It's a Good Friday for Estate Planning

Photo by  Richard Hemmer

Today is Good Friday, the Christian holiday remembering the crucifixion of Jesus Christ. It is a day of fasting and charitable deeds by the faithful. It also marks the beginning of Easter weekend which culminates on Sunday with the celebration of the Resurrection, and for some of us, Easter egg hunts. But this holy day can also serve as a practical reminder that death is a certainty in life, and that the vast majority of us will not rise again a few days later. With that knowledge, we can plan accordingly.

Planning for death is not a light topic, nor is it one that many of us care to discuss unless we experience events that jar us into action. For example, it is common to buy life insurance upon the birth of a child or create a will upon the death of someone close to us. But there are many other considerations that we should regularly take into account, and today is a "Good Friday" to take a look at our own plans.

It isn't that we purposely do things that create estate planning complications for our heirs, it is more the dynamic nature of our lives that lead to unintended consequences. Take for example a story relayed to me by Austin estate planning attorney, Julia Nickerson, of Nickerson Law Group.

This month a client called our office. His mother passed away. His parents had made their estate plan fifteen years ago and hadn’t made any updates since. Their financial advisor had changed firms and when that happened, their accounts were not titled properly. They had purchased a vacation home and it wasn’t titled properly.  Also, this client’s mother had changed the title to certain accounts so that they were payable on death to her minor grandchildren. This client’s family was facing probate, guardianship and unnecessary
income tax due to the outdated estate plan. It’s reasons like what happened to this client’s parents why your estate plan should be reviewed on an ongoing basis.

All of the issues facing Julia's client were essentially simple administrative issues, until the mother passed away. At that point, it became much more burdensome and expensive for the heirs to deal with lawyers, judges, and the IRS.

I asked Julia if she would share the biggest mistakes she most commonly sees in her clients' plans and she provided a list of "10 Common Flaws in Estate Planning" that all of us can use as a handy checklist.

One: Beneficiary Designations aren’t Compliant  
Life Insurance and retirement account beneficiary designation forms are frequently not compliant with a will or living trust.   
Two: Out of Date Documents
Your estate plan should reflect your current wishes—not your wishes from 20 years ago.  Sit down with your attorney every few years to ensure what you think is taken care of actually is.

Three: Too Many Amendment and Codicils
If you make a change, you should have your attorney draft a whole new document.  Codicils and amendments are confusing and cause confusion after you die.

Four:  No One Knows About It, or even worse, You Did It Yourself
Your family should know who your estate planning attorney is.  Find a person you like and trust and develop a relationship with them.     

Five:  Lack of Liquidity
Don’t leave your children with masses amount of debt or illiquid assets.  Invest in life insurance to ensure there is liquidity.

Six:  Loans to Children
If the grantors have made loans to their children, clearly spell out in the will or living trust whether the loans are forgiven or not—and if not, keep clear records of the principal and interest still owed

Seven:  No Plan for Incapacity
Chances are you will become incapacitated before you die—your estate plan should include an incapacity plan that keeps your family out of an expensive and administrative nightmare guardianship.

Eight:  Asset Titles that aren’t compliant with the plan
Title to your assets play a large part in how they will pass upon death  Living trusts are a great tool.  If you have one, take the time to fund it.
Nine:  No Second Spouse Protection
Ensure your children receive their inheritance, even if your spouse remarries after your die—but, do this in a tax effective method.
Ten:  Joint Tenancy with Rights of Survivorship (JTWROS) 
Adding a child’s name to your account may be a good idea at first, but what happens to the assets in that account if you die?  Will your other kids be upset since it all legally goes to just one child?  What if the child you name as an owner has lawsuit or creditor issues.  There are other solutions besides just JTWROS.

If you would like to review your plans as they relate to your investments, contact an estate planning professional or get in touch for a free portfolio review. Happy Easter!