Estate plan failures most often happen from the non-technical parts of the plan. It’s what some people call the human side or soft side of an estate plan. For example, 70% of estates incur asset losses or a reduction in family harmony, according to the 2007 book Estate Planning for the Post-Transition Period by Roy Williams and Vic Preisser.
Forbes’ recent article, “Most Estate Plans Fail, But Yours Can Be a Success,” says there are two main reasons for estate planning failures.
One major cause is that the heirs aren’t ready for the financial transition. Some heirs simply don’t have the financial skills or knowledge to handle the money or property. Some family members aren’t emotionally mature enough to handle the wealth. There are also some heirs with both problems. While these issues are especially common when estates are very valuable, they be found in estates of almost any value.
Parents who’ve accumulated wealth, often aren’t focused on teaching their children about their values on wealth or about their methods for accumulating and managing it. When heirs aren’t prepared, wealth often disappears quickly through poor spending decisions, bad investments, neglect, fraud and other causes. For an estate plan to succeed, the heirs must understand how to manage and spend the wealth, before receiving it.
Another way heirs aren’t prepared, is that they’re surprised by the estate details. They first learn about their parents’ wealth and how it’ll be distributed after the parents pass away. Recent research shows that 40% of parents never discussed their estate intentions with their children, and only 28% of adults said they knew the details of their parents’ estate plans.
Heirs should be given advance knowledge of the estate plan. This is because fighting in the family and litigation often results, when one or more children are unpleasantly surprised by the estate distribution or other details.
Another major reason for estate plan failures is the lack of follow through. It is important to implement and regularly update your plan. An example is creating but not funding a living trust, when the intent was to create the living trust to avoid probate and ensure assets are managed in cases of disability.
Powers of attorney and advance medical directives are two other items in which things can go wrong. Agents need to know about the documents and have access to them. Failing to keep these documents up-to date, is another way that people don’t follow through.
Every few years or when there’s a major change in your life or family, review your plan and your situation with your estate planning attorney.
Reference: Forbes (May 9, 2018) “Most Estate Plans Fail, But Yours Can Be A Success”