According to the 2007 book “Estate Planning for the Post-Transition Period” by Roey Diefendorf and Vic Preisser, 70% of estates incur asset losses or a reduction in family harmony- the exact thing people are trying to avoid by creating an estate plan. That statistic may be bleak, but the good news is that these failures are usually preventable. In fact, according to experts, there are only two main reasons why estate plans fail.
REASON #1: LACK OF FOLLOW THROUGH
An estate plan that remains unfunded, unknown, and unchanged will ultimately fail.
Unfunded
An estate planning lawyer can help you set up all the necessary documents, but it is often your responsibility to make sure your assets are titled properly so that the estate plan will function as you desire. This occurs often with Living Trusts.
Living Trusts are set up to avoid probate, but it won’t do any good if the Living Trust is not funded by your assets. This includes transferring real property, motor vehicles, and bank accounts into the Trust.
If you don’t have a Living Trust, you’ll still want to make sure your assets have beneficiary designations to the extent that is possible. Most accounts will allow you to name a payable-on-death beneficiary and some states allow you to designate beneficiaries of real property as well.
Unknown
Once you’ve created an estate plan, you should notify anyone who may be affected by these legal documents. This is especially true for “living documents” like medical directives and powers of attorney. If your named agents don’t know these documents exist, how can they act on your behalf? Send copies to the appropriate persons and let them know where to find the originals.
Unchanged
Failure to update your documents may result in unanticipated and undesired results. The general recommendation is to review and/or update your estate plan every 3-5 years, or at any major life event, such as:
- Marriage / Divorce
- Birth / Adoption /Death
- Child turns 18
- Career change / Retirement
- Substantial increase or decrease of assets
- Moving to another state
REASON #2: UNPREPARED HEIRS
Sometimes people like to keep their estate plan a complete secret until they pass away, but this leaves the heirs woefully unprepared to handle the administration and distribution of an estate. Unfortunately, this can also result in family disharmony and litigation when one or more of the heirs are displeased with the estate plan details. Money can be a tricky issue to discuss but doing so will only help prepare the heirs for dealing with your estate plan.
Communicate with your heirs about the general value of your estate and how you plan to distribute it. They don’t need to know the specific details or even read the documents, but a bit of forewarning can help prevent big surprises, high emotions, and rash decisions later.