Casey Robinson

Casey Robinson

With your career in the rear-view mirror, and a nest egg to provide a comfortable retirement, you have no big financial decisions left, right?

Not quite. You still have your estate to consider. You want to ensure sure your assets will be distributed exactly the way you want, to whom you want and that the government won’t take any more than absolutely necessary. To help ensure your wishes are carried out faithfully after you have passed on, we identified the top five estate planning mistakes you need to avoid.

Not having an estate plan at all

At a minimum, we recommend a last will, financial power of attorney and health care directive for our clients that have been reviewed by an attorney within the last 10 years (or subsequent to any major life event). You may want to consider setting up a trust that will govern how your assets will be managed for your beneficiaries. If you fail to decide where your assets will go when you’re gone, you’ll be leaving it up to the state, which typically defaults all your assets to your spouse or closest blood relatives. Two of the many drawbacks to leaving it to the state to determine how your estate will be distributed are:

1) Many people don’t want their assets going to certain family members, and

2) It’s time consuming, costly and can trigger substantial tax liabilities.

Not having a revocable trust with

a successor corporate trustee

There are several common trusts through which you can designate a trustee to manage your assets for beneficiaries of your choosing. At Waldron, we often recommend revocable trusts, which can be modified after their creation.

If you only have a basic will, the assets in your estate will go through the probate court process, which is subject to attorney fees and other costs. If you own homes in other states, for example, your executor will have to go through the probate process in every state you own property. This can be easily avoided by owning these homes in a revocable trust. A revocable trust can also ensure that your assets won’t pass to a minor before he or she is ready to properly manage them and stipulate how long that minor’s parent can control those assets before the funds are distributed. Perhaps the greatest benefit of a revocable trust is that it allows you to appoint a successor trustee to administer the assets until the beneficiary reaches a predetermined age or other milestone set by the grantor. The trustee serves as an unbiased third party, with the legal responsibility of approving or denying distributions, based on how the trust was written.

Not updating beneficiaries or listing

contingents on all IRAs, 401(k)s,

annuities and life insurance policies

There are significant benefits to inheriting an IRA or annuity through a beneficiary designation, as opposed to leaving these assets to your estate, and then having them distributed by the terms of your will or intestate law. Passing these types of accounts via a direct beneficiary designation avoids the probate process, which saves time and costs, and allows the heirs to receive the assets as direct beneficiaries. This keeps the vast majority of the assets in these tax advantaged accounts for many additional years. If you the leave assets in an IRA or annuity to your estate, the assets will be removed from the tax advantaged accounts and all related taxes on the income will be due in the year of distribution. Also, remember that Roth IRAs are tax free from a distribution standpoint, not only to the owner, but to the beneficiaries as well. We often recommend leaving IRAs and other tax advantaged accounts to grandchildren, as it allows for the possibility of decades of tax-deferred and potentially tax-free distributions, which can be an extremely powerful estate transfer strategy.

Investing lifestyle and legacy

assets the same way

Many retirees spend well below their means, and can live comfortably on a much smaller investment portfolio than that which they have accumulated. It’s common for retirees to invest all of their money in one portfolio with the singular objective of providing retirement income.

We recommend a dual goal approach, where you divide your investment portfolio into a “lifestyle” portfolio, invested conservatively, with a focus on producing retirement income, and a “legacy” portfolio, invested more aggressively, with a focus on maximizing the retiree’s legacy. This legacy portfolio would still there if you need it, but would be structured with a long-term time horizon.

Failure to have life insurance policies reviewed

Many retirees who own life insurance policies haven’t reviewed them in years. It’s vitally important to ensure the policy is performing as expected, and that it’s going to be there when you need it. We review our clients’ policies regularly to ensure the policies are up to date, reflect the clients’ current needs, and that the accounts are properly integrated within the context of our clients’ financial goals. When we first bring on new clients, we often learn that they haven’t looked at life insurance polices since the day they bought them. Once we start to dig into the details, we often find liabilities have crept into their situation. From there, we find many opportunities for improvement.

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