Your senior clients certainly aren’t unintelligent, but it is surprisingly common for people to make estate-planning mistakes that can cause problems after their deaths. Even wealthy celebrities, who you would assume would have top-notch legal advisors, make errors. If those mistakes lead to expensive and time-consuming disputes, they can severely disrupt the client’s estate plan. Consider these steps to help your clients create airtight estate plans.
Get the estate planning documents in place.
Good intentions do not make an estate plan. If clients don’t create and coordinate their wills, asset ownership forms, beneficiary designations, trusts and medical directives, they have an estate fantasy instead of a plan. Failing to get the essential documents in place can cause conflict with the clients’ plans and increase the likelihood of disgruntled heirs.
Title assets properly.
Clients can own assets in a variety of ways: sole ownership, joint with right of survivorship, joint tenancy, and so on. Additionally, married clients living in Western U.S. states may own property under their state’s community property laws. The different ownership forms determine how an asset’s ownership changes when an owner (or one of the owners) dies. If the ownership form leads to a distribution that conflicts with an owner’s or intended heir’s wishes, a battle can ensue. For example, assume a widow remarries and adds her new husband as joint tenant to her home to avoid probate. She makes it clear to him she wants the family home sold at her death with the proceeds divided evenly among her three children, and she states that in her will. If she dies first, however, ownership of the house passes to the new husband, who is under no obligation to sell it.
Monitor beneficiary designations.
It’s not uncommon for clients to own multiple accounts with beneficiary designations, such as retirement plans, insurance policies and annuity contracts. Beneficiary designations take precedence over a client’s will, and that hierarchy can cause problems if an asset goes to a now-incorrect beneficiary because the deceased forgot to change the designation. Brett Berg, director of advanced marketing for Prudential Financial in Newark, N.J., cites a scenario. “Let us assume that I have a client who was married to one individual, is no longer married to that individual and remarried another individual,” he says. “What happens is sometimes beneficiary designations are not changed, and that does create a source of problems if there is a death prior to getting all of those beneficiary designations clarified and rectified in the right way.”
Make documents accessible to those who need them.
Rick Watkins, CFP, CLU, ChFC, with Rick Watkins Financial LLC in Evansville, Ind., points out that heirs and administrators need access to the deceased’s documents or the estate’s administrators won’t know how to proceed. A possible solution to this is to use a secure online document storage service that lets clients upload PDF copies of their wills, trusts and other forms.
Fund revocable living trusts.
Revocable living trusts offer multiple benefits including backup asset management and probate avoidance. But if clients fail to transfer assets to the trust, the trust remains an empty shell that offers no benefits. Moving assets to the trust requires some paperwork but it’s generally a simple process — the most difficult part is often getting clients to do it.
Don’t overlook states’ inheritance taxes.