“These all-too-common misconceptions can steer your estate plans in the wrong direction right from the start. Here’s how to overcome them and tips to build the right plan for your family.”
Estate planning should be both an emotional and financial process, where people evaluate the assets they have accumulated over time and make clear decisions about how to leave their assets and legacy to those they love. The reality is not so straightforward. Emotions take over coupled with the fear that time is running short which is sometimes the case.
Reactive decisions rarely work as well in the short and long term as decisions made based on long term strategies. Here are some of the most common mistakes that people make, when creating an estate plan or revising one in response to life’s inevitable changes.
Estate plans are all about tax planning. Strategies to minimize taxes are part of estate planning, but they should not be the primary focus. Since the current federal exemption is $11.7 million for 2021, and fewer than 3% of all taxpayers need to worry about paying a federal estate tax. Even with protected tax changes coming the expected individual exemption will remain high at 5 million per person. There are other considerations to prioritize. If there is a family business, for example, what will happen to the business, especially if the children have no interest in keeping it? In this case, succession or exit planning needs to be a bigger part of the estate plan.
The children should get everything. This is a frequent response, but not always right. You may want to leave your descendants most of your estate, but ask yourself, could your lifetime’s work be put to use in another way? You don’t need to rush to an automatic answer. Give consideration to what you’d like your legacy to be. It may not only be enriching your children and grandchildren’s lives. You may wish to set a charity fund or remember a cherished friend.
My children are very different, but it’s only fair that I leave equal amounts to all of them. Treating your children equally in your estate plan is a lot like treating them exactly the same way throughout their lives. One child may be self-motivated and need no academic help, while another needs tutoring just to maintain average grades. Another may be ready to step into your shoes at the family business, with great management and finance skills, but her sister may have their interests and skills not related to the business. The same family includes offspring with different dreams, hopes, skills and abilities. Leaving everyone an equal share doesn’t always work. You can customize your plan.
Having a trust takes care of everything. Well, not exactly. In fact, if you neglect to fund a trust, your family may have a mess to deal with. A sizable estate may need multiple trusts such as revocable or irrevocable trusts. An estate plan is more complicated than trust or no trust. First, when an asset is placed into an irrevocable trust, the grantor choses to transfer control of the asset to the trustee. The trustee has a fiduciary duty to the named beneficiaries of the trust as well as to you as the grantor of the trust. The beneficiaries include the current and future beneficiaries, so the trustee may have to answer to more than one generation of beneficiaries. Choose your trustee carefully. When one family member has been named a trustee and their siblings are beneficiaries, you have created a dynamic among family members that can lead to conflict of the trustees.
Do your estate advisors work well with each other? In a perfect world your estate attorney, your accountant, and your financial advisors are a working team. This would be true, but it doesn’t always happen. You have to take a proactive stance, contacting everyone and making sure they understand that you want them to cooperate and act together. With clear direction from you, your professional advisors will be able to achieve your goals. Contact our firm and we can help you organize your Estate Planning team and avoid the mistakes and pressure which makes Estate Planning so complex.
Reference: Kiplinger (Sep. 17, 2020) “5 Unfortunate Estate Planning Myths You Probably Believe”