Financial Advice for Retirement, Social Security, IRAs and Estate Planning

Four Overlooked Estate Planning Moves

Published on: Jul 01 2007
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Most Estate Planning discussions involve big picture issues, such as trusts, gifts, and how to handle a business. Too often, however, the success or failure of estate planning depends on small details that seem unimportant. Shortchanging these issues could mean shortchanging your heirs.

  • Carefully consider all of your non-probate assets. They avoid the probate process, so their disposition is not covered by a will. Their disposition is covered by law or by contract. These assets include IRAs, employer retirement plans, life insurance, and annuities. Living trusts and all the assets in them also avoid probate.Most non-probate assets have a beneficiary designation that must be completed. It usually is a section or the application or a separate document. Your IRA and 401(k) are the prime examples. The accounts will be transferred as indicated on your beneficiary designation form. If no one is listed, the account will be transferred to your estate, which for these assets would cause the loss of most tax deferral and would trigger higher income taxes on heirs than necessary. Annuities and life insurance are two other assets that are distributed according to beneficiary designations.For each of these assets, the custodian or account sponsor looks only at the forms in its records. Often, a beneficiary designation form was completed many years ago, perhaps before the owner was married or had children. In the ensuing years, the owner’s marital or family situation could change. Yet, many people forget about their designation forms and do not update them.You should keep a copy of all beneficiary designations you complete and review them every couple of years when your will and estate plan are reviewed. Updates are necessary as your family situation and your wishes change. For example, you original designation might leave equal shares to each of your children. In the ensuing years, however, perhaps one child became wealthy or one has proven to be irresponsible with money. Then, you might want to change the beneficiary designation.A related mistake is not to name contingent beneficiaries. This is needed because a beneficiary might pre-decease you. If there are no co-beneficiaries or contingent beneficiaries, the account goes to your estate. Or your survivors might realize that due to changed circumstances it would be better for all concerned if someone other than your choice inherits the account. The named beneficiary (or beneficiaries) could file a document known as a disclaimer, refusing the inheritance. The account then would go to the contingent beneficiary. We have discussed this strategy in past visits. This and other solutions are possible only if you have named contingent beneficiaries to receive the assets in case the primary beneficiaries are not available or disclaim the inheritance.
  • Many people set up living trusts but neglect to fully implement them or update them as needed. There should be successor clauses for beneficiaries and trustees. The trustee succession clause determines who controls the trust after the initial trustee is unable to. The beneficiary succession clause effectively determines who inherits the assets. The clauses should be carefully written, updated as needed, and the successors made aware of the situation.Another detail often overlooked with living trusts is that ownership of assets must be transferred to them. Only the assets legally owned by the trust avoid probate and are controlled by its terms. Too many people do not do the work of transferring the legal title of homes, vehicles, and financial accounts to their trusts, making the trusts useless.It also is important to check with financial institutions to determine if they need a copy of the trust on file. A number of financial institutions are hesitant to recognize succession clauses in a living trust unless a copy of the trust agreement was filed with them by the trust creator or they have other proof of the initial trustee’s intent before transferring power over the accounts.
  • A financial power of attorney is essential for all estate planning. Most estate planning efforts focus on one’s demise, but the possibility of disability also must be considered. Someone should have legal authority to manage your finances during that time. If you haven’t copmated tour estate planning, loved ones must go to court to have someone appointed. At that point, you will have no control over the choice.All states provide for some kind of power of attorney. Most states recognize a durable POA, which takes effect right away and stays in effect unless you revoke it. Some states also recognize a springing POA that takes effect only when you become disabled. Many states will be rewriting their laws over the next few years, because a revised uniform state law was proposed last year to modernize current POA laws.The POA can be general or specific. Most estateplanning specialists prefer a general power, because you really cannot anticipate all the issues that might arise. Some people, however, want to give a limited POA, restricting the duties only to financial transactions. Or they want to give different people different powers.One reason to get started on the POA is that most financial institutions require that a copy of their own form be signed and on record. They might not accept the form drafted by your attorney or might delay its acceptance for some time.
  • Health care documents are essential in case of incapacity. Someone needs to make medical decisions. The simplest health care document is the Living Will. It gives general instructions about which medical procedures are and are not to be used to sustain life. Studies show, however, that the document is of little effect. Often the doctors don’t see it until after decisions have been made, and the instructions are too vague for many situations.A better document is the health care power of attorney. This gives an individual or group of individuals the right to make care decisions when you are unable to. Be sure all your regular doctors have the current document in the front of your charts. Also, be sure each of the power holders has a copy of the document, and the doctors know how to reach them.
    Also, decide if you want to be a medical donor or an organ donor. This is another decision your loved ones shouldn’t have to make.

There are other details that are part of a complete estate planning. Parents of minor children should designate guardians in case of the demise of both parents. An estate owner also should create a beneficiary book that contains most important financial documents, plus descriptions and locations of other assets and records. There also should be instructions for the estate executor and those who inherit special assets. Funeral, memorial service, and burial instructions can be suggested by the estate owner and should be included in the book.

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