How to Avoid Critical Estate Planning Traps
Imagine having no control over how your assets are distributed after your death. Also imagine that you worked a lifetime to build up savings and assets that you hoped would make life easier for your heirs, only to have a bureaucracy decide how they are dispersed. This creates more stress for family members with no experience in estate resolution.
That will be the case for you if you don’t have a will. If you don’t have one, you’re not alone.
In its annual survey, Hearts & Wallets polled 5,216 adults, oversampling for wealthier Americans, those they dub “late-career” (age 53 to 64) and pre-retirees who say they’re likely to retire within five years. More than half of those surveyed (58 percent) find retirement planning difficult, according to the report. The 58 percent number is up from 49 percent in 2012.
Someone who certainly found estate planning difficult – or at least did not understand the necessity for it – was recording artist Prince. When he died in April, he did not have a will or any other estate planning in place.
Therefore, Minnesota state courts are deciding the rightful heirs of Prince’s estate, reportedly worth $300 million.
Prince did not have a wife or any living children when he died, so the state courts have been working to decide who the appropriate heirs are. Earlier this year, a judge ruled that Prince’s full sister and five half-siblings qualified as heirs. But the courts are still trying to decide if a reported niece and grand-niece are rightful heirs. The deceased man who was their father and grandfather, respectively, was commonly referred to as Prince’s “brother,” but genetic links are less definitive.
It seems quite possible that the case will be tied up in courts for years. It all could have been avoided if Prince had created a will. His wishes would have been carried out, and there would be no question as to what those wishes were.
While most professors don’t have estates that will reach $300 million in value, many estates will be at least seven figures. As is evident in the Prince case, having a will created makes the difficult period just after your passing that much easier for your heirs. Months and even years of court hearings can be avoided.
There are other potential roadblocks for a smooth estate resolution process. For example, if the beneficiary listed on documents for your various retirement accounts is merely “my estate” instead of individuals, that can send the contents of those accounts to probate court instead of to the heirs to whom you intended them to go.
Keep in mind that even if you have a will, your estate will go through probate. The benefit of a will is that your intentions will be clear to the probate judge. In this case, all income taxes – at a rate of up to 39.8 percent – will become payable immediately.
This is another example of why attention to your retirement and estate planning is critical. Filbrandt & Company has decades of experience with comprehensive financial planning, including retirement and estate planning, with university professionals. One method of estate planning we often recommend is a trust, which has these advantages:
- Puts conditions on how and when your assets are distributed after you die;
- Potentially reduces estate and gift taxes;
- Distributes assets to heirs efficiently without the cost, delay and publicity of probate court. Probate can cost between 5 to 7 percent of your estate;
- Better protect your assets from creditors and lawsuits;
- Name a successor trustee, who not only manages your trust after you die, but is empowered to manage the trust assets if you become unable to do so.
Even if your estate is not worth hundreds of millions, it is a princely sum that your heirs will be thankful to receive. We understand if you find the process difficult. Filbrandt & Company offers a review process that will help you avoid oversights that could cost your heirs time and money. Submit this form to request the complimentary estate planning review.