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Financial Planning > Trusts and Estates > Estate Planning

10 steps for avoiding estate planning mistakes

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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.

See also: Court says ex-wife gets man’s insurance money

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.

inheritance tax

Don’t overlook states’ inheritance taxes.

Most clients’ estates will avoid federal estate taxation due to the $5.25 million exclusion but that doesn’t eliminate states’ inheritance taxes, Watkins cautions. “People, particularly immediate family members like sons and daughters or spouses, those types of beneficiaries can get hit pretty hard with inheritance taxes, not estate taxes. Those taxes are actually paid by the beneficiaries, not out of the estate.”

Use no-contest clauses properly.

Imagine that your client wants to avoid challenges to his estate while simultaneously disinheriting a prospective heir or heirs. Herbert Nass, an attorney with Herbert E. Nass & Associates in New York City and author of “The 101 Biggest Estate Planning Mistakes” (Wiley, 2009), says that can be accomplished, but it takes proper planning. “There’s a very common technique of putting a no-contest clause in a will,” says Nass. “It’s called an in terrorem clause or a no-contest clause, and it says if anyone contests the will they get nothing. That’s an effective tool, but of course, that’s only effective if the will provides for them (the heirs). If they’re getting nothing under the will anyway, the way the will is drafted is no incentive for them not to contest the will.”


Comply with states’ formalities.

It’s understandable that clients might be tempted to reduce estate planning costs by going the do-it-yourself route for wills and trusts. That approach can backfire in some cases, though, Berg cautions. “The client may find a form off the Web or they may find an old form and say, ‘I’m going to save a lot of money by not having an attorney involved,’ ” says Berg. “Sometimes states have very strict formalities that need to be followed — two witnesses for example and so forth (or) the type of notarization that needs to be used. If you don’t follow whatever the formalities are, it opens that document up to controversy.”

Leave assets to minors in trust.

Senior clients often leave bequests to grandchildren but things can get complicated if those heirs are minors and legally unable to manage an inheritance. When that happens, the probate court could impose a guardian to manage the assets. Berg notes that state laws vary on this topic but says an effective alternative solution is to consider leaving assets in trust for the minor and have the trust managed by a trustee, frequently the minor’s parents. “Courts try to do their best to discern the intent of the parents or the grantors or the donors but they don’t have as effective and efficient of a roadmap as a trustee has, if the trust is properly drawn,” he says.


Avoid competency disputes.

Incompetent clients can’t execute valid estate planning documents. But how do you define competency? The competency standard required to sign a will is lower than that required for signing a trust document or other contract, for instance. If there is a chance your client’s estate plans or any changes to those plans will be challenged on competency grounds, he will want to verify his competency before signing documents. This process could involve formal testing, interviews and medical caregivers’ evaluations.

It is possible to craft an estate plan that will fend off challenges but it takes a conscientious approach that coordinates all the plan’s elements. It’s not easy, but the results will give your senior clients added peace of mind that their plan will hold up.

For more, see:

5 estate planning black holes

10 estate planning tax facts you need to know

Trusts and LLCs: Mind the details


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