In my practice, I am fortunate to serve clients in developing tailored estate plans as well as administering the estates of recently deceased loved ones. This dual perspective exposes some common pitfalls that can undermine even the most well-intentioned planning. Below are my top five pieces of advice to keep in mind as you undertake your estate planning.
1. Build in asset protection for your children.
Estate plans are often constructed to benefit future generations, yet clients often underestimate the need to include safeguards. Particularly if your children are young, you can only guess at their fiscal responsibility as adults. Keeping assets in trust for the benefit of a child as long as possible, and ideally for a child’s lifetime, with tailored trust provisions around access to trust assets will help protect those assets from a child’s creditors as well as a child’s own poor spending habits. If a child undergoes a divorce, a well-drafted trust can keep trust assets out of a child’s marital estate and out of the hands of their divorcing spouse.
2. Name at least one back-up for every fiduciary in your estate plan.
It can be challenging to come up with a list of individuals you trust to act in the best interests of you and your intended beneficiaries and to handle the responsibility of a fiduciary role. And while a comprehensive estate plan should provide mechanisms for appointing fiduciaries if a role is vacant, this ultimately leaves these important decisions up to someone else. The best way to ensure that individuals you know and trust will carry out your intentions in the event of your death or incapacity is to name as many successor fiduciaries as possible. At a minimum, I recommend naming one successor to each of your first choices. These fiduciaries include an executor of your estate (referred to as a personal representative in Massachusetts and some other states), a trustee of your trust(s), an attorney-in-fact named in a Power of Attorney document, and a health care agent named in a health care proxy document.
3. Bring your children into the planning conversation.
Clients put a lot of thought into their planning but often keep their children in the dark, leaving them unprepared for what may be a windfall. Yet estate planners often find that children who are prepared for their inheritance and who develop a relationship with their parents’ advisors have greater success managing their inheritance. Open discussion can help set realistic expectations around inheritance and avoid future turmoil among siblings. Finally, knowledge about anticipated inheritance lays the foundation for a child’s own financial and estate planning.
4. Title your assets and designate beneficiaries in a manner that works cohesively with your estate plan.
Probably the single biggest mistake clients make is thinking they are done once they sign their estate planning documents. However, ensuring your assets are appropriately titled is the last crucial step to ensuring an estate plan functions as intended. To avoid the expense, delay, and public nature of the probate process, ensure that no assets are titled solely in your individual name. If you intend the terms of your revocable trust to control the disposition of your assets, consider retitling assets to your trust now or at least confirm there is no named beneficiary or joint owner that will cause the assets to bypass the trust. Completing this step may require you to retitle an account in the name of your spouse or your trust, convey real estate, add a joint account owner, add a transfer on death (“TOD”) or payable on death (“POD”) beneficiary to an account, designate a beneficiary of a retirement account or life insurance policy, and/or assign your interests in an asset or entity.
5. Revisit your estate plan regularly.
Assets and families change over time, and an estate plan should evolve as well. An outdated estate plan may no longer accomplish your intentions or may need revamping to keep up with tax laws. At a minimum, I recommend reviewing your estate planning documents every three to five years, or sooner if your circumstances warrant. Clients who approach estate planning with the perspective that the plan can (for the most part) be adapted to accommodate future life changes may also find it easier to make the important planning decisions that make sense for their current life circumstances. You can rest easy knowing that the estate plan that works in your thirties does not need to provide for every eventuality until your death. The plan that makes sense while your children are minors can be reworked when they have families and established lives of their own.
Find a skilled estate planner who can guide you through these and other important considerations in developing your own custom estate plan.
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