Talking about the follies of wealthy or famous people is so popular that even the lousy estate plans that they leave makes headline news. Think about all the celebs, like James Gandolfini who have left a mess for their children and other loved ones. Very few, on the other hand, are motivated by these stories to get their own estate plan in order. The truth is that the overwhelming majority of those reading this right now have an estate just as messy as the celebs, but no one, including themselves is really paying attention.
I won’t get too nerdy on you and throw around code sections or advanced estate planning topics, but rather the basics that everyone needs to button down and keep current.
The first issue is to ask whether you even have a will, trust, durable power of attorney, and a health care power of attorney. All but the trust is needed for even the simplest of estates. A trust becomes more important if there are any matters that may need further guidance or attention after your passing, such as managing money for minor children until they are capable of receiving it. Another reason for trusts may be your desire for privacy and avoiding your states probate process.
Sometimes a will or trust that is very old is as dangerous as not having one at all. Provisions may be outdated or superfluous, and badly in need of updating. For example, are you sure that your former spouse is not named in any of the documents? Is it set up to minimize both federal and state death taxes? Are people named as executors or trustees that are no longer significant in your life or not even living? Has life changed with marriages, divorces, grandchildren or special needs?
Beyond your documents, you should look at how you own property. For example, if you own an inherited rental property jointly with rights of survivorship with your brother, and you pass away; guess what happens? Your brother gets the entire property regardless what your will says.
Similar problems can occur with improper beneficiary designations of your retirement accounts, annuities or life insurance policies. Unfortunately, each year I hear of a retirement plan or life insurance proceeds that go to a former spouse or to an elder parent, cutting out the current spouse or children. It is very easy to change beneficiaries, but you must take action. Here again, it does not matter what your will says, the beneficiary election reigns supreme when your estate is settled and distributed.
The good news about having a lousy estate plan is that you’ll never know what a mess you created. The bad news is that your heirs will have this experience as one of their last memories. Estate plans need to be reviewed every five years or sooner. Unfortunately, this is one element of your financial plan that you don’t know when you’ll need – so time is of the essence.