When "Sopranos" star James Gandolfini died in 2013, he left behind an estate worth $70 million. The musician Prince died in 2016, and earlier this year, the IRS valued his estate at over $160 million. Michael Jackson was worth $500 million when he died in 2009. Aretha Franklin's estate was worth as much as $80 million when she died in 2018.
And despite the ample resources available to each of these superstars, errors in estate planning basics prevented a smooth and orderly transfer of wealth to their intended heirs.
On today's show, we discuss how to prevent your own estate from getting tangled in red tape and bad blood.
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Mistake 1: Thinking you don't need an estate plan or putting off planning.
Many folks who are still building wealth think they don't have enough assets to merit an estate plan. Others just don't want to think about dying, especially while they're still young.
Well, Michael Jackson died at age 50. Prince was 57. James Gandolfini was 51. There were some extenuating circumstances with these guys that we don't need to get into here, but we can agree they were all relatively young men who died unexpectedly.
Jackson and Prince, reportedly, did not have wills. Aretha Franklin left behind some handwritten notes about her estate, but these documents often have trouble holding up in court.
Gandolfini did have a will, but he did not have a plan to deal with the $30 million estate tax bill his beneficiaries faced. I won't speculate about how Gandolfini prepared his estate specifically, but these kinds of oversights are common among folks who go it alone using templates they find on the internet.
No matter who you are or how big your nest egg is, everyone should have professionals help them prepare:
- Last Will and Testament, which outlines your last wishes and explains how you want your estate to be distributed to your heirs and any other beneficiaries, such as charitable organizations.
- Power of Attorney that authorizes someone you trust to act on your behalf while you’re still alive, in the event that you are incapacitated or unable to make decisions. Be aware that your designee only has power of attorney while you are still alive.
- Healthcare Directive dictating how you would like to be cared for in the event that you become incapacitated.
- Living Will designating a person to be in charge of making important medical choices on your behalf if you are unable to. This person might use your healthcare directive as a guide, or you can explain the thought process you want your designee to go through to aid in their decision-making.
Mistake 2: Not executing or funding your estate plan.
Once you've made your plan, you have to cross the T's and dot the I's. A draft will that you leave in a drawer and never sign in the presence of a notary isn't going to do your beneficiaries any good. Likewise, if you want to assign certain assets to a trust or family foundation, you have to retitle those assets.
You also need to make sure that your preferred beneficiary designations on your financial accounts match up with your will and trust. If they don't, most financial institutions are going to use the beneficiaries that you named when you opened your accounts rather than the beneficiaries you list in your will and trust.
Most of this is just a matter of doing the proper paperwork with the help of a professional. For example, reviewing beneficiary designations is part of the annual review process we go through with our clients at Keen Wealth.
Mistake 3: Never reviewing your estate plan.
Notice I said "annual" review process.
No estate plan is set in stone. It's so important that you review your plan at least once per year to make sure that your wishes haven't changed and that the plan is still in sync with your life.
One example: divorce. In my book, Keen on Retirement: Engineering the Second Half Of Your Life, I tell the story of a client who, out of the blue, inherited an IRA from her ex-husband. Was this intended? Or, perhaps more likely, was this an error due to an estate plan that hadn't been updated after the divorce?
She and her ex's family were able to come to an amicable agreement that shared the assets among the deceased's children. Not every family is that lucky.
Mistake 4: Failing to secure your estate planning documents.
Like all of your important documents, your estate plan should be stored in a secure environment, such as a fireproof safe, a fireproof document bag, or a safety deposit box at a bank. Your attorney and fiduciary advisor should have copies on file as well.
But to truly secure these documents, you also have to make sure your beneficiaries know where to find them. When Olympic sprinter Florence Griffith-Joyner died – unexpectedly, at age 38 – no one could find her will. This led to years of legal battles as Flo Jo's husband and mother fought over whether her mother could keep living rent free in the couple's condo.
In this day and age, your loved ones also need to know how to access your digital accounts, whether that means sharing login info for your password manager or downloading important data to an external computer drive that you store with your estate documents.
Mistake 5: Letting the state settle your estate.
So what happens if you don't sign, fund, and secure your estate plan? Your "other" estate plan kicks in: the one established by your state of residence. Once the courts get involved in settling your estate, its details and any ensuing messiness with your family and other beneficiaries becomes public.
What makes these situations so tragic is that the process of setting up a valid estate plan is usually pretty simple, especially if you work with attorneys, tax professionals, and fiduciary advisors like my team at Keen Wealth. The hardest part is sitting down, confronting your mortality, and making decisions that are going to protect you, your assets, and your loved ones.
Integrating a solid estate plan with your financial plan can provide real comfort in knowing you are prepared for life’s unexpected events. If you need help getting this process started or if you have an existing estate plan you want to review, reach out and let’s discuss how we can help.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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