Tales From the Estate Planning Crypt… aka What Happens When You Don’t Plan
Even though Halloween is over, and Thanksgiving is upon us! I can’t help but reflect on the many estate planning nightmares I have witnessed firsthand as an advisor. What’s really sad is the deceased usually had no idea they were making life more difficult for their loved ones. The truth is that almost all of the difficulties could have been avoided with a little pre-planning.
Let’s examine a few scenarios to see how they could have been avoided…
1) Investments Scattered Hither and Yon
Dolores had been widowed for many years but had continued to handle her investments after her husband’s death. This basically meant depositing her dividend checks. She didn’t sell her investments or trade, which resulted in her amassing a nice portfolio of stocks which, upon her death, had appreciated greatly. Sounds great – and it is – but Dolores was her own custodian. She kept her stock certificates in various places. Some were in her desk, some in her lockbox at the bank, and some appeared to be missing and were never found.
Dolores’s executor had to conduct a major search and seizure operation that lasted for months. One clue as to what she owned was the dividend checks. Every time she got a check we could cross-reference the transfer agent. Over time I assisted her executors in piecing together what she owned and where it was. Some stocks had split several times, some had spun off other companies, and yet another stock had gone bankrupt.
Sleuthing for stock certificates is not what your executor should be doing. Especially, because it happens when they are mourning your loss. Dolores could have set up an investment account to house all her investments. Transferring her account on her passing could have been as easy as filling out a couple of forms. And it would have saved her estate some real dollars.
2) The Great Unfunded Trust
Dorothy was as self-sufficient as Dolores. As a widow for 30 years, she handled all her personal affairs very well. The mother of 3 felt that it might be sensible to do some estate planning.
So Dorothy hired an attorney to set up a revocable trust. She received a copy of the trust document and even mentioned it to her son who would be her future caretaker. The intention of the trust was to leave the family farm to her son and the liquid investments to her daughters in order to even out the gross estate.
Upon her death, however, it became apparent that Dorothy’s trust had never been funded. The farm was still titled in her name. It was as if the trust never existed. The family farm was transferred to her heirs and titled as tenants in common.
Unfortunately, I’ve seen many unfunded trusts throughout my career. Dorothy simply didn’t understand that setting up the trust was just a starting point. Property, including real estate and investments, must be retitled in the name of the trust so there is a legal transfer of ownership from the individual to the trust.
The most famous unfunded trust was Michael Jackson. The result was a probate process that was strung out for years. If it could happen to someone with his resources, it could happen to anyone. Talk about an estate planning nightmare!
3) Not Updating or Naming Beneficiaries
Out-of-date beneficiary designations are a common problem as well. In my tax practice, one of the most common mistakes I saw was naming your estate as a beneficiary of an IRA or another retirement plan. This effectively turns a non-probate asset into a probate asset, costing the estate hefty fees. Tax law changes have reduced the penalties and allowed for remedies to some oversights, but it’s still very important to review and update beneficiary information regularly.
One of the most egregious estate planning mistakes is leaving your retirement plan or insurance policy to your ex-spouse. I’ve seen this happen. My potential client was the sister of the deceased who was shocked to learn the bulk of her brother’s estate would pass to his remarried ex-wife. Whoa… talk about tales from the crypt!
Don’t Leave an Estate Plan Nightmare for Your Loved Ones to Clean Up!
So before you make a massive blunder and leave a nightmare of an estate “plan” for your loved ones to sort out, ask yourself a few questions:
- “What would happen if I was suddenly incapacitated or passed unexpectedly? Would my loved ones know what to do?”
- “Is my partner capable of making clear investment decisions on their own? If not, is there a family member or advisor who could step in and help make these timely decisions?”
- “Are my investments accessible to my loved ones? If not, is there someone I can trust to work with?”
- “What if something happens to me? Is there a mechanism in place to handle this scenario or will the courts have to step in?”
If you are not a finance person, this can all sound quite intimidating. However, it doesn’t need to be. The most important thing is to make a plan. Communicate with your partner before something happens. If your loved one will need help or advice after your passing, we can help.
At CSH Investments we have over 30 years of experience working with estates and trusts; and how they affect your investments. Give us a call at 217-824-4211 or 573-808-1959 with any questions or concerns you may have about estate planning and how it can impact your loved ones’ futures.
To keep learning, read our blog post, “How Financial Advisors Can Help Create an Effective Estate Plan” here.