to themselves.
5. Refusing to deal with your mortality
You are going to die someday, whether you want to face that reality or not. Do not leave your family with a complicated financial and legal situation because you are uncomfortable addressing the subject.
6. Naming co-executors who must act together
People often name co-executors because they do not want to choose one child over another. However, doing so can create an unnecessary layer of complication.
If the co-executors disagree, they could delay the process of settling the estate and create additional costs.
Many things can go wrong after someone dies. Do not make matters worse by failing to plan properly.
If you are concerned about the cost of hiring a qualified estate planning attorney, remember that careful planning is generally less expensive than litigation.
An estate planning seminar with attorney Jeffrey Barnes of KingBarnes will be held Thursday, Nov. 19. Register at reichassetmanagement.com/events.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC, is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC, or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney or tax adviser regarding your individual situation.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
