30th Apr 2014

POWER POINTS:

  • You are better off doing your estate planning right the first time.
  • Estate planning must be customized to your needs in order to be effective.
  • The estate planning process of basic planning, funding and advanced planning and maintenance serves to establish the proper plan for you and your family. 

Each estate planning document should serve a purpose, and it is important to understand the purpose, benefits and shortcomings of each document.  If the right questions are not being asked by your advisor regarding your circumstances and wishes, you may not receive proper advice and your documents may not clearly reflect your objectives.

Not having an estate plan will usually lead to significant expenses at death, including court and legal fees, bond cost and taxes, all of which can be avoided.  However, estate planning can be a significant waste of money when not done correctly.  Below you will find a brief discussion of some of the biggest wastes of money when it comes to estate planning.

Using a Stopgap Will

Many people choose to use a Will as a temporary stopgap estate plan.  A Will does have certain benefits—it allows you to name Guardians for your children and direct the distribution of your individually owned assets after your death.  However, Wills have many shortcomings and a Will alone is rarely sufficient to meet an individual’s estate planning needs.  Whether you use a fill-in form or receive improper advice, a stopgap Will can be an expensive “Band-Aid” that could lead to unnecessary family conflict and additional procrastination.

Doing your estate planning right the first time can save significant time and money.  While a proper estate plan does include the use of a Will with a Revocable Living Trust, a trust document cannot simply be added to a Will later.  Instead, a new Will must be prepared to work in conjunction with the Revocable Living Trust and to avoid any conflicts between the two documents.

When your family, finances and wishes for the administration of your estate require the use of a Revocable Living Trust, it is best to have the right estate plan implemented immediately.  Unlike a Will, a Revocable Living Trust is an instrument which is effective during your life.  By working with an experienced professional, the implementation and funding of your trust with your existing and future assets can structure your estate plan for the rest of your life.

Before you decide whether you and your family need a Revocable Living Trust, it is important that you understand the costs and purposes of each estate planning document.  These should be clearly explained to you by your advisor.  When compared to the costs of probate, the cost of a proper, comprehensive estate plan is relatively minor.

An Unfunded Trust

While taking the responsible step to get your estate planning completed and choosing the right estate plan are important, failing to fund your trust deprives you of several of its most valuable benefits.  Assets in trust pass to the beneficiaries under the terms of the trust immediately without court involvement.  This is the most efficient way to transfer assets upon the death of the grantor (the creator of the trust).

On the other hand, assets passing by Will, whether to an individual or trust, must pass through the probate court in order to reach the beneficiary.  As has been discussed before, probate is a long, expensive public process by which the court validates the decedent’s Will and monitors and approves the distribution of the estate.1

Additionally, as a part of the funding process, it is crucial that the beneficiary designations on your retirement accounts and life insurance policies are correct and updated.2  When you have a Revocable Living Trust prepared, the beneficiary designations on your assets should be reviewed and your advisor should instruct you on the correct designations.

Lastly, a trust can provide significant asset protection to your beneficiaries as well as successor trustee and beneficiary provisions.  However, in order for certain assets to reach the trust, the trust must be funded correctly based on the advice of your estate planning attorney.

A Broken or Abandoned ILIT

An Irrevocable Life Insurance Trust (ILIT) or other Gift Trust can be an extremely valuable estate planning tool when established and maintained properly.  Too often, the attorney and client will implement the ILIT but then fail to adhere to the procedures required to keep the ILIT assets (one or more life insurance policies) out of the grantor’s taxable estate.

When an ILIT is established, a life insurance policy is purchased by the ILIT on the life of the grantor(s).  The beneficiaries of the ILIT are typically the grantor’s spouse and/or descendants.  At the grantor’s death, the life insurance policy is paid out to the ILIT and distributed to the beneficiaries free of estate tax.  However, in order for the assets to pass estate tax free, certain procedures must be followed: the policy must be purchased by the ILIT; beneficiaries must be notified of any gifts to the trust; and premiums must be paid by the trustee rather than the grantor.3

To summarize, all Gift Trusts, including ILITs, must follow certain procedures in order for the instrument to be successful.  Proper counsel and maintenance is necessary for your investment to be worthwhile.4

Your Advantage

Take the time to speak to an estate planning specialist.  When done properly, your estate planning should be something that accurately reflects your wishes during your life and beyond.  Understanding the purpose of each document and continuing to communicate with your estate planning attorney can help ensure that all of your goals are achieved.  Contacting an experienced advisor is the first step in implementing the right estate plan for you and your loved ones.


1. For a detailed explanation of the probate process, please see the April 2013 Newsletter: Probate—What It Is and How to Avoid It.

2. For a detailed explanation of the beneficiary options for retirement accounts, please see the June 2013 Newsletter: The Right Way to Inherit an IRA.

3. For a detailed explanation of the notice requirement for a present interest gift, please see “The Notice Requirement for Gifts in Trust.”

4. For additional requirements of properly maintaining an ILIT, please see the February 2014: Three Reasons Irrevocable Trusts Fail.

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