The Most Common Estate Planning Problems

  1. The most obvious problem for executing estate plans after clients pass? Not having a will in the first place. The lack of a will is a likely indicator that there wasn’t any effort dedicated to estate planning at all, but it can also doom the estate and its executors to deal with the hassle and cost of intestacy. Even if clients’ assets are going to be distributed identically in the will as they would under intestacy, it’s still important to draw up the document—if only for the increased clarity and speed of resolving the estate that it provides.For those clients that have had a will drafted—it’s very important that the location of this document is well known among involved parties. Either the family, a trusted advisory or even both should know the location of the document. This may seem fairly obvious, but it is not uncommon for people to draft a will and then bury it in the bottom of a drawer without anyone knowing. The document is worthless if no one can actually find it and read it.
    2.) No settlement of unique items.
    The estate of clients can contain an infinite amount of significant assets or family heirlooms. Some of these can be enormously valuable while others have sentimental or nostalgic value.
    This is often less of an issue with the items that have an obvious face value—there’s a dollar amount attached, and some simple math amongst heirs is all it takes to get a fair distribution.
    Those items with sentimental value, however, can really draw things out. Heirs will typically go to the mat over things with little financial value, but have an intense emotional attachment. It may be a good idea for a financial advisor to encourage clients to attempt to identify such pieces and name them specifically in estate planning documents to avoid conflict down the road.
    3.) No Plans In Case of Incapacitation
    Remember—estate plans should not only address what happens to the client’s estate after their death but should also protect them through the end of life. A large portion of clients draft a will and then think they’re done—never once considering what would happen if they were unable to make their decisions. As life expectancies continue to rise—along with Alzheimer’s and Dementia becoming more and more of a prevalent issue, it is extremely important to ensure clients have various non-will documents—powers of attorney, healthcare proxies, living wills, etc. in the event of incapacitation.
    4.) Not planning for Aging Parents.
    People are living longer and longer, and this means that client’s estate plans need to shift to reflect the current reality—taking into account that certain things are possible in regards to the previous generation and their lifespan. It could be possible that an expected inheritance never comes to fruition as clients’ parents live well into old age while the cost of elder care erodes the value of their estates. It’s also becoming increasingly common for the elderly parents to move back in with their children and rely on them for end-of-life care and support. Client’s estate plans need to be flexible in order to provide for such possibilities.
    5.) No contingent beneficiaries on retirement accounts
    This is very easy to overlook but can cause a great deal of damage. Almost all retirement plans have a requirement that clients specify primary beneficiaries, but contingent beneficiaries are usually optional. This is a mistake—when dealing with something that’s supposed to extend far into the future (like a retirement plan), advisors almost always have to make sure that there are allowances for unexpected events. Named beneficiaries could always die before the account holder—and this is very easy for clients to overlook. Naming contingent beneficiaries out of the gate provides a wise buffer for when the unexpected occurs.
    6.) Selecting the wrong representatives
    This is so much more complex than simply choosing the proper financial advisors. Generally, in an estate plan, a client had to name a large number of people to represent them in various circumstances. Trusts, Wills, Healthcare Directives, Powers of Attorney, and Guardianships are just a few of the many possible responsibilities that clients have to delegate. It may be tempting just to name family members or an advisor to these positions, but each requires vastly different skills…so it’s important that you ensure that your clients are putting the right people in the right positions.
    7.) Over delegating of responsibilities.
    Yes, it’s important to have a strong team of advisors at the ready to assist clients in the rocky road of estate planning, but it’s imperative to keep the client involved as well. It may seem like the best plan of action to allow the professionals to handle all the details, but it’s ultimately the client’s estate plan and they need to be familiar with the minutiae—their finances and obligations—so that they can make the best decisions for their future from here on out. There’s definitely a delicate balance in boundaries between advisors doing everything for clients— the reverse being the over-involved client that doesn’t allow advisors to do their jobs.
    8.) No Prenup.
    No one wants to talk about pre-nuptial agreements, but it’s especially important when dealing with high-net-worth clients. Prenuptial agreements are invaluable tools that financial advisors should recommend more often. Nearly 50% of marriages end in divorce, and it’s just a cold reality that this document often does more to safeguard assets and protect future earnings than the majority of other complex planning documents done for clients.
    9.) Lifestyle inflation
    This isn’t exactly part of an estate plan, but lifestyle inflation is very much a real threat. Since estate plans serve to protect client’s assets and then shepherd them to future generations, a client that decides to live lavishly even though their earnings are no longer able to support this spending can easily destroy any estate planning work that the advisor has put in. It’s especially important to encourage clients to live within their means and educate them about how what’s working for them at the height of their income earning years often isn’t viable when living on a fixed income and in retirement.