5 Obstacles That Could Hinder Your Estate Plan


Last Posted at schwab.com

If you’ve set up an estate plan, your goal was to establish a clear legacy and keep things straightforward for your heirs. But if your wishes and priorities have shifted over time, it’s wise to review your plan to address any obstacles that could impede the transfer of your assets. Here are some pitfalls to watch out for, and ways to make things easier for the ones you love.

Outdated account titles (e.g., joint tenants with right of survivorship) and beneficiary designations can be surprisingly problematic, says Rande Spiegelman, vice president of financial planning at the Schwab Center for Financial Research. When this information is incorrect, your heirs may not get the assets you intended—sometimes even overriding the wording of your will or trust. “Review your account titling and beneficiary designations anytime there is a major change in your life, such as a birth, death or marriage in the family,” Rande says. Additionally, Rande recommends reviewing your accounts and beneficiary designations every three to five years—along with your entire estate plan—to ensure all documents reflect your wishes, regardless of any new life events.

In addition to account titling and beneficiary designations, a revocable living trust is another way to avoid the unwieldy and costly probate process, because your assets technically belong to the trust— even while you’re still alive. After creating and funding the trust (by changing the title of your accounts and other assets into the name of the trust), you should create a “pour-over will,” Rande says, which states that assets not otherwise devised by your will should be transferred to the trust upon your death. And finally, be sure to name a successor trustee (in case you or another original trustee cannot fulfill the duties). These steps will reduce the likelihood of your estate going into probate.

If you don’t have a surviving spouse, you may be tempted to choose one of your children or another close relative as the executor of your estate (and/or successor trustee of your revocable living trust). However, consider all of your options first. Your executor must complete a broad range of tasks to settle your estate, so you want someone who is competent, able and willing to take on the job, Rande says. “Discuss your wishes and goals for the distribution of your estate with any prospects first, before naming a nonspousal executor,” he says. If the executor you have in mind lacks the time, expertise, interest, impartiality or ability to serve, consider asking your accountant or attorney instead—or hiring someone from your financial firm’s estate-planning department.

As of 2016, individuals can exclude up to $5.45 million from of their estates from the IRS, and married couples can exclude $10.9 million. But state taxes on inherited wealth can be assessed on estates worth as little as $675,000 in New Jersey, for example. “If you live in a state that imposes its own estate or inheritance taxes, it can make sense to begin transferring assets during your lifetime,” Rande says. He suggests working with an estate-planning attorney and a CPA to set up a strategy that accounts for potential state taxes.

Discretion may provide family harmony in many cases, but, according to Rande, it’s still wise to be candid about your estate plan. “It’s generally a good idea to communicate as much as you comfortably can about your plans for your estate while you’re still living,” he says. While this can be an uncomfortable conversation, disclosing your wishes to your spouse, children or other heirs can help them adjust their expectations—thus reducing the likelihood of confusion, conflicts or legal battles down the road. Rande adds that in some situations, it may make sense to have the family attorney explain the estate documents to potential heirs and beneficiaries and answer any questions they may have.


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