10 Biggest Estate Planning Mistakes
Sometimes, in order to lock in the $5 million estate planning tax exemption, clients gift away their “excess” assets. While gifting is good, and even better if you can avoid taxes by doing it, some clients give away too much, and are no longer able to maintain their standard of living in retirement.
Here are 10 mistakes your clients can make when setting aside wealth for future heirs.
While some of us would like to think to think we’re immortal, the time will come where all of us will have to eventually meet our maker. That’s why it’s important for advisors to push their clients to have their own estate plan, before it’s too late, and state laws intervene by creating one for them.
While a “do-it-yourself” mentality is admiral, it is often wise for clients to seek a professional advisor or lawyer when treading the murky waters of estate planning.
Sometimes clients get too invested in a particular planning approach, and forget to look at the big picture. While advisors should offer solutions to clients, they should also provide clients with “what-if” scenarios, so that they are fully prepared for what might go wrong.
Often clients do not take into the account that they might get divorced. As a contingency, clients can place restrictions on the money in the trust being distributed outside of the family. Or they could use a discretionary distribution standard which gives discretion to the trustees.
As with any other legal document, the fine print in estate planning documents can be the difference between retirement in the Bahamas or in a trailer home. To avoid being manipulated by the fine print, make sure the client and estate planning attorney has dotted every "i" and crossed every "t."
Sometimes, clients forget to consider pets, and so when they die, their pets often have to follow them to their grave. Set up a pet trust to care for animals after the client dies.
Failure to update or title clients’ other documents may prove to erase any benefits estate planning documents might have to offer. Make sure the client re-titles the assets in the name of the trust, not themselves, for clarity. And check regularly to ensure that beneficiary designations on all retirement documents are up-to-date. (You might not want that $1 million to go to your ex-wife anymore)
Some clients assume that trusts are only for minor children. In actuality, trusts are asset protection vehicles for the entire family, and can protect the assets from the claims of creditors.
When a client dies, their spouse/ heirs may not have access to the password for digital assets. As a result, there’s value that they can’t get to. To prevent this, make sure clients have a list of all their online user names/ passwords, and that the appropriate family member or trustee has access to the information.
As of the writing of this, clients cannot pass down to heirs their digital libraries and music collections, due to terms of service of the major sellers of digital content. While this may change in the future, clients will just have to accept this fact for now.