6 Common Estate Planning Mistakes Made by High-Net-Worth Families

Rachael E. Bator, CFP® BY: Rachael E. Bator, CFP® 08.07.17

High Net Worth Estate Planning Tips for Successful Wealth Preservation

Securing your future through a professionally and thoughtfully executed estate plan is one of the best ways to protect yourself, your family and your wealth for years to come.

While estate planning is a necessity regardless of one’s level of wealth, it is especially important for high-net-worth individuals and families – not only to ensure your peace of mind, but also to preserve the high quality of life you’ve worked so hard to attain.

Understanding the proper execution of your personal estate plan is a vital part of the overall process, offering the comfort that comes with knowing your wishes will be carried out effectively while safeguarding your wealth for future generations or charitable bequests. Unfortunately, there are some common estate planning mistakes made by high-net-worth individuals and families that can prevent the successful execution of their estate plans. The good news is that these mistakes can be avoided. Educating yourself about them now can help you to make informed estate planning decisions now and in the future.

The Top 6 Most Common HNW Family Estate Planning Mistakes and How to Avoid Them

Leaving Family Members Out of the Loop

One of the major objectives of an estate plan is to provide for your family after your passing. When family members are excluded from the discussion about how family wealth will be used in the future, it can create considerable discord and unrest, especially if you have family members who may not get along. If any of your family members are expected to take on a significant role in your estate plan, it’s also important for them to understand the mechanics of your plan and the expectations of them in their role(s).

While the topic of estate planning isn’t always an easy one to discuss, have an open discussion with your children and all involved family members about your estate plan and the decisions you’ve made. Encouraging them to share their feelings and expectations of your estate plan can potentially avoid any future litigation of the will or trust – and may also raise issues or concerns you hadn’t considered before. Once they’re in the loop, keep them there! Ongoing communication can help you prevent hurt feelings, animosity, and future disputes.

Failing to Plan Family Asset Distribution

While it’s important to consider and include your family in the estate planning process, your plan must be focused on how that wealth will be passed down – determining which assets a chosen beneficiary will receive is only step one. You can be strategic in your estate planning to pass on your assets in a way that minimizes your tax obligations while preserving more of your assets for your beneficiaries.

If you own a family business (and intend to keep it in the family), important consideration must be given to the distribution of these assets to your surviving family members. If some are currently involved in the business but others are not, you may want to distribute assets based on a family member’s contributions to the business, or you may want to divide business assets equally among all heirs. The estate tax implications when transitioning a business ownership interest to relatives must also be considered.

Planning Portions of Your Estate Independently of One Another

High-net-worth individuals may sometimes work with multiple wealth advisors, with each advisor in charge of a different subset of their estate plan. Even though your advisors are no doubt very skilled, a divided team responsible for the same pool of assets introduces an element of risk that may delay or prevent the successful execution of your estate plan.

By working with one team of advisors, not only are your assets more likely to be managed in alignment with your estate plan, but the consistent oversight of your overall wealth plan also fosters a more efficient plan-monitoring process – meaning issues are identified more quickly, leading to timely adjustments that may prevent pitfalls down the line.

Failing to Review Your Existing Estate Plan

If you already have an estate plan in place – especially one created years ago – it’s important to remember that ironically, estate plans are “living” documents. Major life events (such as a death, marriage, birth, divorce, changes in your financial situation, or even legislative changes) could impact your estate and the direction of your wealth.

An outdated estate plan can lead to increased tax (and other) liabilities, or diminished protection of the wealth you’ve worked so hard to secure. It is also another way to create conflict between family members if it is not properly updated to account for relevant changes. Reviewing your estate plan at least every three years, and especially after a major life event occurs, can ensure your wealth is protected in an efficient and effective manner.

Under-Utilizing Trusts

While trusts are often utilized as a primary estate planning vehicle for a number of reasons, they do not constitute a comprehensive estate plan and should not be considered a substitute for a will – rather, they should be designed in conjunction with your will and other estate planning documents to complete your estate plan.

Trusts allow high-net-worth individuals to assign management of wealth to a trustee upon his or her death. This trustee is responsible for distributing the trust’s assets according to pre-determined terms. There are many types of trusts that may help you to carry out your unique estate planning objectives, including trusts focused on charitable giving, providing for those with special needs, and estate tax minimization.

Failing to Select the Best Trustee or Executor

Naming a trustee or executor is one of the most significant decisions you’ll make when designing your estate plan, due to the complex nature of the named individual’s responsibilities. There are several factors to consider when choosing a trustee, including the potential for conflict among family members about the decision, and whether the named individual has the capacity to fulfill the role effectively. Responsibilities for both trustees and executors can include but certainly aren’t limited to opening financial accounts, approving investment decisions, distributing assets, filing tax returns, and of course acting in your best interest, or the best interest of your beneficiaries.

It’s not uncommon for an individual to quickly choose one child or sibling over another, given their relationship, professional occupation, personality, accessibility, or other prominent factors. Open discussions with your family members about these important decisions may solidify your choices, or even surprise you.

If you are uncomfortable with the prospect of a family member or friend fulfilling the role of trustee, you also have the option of hiring a professional trustee who will oversee your trust in a fiduciary capacity.

High-net-worth individuals and families have more complex estate planning needs than others. The tax landscape in which your wealth exists is a complex and ever-changing one. Federal and state estate tax laws also change frequently, and you should be aware of how those changes can impact your estate plan. Communication, careful thought, and technical expertise from qualified estate planning attorneys and wealth advisors are imperative in avoiding these common estate planning mistakes.

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