Estate Essentials: Are There Risks in Estate Planning?

Most people know that estate planning is the most effective way to transfer you assets to loved ones after you pass. There are many things at stake, including your loved ones financial security or even familial peace regarding the distribution of your assets, which makes estate planning an inherently risky process. The amount of variables involved are vast– how you choose to dispose of your assets, specific state laws, the always changing tax code and interest rates, and your own unique situation, will all affect how your estate is planned and distributed. Despite that, there are still several steps which everyone can take to reduce their risk and create an effective plan for their estate.

The Risks of Estate Planning

Identify Risk Factors

A good place to start with is to identify exactly what your risk factors are. What this generally entails is meeting with advisors and/or attorneys who can help you understand the specifics of different parts of estate planning– for instance life insurance, investment, overall finances, and the overall estate plan. As a rule of thumb, doing more research and consulting with specialists about your estate planning circumstances and wishes should offer new perspectives and help you identify different risks or solutions you might not have thought of yet.

However, keep in mind that ultimately, it is not possible to identify every risk and that even with the best laid plans, perfect results aren’t guaranteed. Although your advisors can advise you, in the end it is your finances that you are making decisions on, and you should endeavor to understand what you are comfortable with or uncomfortable with doing.

Review Consistently

Another element which could assist you with mitigating risk is to review your plan consistently. Generally, it is best to meet with your advisor at least once a year, or in case of a major change that could affect your plan, like health issues or a change in tax law.

A further step you could take to reduce risk is to purchase a life insurance plan, if you haven’t done so already. Life insurance can be utilized in a variety of ways to reduce risk when it comes to estate planning; for instance, it can be placed in several kinds of trusts, or offset the loss of some assets that are transferred to an irrevocable (meaning the assets aren’t yours anymore, rather they are the property of the beneficiary’s) trust, or in other cases.

Fine Details Matter

It is also useful to pay attention to the fine details when it comes to estate planning. Not making mistakes like using company funds for personal business, or creating an insurance trust without a bank account, goes a long way towards mitigating your risks. In addition, when it comes to planning a trust, you should use an institutional trustee– they should keep records, have procedures, and in short, ensure that your trust is managed without error. In order to further reduce risks, you should try to plan your trust in a state that is more trust friendly, like Delaware– this will reduce some of the legal risks involved with your plans.

Likely the most important part of mitigating risk is to layer everything. For example, if you have LLCs (limited liability corporations) under an irrevocable trust, those LLCs could also hold some assets. If you’d like to further protect your assets, you could layer insurance umbrella policies to ensure their safety.

Although estate planning is a long and complex process involving many variables, a qualified attorney can help greatly when it comes to successfully navigating the various risks and difficulties of estate planning and ensuring that your estate is safe and your assets are correctly allocated.