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Financial Planning > Trusts and Estates > Estate Planning

Where There’s a Will, There’s a Way — if Loved Ones Can Find It

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Many Americans die without telling their family members where to find their wills or how their estates will be divided and why, according to a new BMO Wealth Management report.

Conflict often ensues.

“As family dynamics become more complex, the potential for conflict to play out after a death increases,” Jason Miller, national head of wealth planning at BMO Wealth Management (U.S.), said in a statement.

“It is critical to implement and communicate an estate planning strategy in a way that will help prevent conflict and promote harmony.”

For their part, advisors face a challenge in motivating their clients to do estate planning. Moreover, advisors are entering a new era in estate planning with the growth of digital assets and uncertainty over tax reform in the new Congress.

BMO commissioned a survey of 1,008 Americans 18 and older. About two-thirds of respondents had adult or minor children. Their answers were cross-referenced with family relationship status to see whether complexity of family relationships affected their approach to estate planning.

The survey found that 52% of all respondents did not yet have a will, and this figure rose to 56% among those between 35 and 54.

For married adults who had a will/powers of attorney, 25% said only their spouse knew where the documents were located.

BMO pointed out that many challenges and potential family conflict can be avoided when an estate plan and will are in place.

When a person in the U.S. without a will dies, it said, state intestacy laws determine who will receive assets from the estate. A spouse and children generally have priority (which may be shared, depending on the state), followed by parents and then siblings.

Absent a will, more distant relations can inherit assets if there is no spouse or children, parents and siblings.

The survey further found that 40% of parents had never discussed their estate intentions with their children.

Only 28% of all adults said they were aware of their parents’ wills or estate distribution plans. Not surprisingly, 40% of respondents said the distribution of their parents’ estates was unfair.

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BMO noted that putting in place an estate plan that contains an up-to-date will and engaging in open conversations with one’s executor and heirs were important to achieving one’s estate planning goals.

BMO said a will and estate plan should be re-evaluated for these reasons:

  • Marital status changes
  • Birth of children and grandchildren
  • Purchase of life insurance
  • Retirement
  • Receipt of an inheritance
  • Health changes

In addition, BMO said a person could achieve more privacy through use of living trusts and gifts (keeping the annual and lifetime gift tax limitations in mind) because a probated will becomes a public document. However, extra tax and administration costs associated with this option need to be balanced with privacy concerns.

Another fundamental, albeit complex, estate planning tool is the irrevocable life insurance trust.

BMO said estate plans should include a focus on taxes to help achieve the fair after-tax distributions desired, and at the same time minimize the tax liability.

— Check out Estate Planning: The Family Limited Partnership Strategy on ThinkAdvisor.