senior couple estate planning

When someone dies, not only must friends and family deal with their grief, but often, they must also start untangling the estate planning laws and regulations that suddenly come into play.

Without a sound estate plan, families can be left paying thousands of dollars in extra taxes or fighting bitterly with each other.

To help you get started with this daunting process, or to double-check your existing plan, we asked some estate planning experts what are some of the most common mistakes they’ve come across.

 

1. Not having an estate plan at all

Experts point out that everyone should have some kind of estate plan: even young people or people with limited means.

“I understand that people don't enjoy pondering their own eventual death or possible incapacitation,” said Ryan McPherson of Intelligent Worth, a financial planning firm in Atlanta, Georgia. “However, having a will (and related docs) is perhaps one of the most important and responsible steps you can take to safeguard your spouse, children, and assets.”

It’s also important to come up with a plan when everyone involved is healthy and able to participate. Many experts recounted stories of families in crisis, scrambling to come up with a plan before it’s too late.

“It's so much easier on families to make these decisions while they are not in crisis, when they have capacity, when it's possible to take steps to accomplish their goals,” said Danielle Van Ess, an attorney with DGVE Law in Hingham, Massachusetts.

 

2. Not updating your will, especially after major life events

Many families may just “set it and forget it” when making an estate plan, but experts agree that this is another common mistake. Families need to be continuously revisiting their estate plan, particularly after major life events, like moving, having another child, or buying a second house.

“Laws change, but more frequently, family dynamics change,” said Gary Garland, an elder law attorney and financial planner with Garland Law Offices in Manalapan, N.J.

“Either a beneficiary has changed, a fiduciary (executor, trustee) has died or the relationship has changed, or the titling of the assets changed. Documents should ideally be reviewed every three years or when major life changes occur,” Garland said.

 

3. Ignoring state taxes

One thing in particular to watch out for, especially if you move, is whether you’ve taken state taxes into account, which will likely have different rules than federal estate taxes.

“With the federal estate tax exemption currently at $5.49 million, people may think they don’t have to worry about estate taxes when they die so they don’t plan for the issue,” said ReKeithen Miller, a financial planner with Palisades Hudson Financial Group in its Atlanta office.

“However, many states have their own estate and inheritance tax laws and their exemptions are much lower than the federal amount,” Miller said.

Exemptions in some states could be as low as $1 million. Make sure you check the laws in your state to make sure that your heirs won’t end up owing a lot more in taxes than you or they expected.

 

4. Leaving everything to your spouse

Some experts warn that leaving everything to your spouse outright and trusting them to take care of the children could be a mistake, particularly if your spouse remarries. Your spouse’s new partner could end up taking a much larger share of your assets, leaving your children with less.

Molly James, a partner with international law firm Troutman Sanders who deals with estate planning, suggests setting up a trust as a way around that problem.

“Some people have a misconception that trusts are complicated and that their very existence requires a trustee outside of the family and/or the beneficiaries,” James said. “Properly drafted trusts can have the main beneficiary as the sole trustee.”

This means your spouse could control over the trust, but you can name your children as beneficiaries in the event your spouse dies, James said. The only extra expense would be filing a separate tax return on behalf of the trust.

 

5. Assuming your family will continue to get along

Family frictions can be exacerbated by the death of a family member, and even if your family is getting along great now, that might not last. Without a clear plan, family members might start fighting for control of various assets.

Or there could be bitterness over how things were divvied up. A lack of guidance on family assets like a lake cabin could also lead to fighting.

“A parent’s nightmare is to know that bad blood between siblings is ignited by the distribution of family assets,” said Patrick Brault, a principal at Wipfli Hewins Investment Advisors in the Twin Cities area. “When crafting estate plans, parents should carefully consider the relationships between siblings and their mates when making final decisions on the distribution of their hard-earned assets.”

This could require sitting down to a family meeting for some difficult conversations.

The state of your children’s lives is another thing to take into account -- an equal distribution of assets might not be the correct course of action, particularly if one child is wealthy and the other is struggling.

You also might want to consider the bad habits of your children or their partner and again consider a trust that could prevent them from burning through it too quickly, Brault added.

 

6. Not communicating or being specific enough

Communication is key, and you should make sure you’re as specific as possible. Another source of friction can be seemingly rote decisions about organ donation, burial or memorial services that were left up to surviving family members to decide.

“Emotions are high, reasoning is impaired, these are things that loving families disagree about and cause stress or even impact relationships permanently,” said Van Ess.

There should even be instructions for your social media accounts as disagreements could crop up over privacy concerns and sentimental value. Meanwhile, there are awkward digital remnants left floating around on the Internet.

And when you choose people to be your agents and empower them to make decisions, you should make sure you talk to them in detail and that they’re comfortable taking on that responsibility, Van Ess said.

 

7. Becoming a victim of identity theft

Scammers continue to target older Americans, particularly if they start losing their capabilities. Worse, they might even try and take advantage of the death of a family member, scouring obituaries for personal details to exploit, so keep that in mind.

 


 

Scott Morris is an independent journalist whose award-winning reporting has appeared in numerous publications such as local wire service Bay City News and more recently in outlets like the East Bay Express, Hoodline and Oakland Magazine. Living in Oakland, California, he covers a wide variety of topics from policing policy and civil rights law to Bay Area sports.