Common Estate Planning Challenges

This week, I had the wonderful opportunity to present to Indiana and Ohio members of the American Association of Daily Money Managers on the topic of estate planning. I shared some of the most common challenges and points of confusion that I encounter when helping clients establish estate plans. These items include the power of beneficiary designations, avoiding probate, Medicaid planning concerns, and unpleasant thoughts and difficult conversations associated with estate planning.

The power of beneficiary designations.

One thing that many clients are surprised to hear is that a beneficiary designation on a retirement or other financial account will override anything written in a will. Distributions to listed beneficiaries on financial, real estate, or other assets happen first, then a will catches any assets left over that are otherwise not in a trust. This goes hand in hand with confusion regarding ways to avoid probate.

Avoiding probate.

Many times, when I ask a client to share any goals they may have in mind before we get started planning, the client will tell me that they want a trust because a friend or financial planner has told them they should have a trust. However, the client does not often know why they might need a trust. After further discussion, I typically find that the concern is to avoid probate. Thereafter, I discuss the option to utilize beneficiaries and transfer on death designations on financial assets, real estate, and vehicles before delving into discussion of a trust. Additionally, there is often a misunderstanding that wills and trusts are mutually exclusive. Wills are still utilized even when a trust is established. When an individual sets up a trust, a pour-over will is used to ensure that any assets not placed into the trust during the trust creator’s life, whether accidentally or purposely, are “poured” into the trust at his or her death to be distributed according to the terms of the trust.

Medicaid planning concerns.

Medicaid planning is also an area of much confusion. Generally speaking, an individual hoping to qualify for Medicaid in the future will need to give up ownership and control of any assets that he or she wishes to protect. This can have drastic consequences that should not be taken lightly. Additionally, married couples often fear that they will lose their homes if one spouse enters a nursing home. Many are relieved to find out that the “healthy” spouse will be able to stay in the couple’s primary residence without fear of losing the home.

Unpleasant thoughts and difficult conversations.

Estate planning is not the most pleasant topic. Planning usually involves uncomfortable discussions, particularly between parents and children. Uncomfortable though these conversations may be, making a plan provides peace of mind not only for the creator, but for his or her loved ones who will not have to make guesses and clean up a mess when a death occurs. It is also helpful to keep loved ones informed of expectations as well as the decisions made so there will be no surprises when estate planning documents are utilized.