Basic estate planning documents may not communicate your intentions to effectively transfer wealth.
There are three degrees of estate planning: advanced, basic, and none at all. Basic is better than none, but elementary estate planning can still leave something to be desired. While appropriate documents may be in place, they may not be able to fully convey what you really want to do with your estate.
Have you communicated your wishes to your heirs, in writing? Cut-and-dried, boilerplate legal forms will hardly do this for you.
In a wealth transfer strategy (as opposed to a basic, generic estate plan), you share your values and goals in addition to your assets. You hand down your wealth with purpose, noting to your beneficiaries and heirs what should be done with it. You also let them know how long the transfer of assets may take. This way, expectations are set, and you reduce the risk of your beneficiaries and heirs being unpleasantly surprised. Additionally, “In order for the probate court to validate the intentions of a settlor, all wishes must written, signed, and in most cases witnessed or notarized. Without this proof, assets may be distributed by operation of law, defeating the settlor’s intent,” states Lawrence Nemirow, an estate planning attorney in Los Alamitos, CA.
Are your heirs prepared to inherit your wealth? Prepare them as best you can during your lifetime. Introduce them to the financial, tax, and insurance professionals who have helped you through the years; they should know how to contact these professionals, and they should value their wisdom.
Explain the “why” of your estate planning decisions. For example, if you intend to transfer assets to heirs or charity through a living trust, a charitable remainder trust, or a qualified charitable distribution from an IRA, share the logic behind the move.
Also, let your heirs know that your wealth transfer strategy is dynamic. It can change. Five or ten years from now, you may have more or less wealth than you currently do, and life events may come along and prompt changes to your estate planning documents. Mr. Nemirow advises, “Don’t assume you will get the bequest. The funds may not be there at death. Talk to your investment manager in advance to setup accounts to deposit funds in so that you don’t spend it all.” Speaking of communication, this leads to a third, important aspect of a wealth transfer strategy.
Have you double-checked things? Look at your beneficiary forms and other estate planning documents. Are they up to date? Are they accessible and secure? “In addition to safeguarding your important documents, it is essential to have documents, such as your estate plan reviewed every few years. Any change in the law, or tax changes, or the agents or trustees of your estate plan must be addressed as soon as practical,” states Mr. Nemirow.
When a beneficiary form is out of date, it can invite problems – because legally, the instructions on a beneficiary form can overrule a will bequest. What if the named beneficiary is dead, and the contingent beneficiary is dead as well? What if your named beneficiary is estranged or divorced from you? In such instances, the asset may not transfer to whom you wish after you pass away. Looking at the wealth transfer process from another angle, you also want to make sure you have an executor who is of sound mind and who has the potential to remain lucid and reasonably healthy for years to come.1
A basic estate plan is better than procrastination. A bona fide wealth transfer strategy is even better. Involving your heirs in its creation, refinement, and implementation may help you guide your wealth into the future in accordance with your goals.
JST Investment Consulting does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable. The information in these materials may change at any time and without notice.
1 – thebalance.com/why-beneficiary-designations-override-your-will-2388824 [8/28/17]