With the federal estate exemption now set at $5.34 million for 2014, few individuals need to worry about employing strategies designed to minimize federal estate taxes.  The focus of estate planning has shifted to distribution planning.  The main objective is to establish safeguards that ensure the assets stay intact and are directed to the desired heirs in a timely manner.  This newsletter will present common estate planning mistakes and simple and practical ways to correct them.  

Over my 35 years in practice, I have witnessed numerous mistakes that are easily correctable.  The common thread for most of these errors is inattention.  Estate plans are often executed and put away for many years without addressing changes resulting from significant increases in wealth, new tax laws and changing family dynamics. 

            A common mistake in many wills is that named executors or co-executors are often deceased or too old to effectively perform their administrative duties.  In other instances, where the family has changed their mind about suitable guardians for their minor children, the will has not been amended to effect this change.  Laws over the years have also changed in states in areas such as living wills or health care proxies that address the wishes of the terminally ill.  For example, in Massachusetts if the health care proxy does not include updated HIPAA language, the proxy may not have access to the vital medical information necessary to make an informed decision that reflects the individual’s specific wishes. 

            One of the most devastating mistakes I have encountered is outdated beneficiary designations for life insurance policies, annuities and retirement accounts.  I’ve seen situations where divorced spouses have been the recipients of an unexpected windfall of a significant retirement account when the ex-spouse died and never changed the beneficiary.  I have also reviewed life insurance policies where the beneficiary is deceased with no named contingent beneficiary.  It is also not uncommon for a 401(k) participant to die without ever naming a beneficiary.  In these last two instances, the account would be funneled through probate subjecting the distribution to unnecessary probate expenses and a delay in distribution. 

Perhaps the simplest but most overlooked solution for many bank or investment accounts is the lack of use of Transfer on Death accounts (TODs).  In 
effect, the use of this registration for non-retirement accounts allows the named transferee(s) to have immediate access to the account upon the death of the owner.  When our older clients lose a spouse who was a joint owner on an account, we encourage them to consider re-registering the account as a TOD that names designated family members as eventual recipients.  The advantage of this registration is that the owner has complete control of the account during their lifetime but upon their death, the account passes directly to the desired heirs thus functioning very much like a beneficiary designation. 

            Another issue that often arises is the failure to acknowledge and include additional heirs, particularly grandchildren, in an updated estate plan.  The issue may be the assignment of a family heirloom such as jewelry or simply bequeathing cash or an asset.  Another problem I have often experienced is protecting heirs from unforeseen events or the inability to handle the funds.   A common example is divorce.  If a parent/grandparent is concerned about the staying power of the marriage of an heir, they could delay the distribution or direct the inheritance into a trust to avoid its inclusion in a possible divorce settlement.  If an heir is likely to spend their inheritance frivolously, a trust could be established with provisions that restrict withdrawals and delay the ultimate distribution. 

            While most of the remedies discussed are rather simple, the failure to periodically check and amend an estate plan that may be outdated can have a devastating impact.  In my role as the manager for our clients’ financial plan, a constant vigil of these integral details is paramount. 


Clifford L. Caplan, CFP®, AIF®


In the News: On January 29th I was quoted in an online article in Thomson Reuters titled “Treasury to pick manager for Obama myRA retirement program”.  My opinion was sought and expressed about President Obama’s proposed myRA account idea as described in his State of the Union address.

Links for this article can be accessed on my website. 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice.  Investors should consult a tax or legal professional regarding their individual situation.