In last week’s article, I covered five of the 10 common estate planning mistakes such as beneficiary errors, naming specific investments in your will, and more. Here are some more things to be aware of and to discuss with your estate planning attorney:
1. Not planning for the death of a beneficiary — If one of your two beneficiaries dies, where does the money go? Is it the other one, or is it the family of the one who died? I could disinherit grandchildren by picking the first option and leave everything to the other beneficiary and their family. This is known as per capita (Latin for “by heads,” meaning per person) vs. per stirpes (Latin for “by branch,” meaning each branch of the family would receive a share). One way to word that might be that you leave your assets to “all lawful children equally - Per Stirpes.”
2. Ownership mistakes and imbalances — If too many of the assets are in one spouse’s name, it could accelerate or increase some taxes (see your tax adviser). Frequently, one spouse may have worked longer and will have a much larger IRA. They may also have a vacation home or investment accounts in their name only. By shifting the house or investment accounts to the other spouse, the estate becomes more equalized and therefore reduces the possibility of owing taxes after the first death.
3. Not thinking through a well-intended gift — Let’s say a client wanted to make sure that after she passed away her three daughters always had a home to go to at the shore. Her will stated that her children couldn’t sell her house unless everyone had a house in that town. Two of the three children did, in fact, live in that same town. The third, however, several years before her mother’s death, moved across the country to San Diego and didn’t want to own a house at the shore. Because of the way the will was written, the heirs had to go through a lengthy process with the courts to finally get permission to sell their mother’s home. Worse, during this time period the home’s value declined dramatically. When the house was ultimately sold, the heirs lost over $500,000 in addition to the legal fees.
4. Not planning for the unexpected — There could be a sudden decline in your health or your spouse’s or there could be a change in your assets. What about the divorce of your kid? Your kids’ creditors? Can your heirs handle that much money? There are a multitude of things that you have probably never even thought about. This is commonly addressed by having assets go to a trust where you can control how, to whom and when money gets distributed, unlike an outright inheritance from a will. Personally, mine goes to a trust, and my children get distributions at ages 25/35/45, unless my trustee deems them to be a danger to themselves.
5. Not dealing with your own mortality — Yes, you are going to die someday, whether you want to face that reality or not. Do not leave your family ruined because you don’t want to deal with an uncomfortable situation!
There are plenty of things that can go wrong after someone dies. Don’t make matters worse by failing to plan properly. If you’re worried about the cost of a qualified estate-planning attorney, I can tell you it’s less expensive than litigation.
T. Eric Reich, CIMA, CFP, CLU, ChFC is president and founder of Reich Asset Management and can be reached at 609-486-5073 or email@example.com.
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 advisor with regard to your individual situation.