Failure to Plan – Devastating Consequences

Paula B. Ellenberg, CPA, CVA, MST (May, 2016)

In light of some recent great estate planning failures, we thought we should mention the importance of reviewing your estate plan.  Even if you feel you have no overwhelming tax reasons to be concerned about, there may be many important non-tax reasons to review your estate plan and on a frequent basis.  Mistakes are often discovered post-mortem.  Without a will or other estate planning documents such as trusts, you have no control over who will inherit your assets or who will be in charge of distributing your estate after death. 

Many Americans procrastinate when it comes to drafting a will or other estate planning either because of the cost or because it’s a depressing subject.  Ultimately, the laws of intestacy for your state of domicile will govern in the event you die intestate.  The following cases are extreme, but illustrate our point.

  • Prince died suddenly with an estate estimated to be over $300 million.  He was 57.  Members of his family have claimed he did not have a will, which would subject his estate to the laws of intestacy.  
  • Chris Kyle (American Sniper) died tragically and suddenly.  With many millions in movie and book profits coming in, he had no will.  He was rumored to have made oral promises to care for the families of several veterans.  Regardless of what Chris Kyle really wanted, now his estate is subject to the laws of intestacy.

Besides leaving their families and loved ones unprotected, these individuals left the door open to protracted and costly courtroom battles.  In addition, they no longer have the opportunity plan for estate or inheritance taxes.  

The following are some important considerations to think about. 

  • Draft a will and/or other estate planning documents such as trusts.  Who do you want to inherit your assets?   Who do you want to be in charge of distributing your assets?
  • Review and update any current documents.  Have you remarried?  Do you need trusts for minor or disabled adult children?  Have you considered creditor protection?  Have you considered asset protection?  For example, do you have Medicaid concerns? 
  • Avoid “DIY” estate planning.  You need a well thought out plan supported by current documents and current law.  Retain a reputable attorney who specializes in estate planning to draft and/or review your documents. 
  • Work with a team of professionals.  Tax laws are constantly changing.  Even though you may not have an estate large enough to incur “estate tax” either on a Federal or state level, income tax planning opportunities still remain.
  • Consider the estate and gift tax consequences of life insurance.  Will the proceeds of life insurance be included in your estate?  Consider who should own the policy.  Should you create an Irrevocable Life Insurance Trust (ILIT) to hold title to the policy?
  • Review “beneficiary designation forms” for your IRAs, 401(k)’s and pension plans.  Beneficiary designation forms and account titles rule regardless of what your will and/or trust documents say.  A “transfer on death” designation could disrupt your entire plan.

While tempting to put off, estate planning does make it easier for your family to interpret your wishes in the event of your death or incapacity, saves time and money, and may minimize or even eliminate some taxes.  Dermody, Burke & Brown is happy to assist you in developing or refining your own individual plan.

 

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.

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