The Challenges of Estate Planning

Estate planning is an essential component of a comprehensive financial plan, and one that too often receives the least attention, and yet, in the end, can nullify the good results and intentions of all else.

Estate planning includes not only astute tax planning, but just as importantly, effective documentation to ensure asset distribution occurs as intended. Wills and powers of attorney must concur with beneficiary designations and consider changing family relationships. Even then, courts have been known to overturn legal documents if they are ambiguous or conflict with another legal document. Carefully and completely considered and aligned estate planning documents are essential.

As families become more complex and documents with beneficiary designations proliferate, the opportunities for challenges increase.

The Airtight Will

Airtight wills are increasingly difficult to achieve. Growing numbers of beneficiaries are challenging wills and courts are known to change allocations, given sufficient evidence that contradicts any statement in a will.

Rules for wills differ between jurisdictions, so first and foremost, keep your will updated in the jurisdiction where you reside.

Ensure that your will coincides with beneficiary designations on documents such as:

  • Life insurance
  • Registered plans such as Registered Retirement Savings Plans, Registered Retirement Income Funds, Life Income Funds, Tax Free Savings Accounts, and pension plans
  • Non-registered investment accounts with life insurance companies

Your will should be crafted by a lawyer with specific expertise in writing these documents and reviewed regularly with your financial advisor.

Powers of Attorney

Powers of attorney give someone you trust the authority to deal with your finances should you be unable to do so. This authority can be given for a specific time period or particular situation, or can be for the rest of your life, should you become physically or mentally incapacitated. As with a will, a power of attorney should be prepared by a lawyer with expertise in this area.

Arrangements should also be made for a business to ensure essential financial transactions can continue if the owner is seriously disabled or suddenly passes away.

Joint Ownership

Be aware that joint ownership doesn’t necessarily mean the surviving owner(s) automatically acquire a deceased owner’s portion of the asset. When arranging joint ownership of an asset with right of survivorship, also prepare an accompanying written document that clearly states the allocation of the deceased’s portion of the asset.

Beneficiary Designations

The only way to change a beneficiary designation is to physically enter the name of the new beneficiary on the appropriate document. For example if a couple divorces and an individual no longer wishes the ex-spouse to be the beneficiary of a life insurance policy, the name of the beneficiary must be changed on the policy, or the ex-spouse will receive the benefits whether or not that is the intent.

When you make a change in beneficiary, you should receive confirmation of the change within a couple of weeks. If you don’t, contact the institution to confirm the name of the current beneficiary.

Family Changes

Families change. Divorces, re-marriages, blended families, and children outside a marriage all create inheritance issues. The time to deal with these issues is before death or disability occurs, and the only effective means is in a legal document, with detailed instructions that clearly state the wishes.

The executor of a will requires accurate information regarding next of kin in order to proceed with probate. Consider creating a family tree to provide a clear understanding of the relationships.

Your Nakamun Advisor

Unfortunately in the financial planning world, many advisors are unfamiliar with estate planning issues or choose to ignore them. The results can be devastating to potential beneficiaries and family relationships.

The Nakamun Group is constantly updating our knowledge in estate planning issues to identify emerging potential problems and possible solutions.

Please keep your Nakamun Advisor current on family changes and challenges, and beneficiary changes. We will work with you and your legal and accounting advisors to develop appropriate solutions, and we will be in a position to point out changes that should be addressed.

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