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Fewer than half of American seniors have a will or trust document, according to Caring.com’s survey of adult children. That means a huge population of potential clients aren’t even considering estate planning. However, even if clients have planned their estate, certain mistakes could jeopardize their liquidity upon retiring. Here are four of the most dangerous estate planning mistakes worth speaking with your clients about today.
- A lack of a “see-through” provision on a trust.
Because trusts are subject to higher tax rates, not including a see-through provision for delegation of the funds to the beneficiaries can actually lead to IRA owners having to pay out a huge percentage of their savings in the form of taxes. A “see-through trust” refers to a trust that meets specific legal requirements and serves as the named beneficiary of an IRA. In this scenario, The IRS will “see through” the trust and treat the trust’s beneficiaries as if they were the IRA’s direct beneficiaries.
- Not accounting for sibling rivalry.
When clients are in the midst of planning their estates, they might not want to think about disagreements between their children after they pass on. It can be easy to gloss over details and nuances that might disturb the balance of the estate, swinging a pendulum towards one sibling over others. Talking to clients about this can be sticky, but ultimately, the value is in helping them see the very real possibility of their children enacting litigation against each other and losing out on a large percentage of their inheritance. Taking precautions through the language of the estate, and through transparency with the client, can help ensure everyone gets what they need out of the situation.
- Estate tax apportionments.
Although this is typically a problem for high-income families, problems with estate tax apportionments can occur in situations where a property value has inflated over the course of a client’s lifetime. The way that these are written in the will or omitted can significantly affect how the assets are distributed and redistributed to cover estate taxes.
- POD and TOD
POD, or Payable on Death, and TOD, as in Transfer on Death, can create problems for senior clients because they determine how beneficiaries receive assets through the probate. Because probate can be a very expensive process, it’s important that all bank accounts have POD or TOD instructions attached to them. Attorney fees for probate vary state to state so helping clients understand how this applies for themselves and their beneficiaries can help save on debilitating administrative costs in the future.
Helping your senior clients to see and plan for these traps before they fall in benefits both your clients and their families. Your service, knowledge, and industry experience means you can circumvent many of the typical estate planning mistakes. Also, you can offer insider perspectives on increasing cashflow in retirement though tax-breaks or options like viatical settlements. If you don’t about viaticals, also known as life settlements, visit Life Settlement Advisors today. We have resources for both elderly individuals as well as advisors.
Case Study:
Harold and Lucy had been married 50 years when Lucy Ann passed. Harold had purchased a life insurance policy and made Lucy Ann the beneficiary just in case. Harold no longer had a need for the life insurance and sold the policy for $185,000 and made a sizable donation to Lucy Ann’s favorite charity in her name and placed the balance of the funds in a 529 plan for their grandchildren.
