January is often begun with resolutions that are discarded quickly into the New Year. The next major milestone of the year is frequently associated with tax filing deadlines. Once you file your tax returns, you often turn your attention to taking a fresh look at your planning. Our clients often ask for examples of common mistakes we see and how to avoid them. The purpose of this blog is to summarize a few of those for your consideration so you don’t fall into the same traps we often see.
- Not having a plan. Sadly, many people live their lives without a plan. Financial budgets are foreign concepts to them, as are estate plans. Yet life continues to remind us of the wisdom of the old adage that “no one plans to fail, they fail to plan.” We often meet with families having children in their teens, yet they never had a Will to identify who might be successor guardian. Unless prompted, people fail to consider what they would really want to happen to their money, assets, business, and yes, even their children if they were to suddenly pass. The topic may be uncomfortable, but leaving family members a well thought out plan may be the most loving thing that can be done.
- Not implementing a plan. Once a plan is conceived, it cannot be left merely in notes and conversations, but it must be implemented in writing that conforms with Texas’ legal requirements. The writing takes many forms depending upon the plan. Wills are basic documents that almost all adults should have. Trusts are common instruments that can be contained in a Will to accomplish tax or protective planning, but also can be independent of Wills. Powers of attorney, buy-sell agreements, succession plans, or even memorial plans are other types of written instruments that have to be clearly documented to assist family members and business associates. Plans also will change over time as assets change, family members age, laws are revised and goals mature. As a result, periodic review and revision will be a necessity, not an option.
- Not coordinating a plan with beneficiary designations. In our financial world, much of our clients’ wealth is not transferred by Wills or Trusts but by beneficiary designation. Beneficiary designations are required for individual retirement accounts, retirement plans, annuities, and life insurance policies, but they are also common in simple joint bank or investment accounts. Even within a joint bank account for a couple, they often designate a child to be a signatory, and the bank might indicate that account to pay on death to that child. Each of these designations supersede a will or trust and are likely to be inconsistent with those estate planning documents. As a result, failure to coordinate the plan fully with all documents and beneficiary designations is likely to result in a partially achieved result.
- Be realistic with who you trust. Family dynamics and even individual characteristics of family members can be misread or change over time. Can a child really manage money well, or are they likely to make immature choices or be easily influenced by someone else? That might cost them dearly. Can a friend or family member you’ve selected to be executor manage all of the family members and the family’s assets while continuing in their own business and with their own family? The trustee or executor selected may be trustworthy, but do they have the skill set, dedication, and time necessary? We often see clients answer these questions with what they wish to be the case as opposed to critically analyzing the characteristics of their family members.
- Don’t scrimp on what is important. Planning to the extent needed to protect a family, a family business, and the family’s assets is not simple. It cannot be downloaded from the internet. It cannot be summarized in one article or gleaned from a seminar. It should not be treated as a commodity because no two situations are identical. Our office has never seen an effective and comprehensive estate plan that was generated by a non-specialist in this area. Those situations invariably left family members having to pay more to protect less. Irrespective of the size of someone’s estate, it is all that they have and all that their family will have in the future. It should be treated with that level of value, not whatever is cheapest and easiest.
The importance of the task of planning for one’s family warrants time, attention, and expertise to fulfill those duties wisely. The commitment to complete that work should not be approached like a new year’s resolution that is abandoned quickly into the year, but a direction that is charted and revisited to make sure you stay on course.