Do you ever lie awake wondering what will happen to your family and your assets if you become incapacitated or if you die? Estate planning is critical for anyone who wants to control their assets while they are able, provide for themselves and their loved ones in the event of incapacity, and ultimately pass their wealth to whom they want, when they want, the way they want, with a minimum of taxes and expense. Unfortunately, far too many estate plans fail for three basic reasons: lack of understanding, lack of implementation, and lack of updating.
Lack of understanding. In order for your estate plan to work for you and your loved ones, you have to understand it. Not every minor detail, but at a minimum, you have to know how the plan accomplishes your objectives. If you don’t, you run the risk of doing things that will undermine your plan.
A good example is the couple who put together an estate plan using revocable living trusts. They signed all of their documents, including a deed transferring their home into their trusts, and then many years passed. The couple sold their home and replaced it with a new one, but they took title to the new home in their individual names. A few years after that, one of them became incapacitated, and the other had to go through a lengthy and expensive court process to secure the authority to act on behalf of the incapacitated spouse. As if that weren't bad enough, they also gave up the opportunity to save their family substantial estate tax when both of them are gone. Court costs, delays, taxes, and aggravation could have been avoided if the couple had understood their plan and followed it correctly.
But the couple did not understand their plan, and they did not understand what it took for the plan to work as intended. If you want to be sure your estate plan will work as designed, you need to take the time to learn how the plan carries out your objectives. You don’t need to know every detail, but knowing the big picture may make all the difference.
Lack of implementation. No matter how well your estate plan is designed, it does not help you as much as it could if it is not implemented. Many estate plans fail because they are never implemented. For example, trusts are created, but nothing is transferred into them. Until a trust is funded, it will not carry out its intended purpose and enable the intended beneficiaries to avoid the court proceeding called probate, or the one that could be even worse, called conservatorship. Just as any other plan that is not implemented can end up being a waste of effort and resources, an estate plan that is not implemented can be a waste of time and money.
No matter how well you understand your estate plan, and how completely it is initially implemented, it will do you and your ohana little good if you fail to keep the plan up to date.
Lack of updating. The one constant is change. Over the next ten years, your assets will change, your family situation will change, your health will change, and your wishes about everything from who should receive your assets and how should they receive them, to who should be in charge of carrying out your wishes, will change. If you do not take steps and follow a discipline to make sure your estate plan takes these changes into account, your out of date estate plan could actually end up doing more harm than good. At the very least, an annual updating process will help you avoid the mistakes that were made in the two examples cited above.
Having an estate plan that will effectively carry out your wishes is largely up to you. The best move you can make on behalf of yourself and your family is to choose advisors who will help you through the process of understanding, implementing, and updating your estate plan. If you do, you will find that a burden has been lifted off your shoulders, and a good night’s sleep will be much easier to find.