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7 Steps To Ensure A Successful Estate Plan

Bob Carlson

Your estate plan is much more likely to be successful when you recognize and avoid the most common mistakes and take some key actions that often are overlooked. Most estate planners will tell you that the same estate planning mistakes and oversights recur with frequency, whether an estate is worth a billion dollars, a few hundred thousand dollars, or something in between.

I’m not going to include the most common mistakes that you already know about: Not having a plan or having an outdated plan. You know a complete plan is needed, and it should be reviewed every couple of years and revised as needed. You also know the plan needs the essential documents: a will, living trust, power of attorney, advance medical directive, and other key features.

Once you’ve taken those basic steps, these additional steps.

Educate and communicate. A major reason estate plans aren’t successful is the next generation isn’t prepared. Because of that, they waste or mismanage the assets. They are taken in by scams or bad investments. Or the wealth ruins them.

One option to reduce those risks is to leave the estate in trusts that give the children limited access. Trustees manage the wealth and control distributions.

A better solution is to ensure the children have a basic knowledge of and are comfortable with wealth. Sudden wealth is the real problem. Inherited wealth is less likely to cause problems when the children have known for some time how much money they’re likely to inherit and how their parents accumulated the money. Children also benefit from knowing their parents’ philosophy about managing, accumulating, spending, and giving money.

An estate plan isn’t going to be successful unless the heirs understand the property, your intentions for it, and how to manage it.

Anticipate family conflicts. Often, family conflicts are just below the surface or are kept in check while the parents are alive. These conflicts can erupt after one or both parents pass.

Too often, the details of the estate plan itself cause or exacerbate family conflicts or resentments.

Clients often frustrate estate planners by not acknowledging family conflicts or simply saying “the kids will work it out.” Other clients create conflicts by committing classic mistakes, such as having siblings with different personalities or philosophies jointly inherit property or a business.

Don’t family conflicts and imperfections in your family with your estate planner. He or she has tools for dealing with and avoiding family conflicts. Your estate plan can help provide some cohesion among your heirs for years to come, or it can help shatter family harmony.

Plan before making gifts. Gift giving often is a key element of an estate plan. Keep in mind that gifts can be a good way for the next generation to become comfortable handling wealth. Instead of automatically writing checks, develop a strategy that will maximize the impact of your gifts.

Cash gifts tend to be spent quickly, while property gifts are more likely to be kept and held for the future.

Also, consider tax efficiency when deciding which property to give. Tax-wise giving increases family after-tax wealth. Discuss tax-wise giving options with your advisor.

Understand the basics of the plan. Few people, even many financially-sophisticated ones, understand the basics of their estate plans. Several times in the past, the magazine Private Wealth surveyed estate planners. Each time about 70% of the planners said they believe most of their clients don’t really understand their estate plans and what the plans do. That’s a pretty good start on the road to estate plan failure.

Most estate planners are able and willing to explain a plan so the basics are understood. Don’t hesitate to ask the planner to slow down or explain things in more detail.

Also, take notes when meeting with your planner. Often, people understand key parts of the plan after it’s been explained but lose the knowledge after the meeting.

Organize, simplify, and prepare. One reason it takes too much time and money to settle an estate is the owner didn’t make it easy for the executor. More than likely, the owner had a grasp of the assets and liabilities and knew where to find the necessary documents, but none of the information is written down or easy to find.

The executor needs to know the details of the estate. We also should be simplifying and streamlining our estates as we age. In addition to making our lives easier and compensating for declining energy and cognitive functions, streamlining makes the estate settlement process faster and less expensive. Simplification also avoids lost assets.

Have a business succession plan. Most business owners don’t have a real succession plan, and that’s a major reason why few businesses survive the second generation of owners. The value of a small business declines rapidly when the owner departs without a firm succession plan in place.

A succession plan includes a designation of who will run the business and who will own it (they can be different individuals or groups of people) and when the transitions will occur. When no one in your family wants to run the business, the succession plan might be for the business to be sold when you retire or pass away.

In any case, the business must be managed and structured so it is ready for a sale or inheritance. That often means improving accounting and other information systems. A successful succession plan usually takes five years or longer.

Fund living trusts. Perhaps the most basic and widespread estate planning mistake is failing to fund a revocable living trust. The trust is created to avoid probate and establish a process under which assets will be managed in case of disability or death. Yet, a living trust has no effect unless it is given legal title to assets. 

You must transfer legal ownership of assets to the trust. This is a step many people overlook or procrastinate about.

For example, real estate is transferred to the trust by changing the deed. Vehicles need their registrations or titles changed. Financial accounts need their titles changed, and each financial institution has its own paperwork and process for that.

Too often, these steps aren’t taken. People spend a lot of money having living trusts created but not enough time transferring assets to the trusts. Most assets that aren’t in the living trust go through probate.


