A lifetime of success and earnings may not be enjoyed by heirs if wills, trusts and other important estate documents are not properly drafted and there was other poor planning. Effective estate planning can avoid mistakes and provide for the effective distribution of assets and property to heirs.
A person’s business should be included in the estate plan. This is especially important if some children work in the family business and others do not. Inadequate planning can lead to the sale of the business to cover estate taxes at a loss. However, purchasing life insurance and equalizing distribution to siblings who do not work at the business can help avoid financial losses.
Leaving lump sum payments can also be troublesome, especially if an heir is financially irresponsible, inexperienced, incapacitated or suffers a drug or alcohol impairment. Setting up a trust allows the appointed trustee to properly distribute assets in a manner dictated by the person who transferred money to the trust. This helps provide protection by responsibly distributing money instead of giving money outright to a beneficiary who is unable to manage finances.
Revocable living trusts and irrevocable trust may also contain spendthrift provisions. These prevent the beneficiary from receiving advances or using interest in the trust as collateral for a loan. The beneficiary’s creditors also have no control or access to the trust’s assets.
Outdated estate plans and documents can also cause complications. Children grow up and no longer need appointed guardians. Assets change. A named executor may have died or is no longer trusted. A testator wants to give assets to new members of growing families. Estate planning documents need to be updated regularly.