Gaps in estate planning can be detrimental for your family and your wealth.  While many know they need a plan, only 1 out of 3 American adults have a will or trust [1]. 1 out of 4 who do have a plan know it is outdated [2].

This is just as true for the most successful, wealthy individuals.  After the rock legend Tom Petty passed away October 2, 2017, a costly legal battle ensued between his widow Dana Petty and her two stepdaughters over control of his estate.  After more than two years, the family finally reached a conclusion [3].  Aretha Franklin, the beloved Queen of Soul, succumbed to cancer on August 16, 2018 without a will on file with any of her attorneys.  During the probate proceedings, several handwritten wills were discovered, resulting in a bitter conflict between her children and niece that continues to this day [4].

These kinds of problems can happen to anyone. It takes intention and diligent, pro-active planning to avoid similar blind spots.  Planning allows you to stay in control, protect against costs and taxes, and take care of family and loved ones.

Stay in Control

Your wealth can be left to those you don’t want to inherit it.  If you lack a will or trust, your estate falls under probate, leaving the fate of your wealth to the whims of the court.

An outdated or incomplete plan can cause even more damage.  Over the years, we’ve reviewed wills and trusts that named ex-spouses or deceased individuals as beneficiaries, executors and trustees. We’ve counseled beneficiaries who spent years tracking down financial accounts and legal documents from a disorganized estate.  We’ve seen trusts that leave funds outright to children and other heirs with known mental illness, substance abuse, or irresponsibility around finances.  To avoid these kinds of problems, we recommend reviewing your estate plan once every 3 to 5 years and following any major life changes, such as a birth or marriage. 

Protect Against Taxes and Other Expenses

With no will or trust, your wealth passes through probate.  This is often a long process that keeps your family from accessing your wealth when they need it.  Also, fees vary by state and can be quite costly.  California statutory fees (Cal. Probate Code § § 10810, 10811), for example, start at 4% of the gross probate value [5].

Inadequate planning can also expose more of your wealth to taxes than you were anticipating.  A life insurance policy paid to the estate may face the 40% estate tax.  By paying the life insurance separately, such as to a irrevocable life insurance trust, the proceeds can escape taxation.  Taxes are especially problematic with large illiquid assets, such as real estate, business interests, jewelry or artwork.  If there isn’t enough cash in the estate, the beneficiaries may be forced to sell holdings, sometimes cherished ones that have been in the family for generations.

Now may be the perfect time to plan ahead since 2020 is a “perfect storm” for estate planning.  Several factors (including low interest rates, depressed asset valuations, and a historically high federal estate and gift tax exemption of $11.58M per person and $23.16M per couple) have combined to create this generation’s best opportunity for saving on gifting taxes.  With a presidential election this November, however, these benefits may not last for long.

Provide for Family

Through proper planning, you can ensure that your family has enough to meet their needs, no matter what life holds.  One client put her children through college and now has a secure nest egg from life insurance proceeds left by her deceased husband. Another client was able to keep a family-owned business passed down from generation to generation because of careful planning from her father and grandfather.

Estate planning also provides peace of mind for family and loved ones. By specifying how you would like medical and financial decisions handled, you take away the stress and guesswork. 

Take Action

The best gift you can leave your family is an up-to-date, well-executed estate plan. It allows you to stay in control, protect against the erosion of taxes, and take care of family and loved ones.

At Truuwater Fianncial, we are passionate about helping you achieve your financial goals and avoid blind spots along the way. Please contact us with any questions regarding your estate plan or for a comprehensive review.

[1] https://www.caring.com/caregivers/estate-planning/wills-survey

[2] https://www.uslegalwills.com/blog/americans-without-wills/

[3] https://www.latimes.com/entertainment-arts/music/story/2019-12-18/tom-petty-estate-settlement

[4] https://www.hourdetroit.com/community/aretha-franklin-estate/

[5] https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=10810.&lawCode=PROB