While estate planning is often associated with the wealthy in reality anyone who wants to pass on assets to their heirs needs to think about their estate plan. In addition, estate planning takes into account the guardianship of minor children, the succession plan for a business and a variety of other related issues. Like any aspect of financial planning, as estate plan should be reviewed and if needed updated periodically. An experienced and knowledgeable financial advisor should include these issues as part of a periodic review of your situation. Here's a list of things for financial advisors and their clients to consider. (For more, see: Estate Planning Basics.)
Has your client recently gotten married or had a child? Did he or she get divorced or suffer the death of a spouse? Do they own a business? These and a multitude of other life situations should prompt the evaluation of an estate plan, especially if something has changed or if it has been awhile since it's been looked at.
Common Estate Planning Mistakes
- Not checking beneficiary designations on retirement accounts, annuities and life insurance policies. These instruments are passed on via the beneficiary designations and supersede anything specified in a will or elsewhere.
- Leaving survivors to search for your assets and accounts rather than leaving written documentation, including a list of online accounts and passwords and where to find important estate planning documents.
- Assuming that estate planning is a one-time event. It's important to update an estate plan periodically to protect your client and their family as life circumstances, assets and the rules change.
- Establishing a trust and failing to retitle assets to the trust.
Estate Planning Tips
Birth of a Child
The birth or adoption of a child should at the very least prompt parents to get a will in place with a named guardian for any minor children. Don’t assume that any verbal wishes or conversations would be honored by the court in the event of your death. Put your wishes in writing as to whom would take care of children in the event of the death of a parent. If the person taking care of their financial well-being is different that needs to be spelled out as well. The last thing you want is a family fight. (For more, see: Why You Should Draft a Will.)
Change in Marital Status
Getting married can entail many things including changing beneficiary designations on retirement accounts and any life insurance policies. You may also need to retitle assets such as your client's home to reflect joint ownership. Likewise, will and estate planning documents may need to be updated to reflect the desire to pass certain assets on to a spouse in the event of a partner's death.
Getting divorced may include undoing some of the estate planning related things your client did when they got married and during their married life. You likely will want to change beneficiary designations on retirement accounts and life insurance policies, perhaps to children or another relative. (For more, see: Marriage, Divorce and the Dotted Line.)
Changes in Financial Status
Over the years, wealth might have increased due to career success, an inheritance or investments that have performed well. This increase in wealth could complicate passing assets to heirs upon your death and would justify revisiting an estate plan. (For more, see: Advanced Estate Planning: An Introduction.)
On the other hand, if your client's wealth has dropped significantly for whatever reason you might want to simplify things in terms of their estate plan.
Moving to Another State
While much of the focus on the estate tax is at the federal level, there is a wide variation in state death taxes. Florida does not have one, but Illinois does. If you move to another state it's wise to consult with an attorney knowledgeable about your new state’s situation and if needed adjust your estate planning documents accordingly. (For more, see: Estate Planning: Estate Taxation.)
Change Beneficiary Status
Things may have changed in the lives of one or more beneficiaries since you initially set up an estate plan. Perhaps your client's intent was to benefit their siblings equally but now one has become independently wealthy and they'd prefer to leave their assets to the others who have a greater need. (For more, see: An Estate Planning Must: Update Your Beneficiaries.)
Another scenario might be that one of your client's children has become a spendthrift and they are not comfortable giving them a large sum outright. You might have to make other arrangements in order to benefit them while at the same time saving them from their own bad habits.
Also, a beneficiary might have since passed away.
Buying or Selling a Business
If your client has starting or is buying a business, make provisions to pass the value of this business on to their heirs. One vehicle might be a buy/sell arrangement, which is funded by an insurance policy. This arrangement will essentially provide value to your heirs in the event of your death or disability and not burden the remaining partners in the business with having to deal with heirs who are not otherwise involved with the entity. There are a number of variations of this type of arrangement where applicable. (For more, see: Prepare to Sell Your Business and Considerations for Small Business Owners – Buy-Sell Agreements and Taxes.)
If your client has sold a business, the proceeds from the sale might have vaulted them to a new level of wealth which could necessitate a full review of their estate plan. (For more, see: How to Create a Business Succession Plan.)
The Bottom Line
Many of us have specific desires in terms of leaving our wealth and possessions to heirs. An estate plan is the vehicle by which this is done. Specific techniques vary widely based on our circumstances. Estate planning is not a set-it-and-forget-it proposition. As situations change you may need to revisit your client's estate plan to ensure that is still meets their needs. A good financial advisor will prompt their clients to do this periodically as part of financial planning reviews. (For more, see: Estate Planning: 16 Things to do Before You Die.)