Overcoming roadblocks to estate planning

By Larry Scott Auerbach, Esq.

You know smart estate planning can save you and your loved ones hundreds of thousands of dollars in estate tax. But many people postpone estate planning until their tax-saving options become limited, or in some tragic cases, avoid estate planning altogether. Why?

According to David Lansky, Ph.D., a psychologist specializing in counseling families and family-owned businesses, people face four primary psychological roadblocks when contemplating estate planning. Let’s take a closer look at these roadblocks and how to overcome them.

Strained family relationships. Strained relations with spouse or with other family members may hinder estate planning. In some families, discussions about financial issues can be emotional or even taboo and can inflame existing tensions.

To overcome this roadblock, improve communications. Remember, tensions likely arise from simple differences of opinion regarding priorities, values, goals or advisors. Learning how your spouse or family members feel about estate planning can help you resolve these differences. Schedule regular family meetings and ask questions, make disclosures and strive to understand others’ views. When your family members feel understood, compromise may come easier.

Key issues to address at a family meeting are:

• Core family values (for example, wealth preservation, education and philanthropy.

• Processes for reconciling differences.

• Qualities to seek in an estate planning advisor.

If these meetings don’t resolve differences, more serious underlying relationship problems probably exist that can be solved only with the help of a therapist or counselor.

Fear of mortality. Contemplating the reality of your own death is not pleasant. You’ll naturally feel some anxiety about writing a will, choosing executors and guardians, and funding life insurance policies. And your loved ones and trusted advisers will likely feel awkward discussing, in your presence, your demise and inheriting your money, house or other possessions.

You can deal with this anxiety and awkwardness by taking it one step at a time. Lansky calls this process desensitization. Begin by reading books or articles about estate planning. Ask friends and colleagues, especially older and wiser ones, how they’ve approached estate planning. Talking about estate planning casually, without the pressure of a deadline, can help relieve your anxiety. When you feel more at ease about estate planning, schedule meetings with your financial and legal advisors, along with your family. Your advisors can help you establish a structure for accomplishing the various tasks necessary for completing your estate plan.

Perfectionism. Estate planning involves making choices that can profoundly affect the lives of family members and your own financial security. The consequences of making a big mistake can instill fear in anyone.

But the goal in estate planning is not perfection. The goal is planning well for your future and that of your loved ones. If the fear of making a wrong decision is interfering with your planning, try doing an informal cost-benefit analysis. What will the approximate estate tax burden be without a plan? What are the potential savings of a good (not perfect) estate plan? You may find the risk of being without a plan far outweighs the risk of having a less-than-perfect plan.

Fear of losing financial security. Many people forego estate planning because they can’t stand the thought of letting it go. They fear that they may jeopardize their own financial future by placing their assets in a trust or giving them away. Of course, that is not the case when you develop a thoughtful and competent estate plan. When anxiety about your financial security interferes with planning, remember that achieving a sense of balance between family, health and finances is the real key to security.

30 Questions for Determining When to Review Your Estate Plan

You may think that after you’ve created your estate plan, you’re finished planning your estate. But this is not the case. To be as effective as possible at reducing tax and ensuring that your assets go where you want them to go, you must review and update your estate plan regularly.

Answering these thirty questions will help you determine the importance of reviewing your estate plan today and the areas on which you should focus.

Since I Last Reviewed My Estate Plan. If you answer “yes” to any of these questions, reviewing your estate plan today is critical to maximizing its effectiveness:

1. Am I five years older?

2. Have I married, divorced, separated or been widowed?

3. Have I become a parent?

4. Have I become a grandparent, and if so, am I ready to plan for my grandchildren and take advantage of generation-skipping transfer tax planning?

5. Have I received an inheritance or am I likely to receive one soon?

6. Do I anticipate any creditor problems (including marital claims) involving my spouse, my children or myself?

7. Do I anticipate anyone challenging my estate plan?

8. Have I moved to another state?

My Current Estate Plan. If you answer “no” to any of these questions, consider reviewing these areas of your estate plan.:

9. If I have a living trust, have I transferred title to all my assets to the trust?

10. Have I continued to take advantage of the unlimited marital deduction?

11. Does my estate plan take advantage of the increased unified gift and estate tax exemption equivalent of $675,000?

12. If my spouse and I have more than $1.35 million, do we each have assets in our separate names of at least $675,000?

13. Have I been taking full advantage of the $10,000 annual gift tax exclusion?

14. Do I have a healthcare power of attorney or a living will that reflects my wishes concerning the use of life support treatment?

15. Have I executed a durable power of attorney or other plan to be used if I am incapacitated?

Life Insurance. If you answer “no” to any of these questions, you may want to revisit the role of life insurance in your estate plan.

16. Do I know how much my estate will be worth after estate tax?

17. Do I have sufficient equity in my assets to provide for estate tax and my family’s support after my death?

18. Do I have sufficient liquidity in my estate to pay estate tax?

19. Have I considered buying any life insurance?

20. Have I confirmed that my beneficiary designations are consistent with my will or living trust?

Qualified Benefit Plans. If you answer “no” to any of these questions, consider taking another look at the effect of retirement benefits on your estate plan.

21. Have I considered how substantial growth of my benefits under my profit sharing plan, pension plan or individual retirement account (IRA) affects my estate plan?

22. Have I considered how the repeal of the excise tax on excess retirement plan distributions and accumulations affects my estate plan?

23. Have I confirmed that my beneficiary designations are consistent with my will or living trust?

24. Do I know the income and estate tax effect on benefits after my death?

25. Have I considered other types of plans, such as the Roth IRA, that may better suit my goals?

Practice Ownership. If you answer “no” to any of these questions, consider examining the relationship between your practice and your estate plan.

26. Have I considered the effect of adding partners or shareholders to my practice?

27. Have I thought about the value of my practice and whether my estate will qualify for any additional exclusion as a result of the new family-owned practice interest deduction?

28. Have I considered the effect of changing the structure of my practice on my estate plan?

29. Have I reviewed my plan for continued management of the practice by my partners after my death?

30. Will my practice have enough liquidity to pay estate tax and support my family?

Now is the time to do things better. A review of your estate plan need not involve a lot of time and money. If all is in order, you can have the peace of mind of having this confirmed. If you find a problem, a better way to do things or a way to save tax, now is the time to act.

Stop procrastinating and start planning. Procrastination favors only the IRS. The way to begin planning is to have open and honest discussions with your family about finances, personal goals and mortality. The process may even bring you closer—and that may be worth more than any material assets.

Larry Scott Auerbach, Esq., is an Attorney-CPA Personal Financial Specialist whose practice in Abington, PA and Collingswood, NJ focuses on estate planning and wealth preservation.