Even experienced advisors can overlook details when carrying out estate planning directives on behalf of their clients. When a will is worded properly, the right people are taken care of. When it’s not, they can be left out in the cold. Accountants, attorneys, and financial professionals see the same lapses time and again. Before we list a few, here’s the good news: All of them are preventable.
We previously referenced a report by CNBC about a forthcoming transfer of wealth in this country. It’s happening as baby boomers pass on their estates to younger generations. Boomers are the most prosperous generation in our nation’s history. According to CNBC, they will bequeath $68 trillion dollars over the next 25 years. Proper estate planning is a must to ensure the bulk of this wealth gets to the intended recipients.
Mistake #1: Not creating a last will and testament
Even if you’ve sketched out an estate planning strategy with a client, the absence of a will can render it useless. That’s because individuals die intestate when they pass away without a will. (Investopedia says this also applies if a will is deemed legally invalid.) Distribution of their estate becomes the responsibility of the probate court.
Often, family members meant to receive the assets have to spend significant sums of money proving their relationship to the person. According to The Money Guy Show website, this creates a hot mess for everyone involved. The website noted this statistic from the online software company EstateExec: an average executor will spend 570 hours to settle such a messy estate.
Mistake #2: Beneficiaries not designated or updated
Ken Cella, who leads the Edward Jones client strategies group, encourages individuals with estates to inform people who are named in their wills in an Advisor Magazine November article, “Legacy & Wealth: Is Your Estate Plan Really in Order?” While 73% of Americans believe their beneficiaries know how to manage their estate and spend its assets once they are gone, Cella says, only about half (49%) of beneficiaries feel that way. Stress to clients how important it is to name beneficiaries – and to make updates as needed. These two actions alone could prevent a number of potential issues.
Let’s say your client’s son John is the sole heir named in his will. Is John also entitled to the proceeds of his father’s IRA or 401 (k) accounts? Not if his sister Jane is named as beneficiary. She would receive those funds.
Mistake #3: Not sharing the estate plans with family
The will might be clear, but it doesn’t need to surprise the family. Encourage clients to share their plans with their family members so that everyone knows what’s needed when the time comes. It’s a small change that can help alleviate a lot of stress for those involved.
- Failure to review existing estate plans
- Not consulting a lawyer in complex cases
Mistake #4: Failure to periodically re-examine estate plans
Say your client’s will clearly indicates who should receive assets from his estate. And he has designated beneficiaries for accounts not under the jurisdiction of his will. But marriage, divorce, births, and deaths can all impact a client’s life. His net worth, assets, and employment status are also subject to change. These are all reasons to sit down with your client and review the plan from time to time.
Mistake #5: Not consulting a lawyer in complex cases
Do you have clients wishing to address unique relationships in their estate plans? This could include those who have married multiple times, have unmarried partners, or have children with disabilities.
If so, they may want to seek legal advice, according to Harry S. Margolis, an estate, special needs, and elder law practitioner in Boston and Advisor Magazine contributor, in an article titled, “The Top 8 Mistakes People Make in Estate Planning”. Margolis says that consulting with an attorney can help ensure the people your clients care about are provided for.
Prepare for tomorrow, today
To summarize, advisors sometimes skip some steps when drawing up estate plans for clients. While these may seem relatively minor, leaving them out can cause big problems later on. Fortunately, these slip-ups are easy to correct if you take action before your client becomes incapacitated or passes away. Want more tips on how to grow your estate planning business? Or how our customer acquisition services work at LeadingResponse? We’re here to help.