YOU HAVE NO ESTATE PLAN BECAUSE IT S A FRIGHTENING CONCEPT.

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1 By Richard Behrendt, J.D. In this world, nothing can be said to be certain, except death and taxes. Ben Franklin s timeless words still ring true we can t avoid these two realities of life. But there some practical steps we can take to make death, and sometime taxes, easier for our loved ones if not for ourselves. One of these steps is to get our estate planning house in order. As you consider how you ll prepare, here are some common estate planning pitfalls to avoid. YOU HAVE NO ESTATE PLAN BECAUSE IT S A FRIGHTENING CONCEPT. Estimates are that less than half of adult Americans have a current estate plan. Some may avoid creating an estate plan because it s painful to confront our own mortality. Others may 1 7 COMMON ESTATE PLANNING PITFALLS TO AVOID

2 mistakenly believe that only the rich and famous need an estate plan. Still others may simply procrastinate and delay creating an estate plan - until eventually, it s too late. Put aside your fears and anxieties and take action to get a current, comprehensive set of estate planning documents. Start by meeting with an attorney who specializes in estate planning. If you don t know one, ask your financial advisor or accountant for a referral. YOU HAVE AN ESTATE PLAN, BUT IT S AS OLD (AND OUTDATED) AS A FLIP PHONE. Once you ve created an estate plan, periodically review the documents and make updates whenever your circumstances materially change. Life changes, and so should your plan. Major changes that should prompt a review of your planning documents include: getting married, getting divorced, the birth of a child or grandchild, or changing your state of residency. Other changes to our estate plan will be required as you transition through different lifestages. If you re starting a new family, it might be enough to have a simple Will that appoints a guardian for your minor children. When you re in your peak earning years and starting to accumulate more assets, a revocable living trust might make sense as the center-piece of your estate planning documents. As you approach retirement and later-life, planning for incapacity and disability will become more of a priority. 2 7 COMMON ESTATE PLANNING PITFALLS TO AVOID

3 At each of these stages of the normal life-cycle, our estate planning documents can and should be tailored to our specific needs and objectives. YOU HAVEN T NAMED A GUARDIAN FOR YOUR MINOR CHILDREN. Congratulations! You re new parents. It s time to get serious and appoint a guardian for your minor children in a Last Will and Testament. A Will is the only legal document that allows you to designate someone else as the guardian in charge of raising your minor children to adulthood if both parents were to die prematurely. Without appointing a guardian for your minor children, the courts would decide who will be responsible for raising your children into adulthood. Do you really want to take the chance that your hapless brother-in-law gets appointed by the courts to raise your minor children? We didn t think so. Statistically speaking, you ll probably live to see your children grow into adulthood and beyond, but why take chances with something as important as your kids? YOU RE LEAVING TOO MUCH, TOO SOON TO YOUNGER BENEFICIARIES. AND THEY THINK IT S A PARTY. True story: I once knew someone in college who inherited $200,000 from his father s estate. He dropped out of college and moved to Las Vegas to become a professional gambler. He 3 7 COMMON ESTATE PLANNING PITFALLS TO AVOID

4 returned, less than one year later, flat broke. He now works at a convenience store. The moral of the story - leaving too much too soon to younger beneficiaries can often do more harm than good. In contrast, a carefully planned inheritance can improve a younger beneficiary s life by providing benefits such as; tuition for a college education, a down payment on a first home, funding for a new business, or paying health care costs. The best approach often involves creating a trust that gives control of the trust property to a responsible individual or a corporate trustee. YOU ASSUME YOU LL ALWAYS BE AS PHYSICALLY (AND COGNITIVELY) FIT AS YOU ARE TODAY. It s hard and uncomfortable to imagine yourself sick or incapacitated. For many people, the fear of going into a nursing home is greater than the fear of death. Instead of avoiding the concept altogether, consider alleviating some fear by including planning for a disability or long-term illness into your overall estate plan. In some cases, purchasing long-term care insurance may be the best strategy. Some long-term care policies provide a flexible benefit that can be used to pay for home health care services, which may allow the insured to remain in their own home after a disability or accident. It s also important to have a financial power of attorney and advance health care directives authorizing someone else to represent you in financial and health care matters in the event you become disabled and cannot speak on your own behalf. 4 7 COMMON ESTATE PLANNING PITFALLS TO AVOID

5 YOU DON T HAVE A SUCCESSION PLAN FOR A FAMILY- OWNED BUSINESS. An ancient proverb cautions that transferring wealth to one s descendants often leads to shirtsleeves to shirtsleeves in three generations. The first generation creates the wealth, the second generation spends the wealth, and the third generation starts all over again from scratch. Passing a family-owned business poses an even greater challenge. Statistics shows that only 30% of family-owned businesses successfully transition to the next generation, and only 15% survive into the third generation. 1 Don t be another statistic. Consider these planning considerations: Is the next generation in your family ready, willing and able to successfully transition into the leadership and management of your family business? Have you taken steps to minimize the estate, gift and income tax implications of transferring ownership in the family business to the next generation? Have you considered ways to ensure that the family business is transferred in a manner that maintains and promotes family harmony among multiple heirs? These and other planning considerations could help keep your family in any sleeves they want to wear, and thankful for the legacy you ve left them. 1 The Family Business Institute 5 7 COMMON ESTATE PLANNING PITFALLS TO AVOID

6 YOU HAVE A LARGER ESTATE, AND FAIL TO MINIMIZE ESTATE TAXES. AND THE TAXMAN THINKS IT S A PARTY. Most Americans applauded tax law legislation enacted in 2012 that effectively shielded the vast majority of U.S. taxpayers from federal estate taxes. Still, for those who have an estate above the current $5,430,000 federal estate tax exemption, consulting with an experienced estate planning attorney is highly recommended. And while many states have repealed their state estate taxes, if you live in a state that still imposes a state estate or inheritance tax, the state tax threshold may be considerably lower than the federal exemption amount. Fortunately, there are numerous planning strategies and techniques that can still be used to transfer wealth to the next generation in a manner that mitigates the impact of federal estate and gift taxes. By being proactive and planning ahead, you may be able to transfer more to your heirs and your favorite charities, leaving less to be grabbed by the taxman for state or federal estate taxes. Rich is the Director of Estate Planning for Annex Wealth Management, serving as a specialized estate planning resource for Annex s Advisors and clients. His contributions include evaluating existing estate plans and documents, creating customized estate planning reports, and modeling sophisticated estate tax planning strategies using stateof-the art estate planning software. If you have a question for Rich, or would like to discuss Estate Planning with him, give him a call at or visit Annex Wealth Management at COMMON ESTATE PLANNING PITFALLS TO AVOID