Scott A. Rojas, CFP®

Estate planning is an essential part of personal financial planning. For many of us, this requires some arduous work and soul searching to figure out how to handle our financial affairs if something unpleasant happens. This often leads to some common estate planning mistakes that could be easily avoided with a little effort and guidance. Here are some examples of what not to do.

Famous Faults

The well-known painter Pablo Picasso passed away in 1973 when he was 91 years old. Picasso died intestate – without leaving a will – and his wives, mistresses and children were left to battle over his assets in court for many years. This mistake ultimately cost over $30 million in legal fees (roughly $110 million in today’s dollars).

We’ve previously written about the musician Prince, who like Picasso did not leave a valid will or trust.  Almost five years after his death, the legal battles over Prince’s estate (which the IRS just determined is worth $163 million) are still ongoing and have cost tens of millions of dollars. At one point 45 different people stepped forward claiming an interest in the estate, and the transfer to Prince’s heirs is now a very public and very messy event with no end in sight. 

Lessons for Us

Most of us will not leave estates worth hundreds of millions of dollars, with the rights to use our name, likeness and works as valuable assets to be fought over. However, the mistakes in these two examples are very common:

·         Not having a will (read more here about what happens in California).

·         Creating a trust, but not funding the trust (recently covered in more detail here).

·         Not updating the trust every 5-10 years, or after a major life event, or if there are changes to the estate planning laws.

Common Fixes

A little work on your estate plan will pay enormous dividends down the road.  A properly set up estate plan will:

·         Allow for the transfer of assets to your loved ones or charities.

·         Allow for the transfer of assets in a private, non-public manner.

·         Allow for a cost-effective, tax-efficient transfer of assets.

So if you don’t have an estate plan, or haven’t updated yours in a while, the best things you can do for 2021 are to:

·         See a professional – we recommend an estate planning attorney, not just an attorney who does documents on the side. A good attorney can help you outline your estate plan and needs, starting with a list of all your assets and liabilities.

·         If you already have a will and trust, review those documents with your financial team and consider updating them if needed.

·         Review the beneficiaries on all your retirement accounts.

·         Consider creating a durable power of attorney. This allows a trusted friend or loved one to help manage your affairs if you become incapacitated.

·         Update your healthcare directive – unfortunately things happen, and it’s better to be prepared!

In summary, while estate planning is not always pleasant to think about (and as we’ve seen with these celebrities, it’s often something we put off), our loved ones and heirs will appreciate the clarity and simplicity that a well-prepared and thought-out estate plan provides them down the road. A good estate plan will also protect the assets we worked so hard for, so that our wishes are able to be carried out in the way that we want them carried out.

As always, we are happy to help you think through your estate planning. Schedule a 15-minute discovery call with a fee-only financial advisor.