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Planned Giving

Listening for Mistakes in Estate Planning

Updated estate plan

Experts recommend that people review their estate plan every three to five years to make sure it reflects changes in the family and financial circumstances, as well as changes in the law.

During a feasibility study when we advised our client that 62% of their donors interviewed had met with their financial advisor, trust/estate attorney, they were surprised. Of course, some of your senior friends think that after they go to a lawyer and prepare a will and power of attorney or trust documents, they sign it and they’re done. That is not quite correct.

Development officers have an excellent opportunity to encourage your donors to look over their will and other estate-related documents after each birth, death, marriage, or divorce in the family. End of life and health care directives should be reviewed to insure they are up to date. Any substantial change in their finances—whether because of a stock market decline, a job change, or retirement—should prompt an estate plan checkup. Beneficiary designations in retirement plans, for example, don’t automatically transfer when you roll over your 401(k), open an IRA, or switch from a traditional IRA to a Roth IRA.

It’s also important for estate planning to take into consideration the changes to estate laws. The potential decline in federal estate tax exemptions from $5 million at the end of 2012 to $1 million was exactly what was prompting the estate plan visits mentioned in our feasibility report. Our concern here is a signaling gap, development offices feverishly focused on meeting the annual fund goal not asking their donors if they thought 2013 would affect their tax liability or, if they had concerns that a change in the tax laws could influence how and when they should distribute parts of their assets.

Other things to listen for:

Ignoring conflicts between the estate plan and other beneficiary designations

For example when you discover a donor is divorced, asking if your will states that your home and retirement account go to your current husband, has your attorney double checked that your ex-husband’s name remains on the deed or your 401(k) plan, there’s a problem!! The deed and the beneficiary designation will likely trump what’s in your will.

Unless your property titles—for both real estate and other kinds of assets—and beneficiary designations are consistent with their trust or will, they may not be subject to those expressed wishes.

Not specifying who inherits their estate and how

Another example I’ve encountered a number of times, in a cultivation conversation the donor indicates she planned on dividing her assets equally among her three children. But her son predeceases her. Unless her will states that each child’s branch of the family gets an equal share, or that her son’s share of your assets should be distributed to his own children, her two daughters will inherit everything when she is gone.

Even if her will makes clear that her son’s children should inherit, she may not want them to receive the assets outright if they are minors. Should these shares be placed in a trust? You may want to remind her that she needs discuss this with her family or lawyer.

Writing an inflexible estate plan

Remind donors a rigid estate plan cannot adapt to changes in the law or family circumstances. If the plan was designed to take advantage of certain tax criteria, and those laws change, you want to make sure the heirs can amend it. Just asking donors have they made sure there is some room for flexibility in the documents, is always welcomed. Circumstances change, and many want their families to be able to adapt and manage the family assets in the most optimal way at any given point in time, particularly not at the moment when family members are called together because mom is in her final days.

I’ve witnessed four occasions when mom’s beloved eldest son, a high-powered lawyer, doesn’t get along with his five siblings and vehemently disagrees with her end-of-life directives, he may not be the best person to choose as executor or surrogate health care decision-maker.

Keep in mind, fiduciaries don’t need to be experts in tax law, but they do need to be smart enough to know when to go get help and where to go to get help and your simple observations and questions can prompt your donors to ask additional questions.