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Losing Your Inheritance to Uncle Sam - or
Others
Successful estate planning takes not one generation, but two.
The first generation needs to make a clear, sensible plan and
the second needs to be involved in that plan.
The best estate strategies tend to be made with the advice of
a financial adviser or an estate planning attorney. Without
proper planning, estates can be eaten away by bad planning in
ways ranging from the simple to the complex. They include:
Failure to leave a will. Most Americans know what a
will is. So why won't they take the time to make one? The
estimated numbers of Americans without any kind of will is
staggering — between 60-70 percent. Yet without a will in place,
some or all of a person's estate may be transferred to Probate
Court with a complete stranger assigned to decide the future of
the deceased's assets. If you are a parent, make a will. These
days, consumer software programs offer will kits that conform to
legal language in each state and are legally binding and
inexpensive to complete. They also prompt you to do health care
and other directives (see below) necessary for a complete estate
plan.
No plan for incapacity. An 80-year-old grandmother
sinks into dementia. A 30-year-old father of twins is left in a
coma after a car accident. Anyone can be left incapacitated at
any age with no clear game plan for spouses or heirs. This
wastes money, time, and creates great emotional hardship. Advance
health care directives designate health-care decision makers and
delineate their powers, and leave very precise instructions
about life support and other treatment options. Some individuals
underscore written directives by videotaping themselves giving
these instructions. Powers of attorney can also be created to
assign financial decision makers to the situation.
Failure to coordinate or update beneficiaries. Any
child who has struggled to settle a parent's estate is very
likely to have had problems with beneficiary designations on
retirement accounts, investments, insurance policies, savings
accounts and bonds. Many people think that beneficiary
designation occurs at the creation of the will — not true.
Beneficiary designations should be reviewed every few years for
accuracy or when a major life event requires a change.
Failure to inventory. A parent may think they've got a
great system for organizing their investments and estate
instructions. But if they die or are incapacitated, heirs may
find it difficult to navigate their bookkeeping system or find
key documents and investments left inside the house or in safe
deposit boxes elsewhere. Financial advisers can provide a
centralized system of organization for clients by keeping a
separate index of those materials to help guide family members
and heirs through a serious illness or estate settlement.
Failure to find key documents may lead to severe tax
consequences later.
No attention to special situations. If both parents
die, how will substantial assets or life insurance proceeds be
managed for minor children? If there is an adult child with a
disability, is a Special Needs Trust or other directive in
place? If a parent, friend, or sibling dies without instructions
for his pet, who will get Fido? A person's last wishes are as
unique as they are and should be considered part of the estate
planning process. Heirs should insist on those provisions so
they can distribute assets with maximum speed and minimum
disagreement.
No Power of Attorney or inadequate joint name provisions.
An incapacitated relative not only needs someone properly
designated in his or her directives, but they need that person
to have proper access to funds. To provide for this, a durable
power of attorney can be filed with the account custodian, or
joint names can be listed on the accounts so bills can be paid.
Naming a joint owner to an account may cause negative
consequences, so consult your financial or tax professional
before doing this.
Failure to update. Anytime there's a divorce, a change
in permanent residence or a major life transition, it's a good
reason to review an estate plan. Enlist your legal and financial
planning professionals in this effort. Both perspectives are
necessary.
April 2007 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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