Estate Planning Is Not Like a Crock Pot (and Other Mistakes to Avoid)

By Candace Scholz, CFP®, MS, MHA

In years past, the in-demand gift for many of “a certain age,” when graduating from college and going out into the professional world, was a slow cooker, often a Crock Pot. Crock pots were great; you could put in the food you wanted to prepare, set the appliance to slow-cook, head off to work, and come back at the end of the day to a delicious, nutritious hot meal that didn’t require meticulous attention or constant adjustment. You could set it, forget it, and enjoy it when you needed it.

While the “set-it-and-forget-it” concept is probably more popular than ever in today’s go-go world, it’s not the best approach to estate planning. By some estimates, over the next 23 years, between $80 and $125 trillion in total wealth will change hands from one generation to the next. You would think that with that kind of money in play, lots of people would be carefully going over their wills, trusts, and other estate planning documents to make sure they and their heirs are ready for this massive handoff. But the sad fact is that recent surveys indicate perhaps only one third of Americans have any estate plan at all, and as many as 20% of those who do have a plan haven’t looked at it or updated it in the past five years. Needless to say, with all the recent changes in tax law at the federal level—not to mention changes that may have taken place at the state level—five years is a long time to let your estate plan sit idle.

Instead, those with significant assets need to be reviewing their plans with their estate planning professionals at a minimum interval of two years; doing a deeper dive every five years or so is a good rule of thumb. Staying current with your estate planning is the best way to avoid some of the most common errors that plague larger estates when the time comes to pass the responsibilities on to the next generation.

Verify Beneficiary Designations.

This is “Estate Planning 101.” The most carefully drafted, tax-efficient trust in the world won’t prevent the proceeds of a forgotten IRA or an old, paid-up insurance policy from going to a former spouse if that’s the name that is listed as beneficiary for the account. For this reason, all retirement accounts, insurance policies, and annuities should be checked periodically to ensure that the beneficiary designations are still what the account- or policyholder intends. Because proceeds are paid to beneficiaries outside the probate process and supersede the terms of wills and trusts, it is essential to make sure beneficiary designations are current. Remember: life happens, and that includes marriages, divorces, death of spouses and other family members, changes in business relationships, and other circumstances that can render a beneficiary designation obsolete or undesirable. Check them regularly and keep them in line with your intentions.

Keep Up with Tax Law Changes.

Tax law is a moving target; administrations and legislative majorities change, and with them the political priorities encoded into law. For example, if your estate plan was created prior to 2017, when the Tax Cuts and Jobs Act (TCJA) created much higher lifetime exemptions for gift and estate taxes, you may be utilizing certain trusts that you may no longer need. Changes in the portability of lifetime exemption amounts for surviving spouses have also made certain estate planning tools less applicable in recent years. Have you and your estate planning expert compared the marginal tax rate for your trusts or the taxable portion of your estate (if any) with your personal rate to see which is lower? And don’t forget: some states levy estate tax, inheritance tax, or both. If your state falls into this category, have there been changes in the rate since your plan was put in place?

Don’t Forget Your Philanthropic Priorities.

It is not unusual for persons with significant wealth to place a high priority on giving back to society through charitable and philanthropic efforts. If this is something that’s important to you, make sure your estate plan reflects that importance. Whether by use of a simple bequest in your will, a charitable remainder trust, or some other method, your philanthropic interests should be an integral part of your overall estate plan. And, as with other factors, your charitable interests may change over time, which is just one more reason why you should systematically review your estate plan every few years.

Do the Kids Know?

One of the chief pitfalls of multi-generational financial legacies is incomplete or lapsed communication with heirs and others. Without clear communication of priorities, methods, timelines, policies, and other aspects of estate planning, those who stand to inherit the assets are not prepared for the responsibilities that accompany wealth. And the greater the wealth, the more comprehensive, organized, and professional the communication should be. Good communication should include appropriate levels of education, governance structures, legal and tax planning, and risk management to assure maximum levels of continuity from one generation to the next. In fact, the process of transmitting a financial heritage from one generation to the next is one of the most important services a professional estate planner or fiduciary financial advisor can provide. Serving as a disinterested—but well-informed—third party, such an advisor can mediate efficiently between the donors and their beneficiaries, making sure that priorities, goals, resources, requirements, values, and other important factors are understood by those on both sides of the table.

At Aspen Wealth Management, we are well versed in both the benefits of good estate planning and the liabilities of poor planning. We also understand the responsibilities and complications that go along with significant wealth, and our fiduciary duty to our clients mandates that we work with them to create solutions that keep clients’ best interests foremost at all times. To learn more, visit our website and read our article, “‘Keep the Money Together’: Preparing the Next Generation for Financial Leadership.”