What are the 9 most common estate planning mistakes?

Ralph
00:00:00

Have you ever wondered what would happen to your loved ones if you suddenly weren't here tomorrow? And listen. I've seen families torn apart, I've seen inheritances vanish and decades of hard work disappear because of simple estate planning mistakes. So today, I'm sharing real stories of what happened to my clients, and more importantly, how you can protect your family from these devastating errors. This is a show you don't want to miss. And it's one I encourage you to share with everybody you know.

Announcer
00:00:31

Welcome to the Ask Ralph Podcast where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:01:01

Thank you for joining me today. I am passionate about helping you. My goal is to help you achieve financial success while growing in your faith. Now, if you missed yesterday's show, we explored the best apps to help your children and maybe your grandchildren, develop strong financial habits. If you missed it on, be sure to check it out. It's packed with practical tools to set your kids up for financial success. Now, before we get to today's listener question, let me remind you, this show thrives on your questions, but today I want to ask you some questions. I've built a listener survey, and I want your honest opinion about the show and listen. It'll take no more than five minutes.

That's my promise to you. But here's the best part. For everybody who completes the survey, you're going to be entered into a $250 Amazon gift card drawing. You get to the survey by going to askralphpodcast.com/survey and listen, your survey answers are going to matter. They're going to shape the show moving forward. We got a lot of good questions that I'm looking for answers on, and I need your survey results completed by no later than midnight on December the 10th, because come December 11th, we're going to do that drawing and somebody's going to have $250 in their pocket. And again, I would love to hear from you. Again, to get to the survey you go to askralphpodcast.com/survey. Again, that's askralphpodcast.com/survey.

Now today's listener question comes to us from Myra and she's from Michigan. This is what she wrote. She said, "I'm writing to you with tears in my eyes and a heavy heart. Last month, we unexpectedly lost my mother at just 54 years old to a sudden heart attack. None of us saw it coming.

She was healthy, vibrant, and full of life. Now, our family is completely falling apart. Mom never created a will, always saying she was too young to worry about it. The worst part isn't even the legal mess we're in. It's watching how money has torn my family apart. My brother and I aren't even speaking anymore because we can't agree on what mom would have wanted for her house. My sister has hired her own lawyer, and the courts are now involved in every decision. The legal fees are mounting, and the stress is overwhelming. Some days, I can barely look at my siblings without feeling anger and sadness. I have three children of my own, and this whole nightmare has been a wake up call. I never want them to experience this kind of pain and family division. Could you please help me understand what I need to know about estate planning? I want to make sure my children never have to go through what I'm experiencing right now." Well Myra, thank you for your message.

And I'm very sorry to hear about the loss of your mom. And I get the emotional weight you're feeling. It does. I always say to my practice, sometimes death brings out the ugly in people. People start fighting. We hire attorneys, do all kinds of crazy stuff. And so today my goal is to discuss both practical and the emotional aspects. That's all part of this estate planning.

I wanted to start by saying, I am not an attorney. But I'm going to give you some practical issues and advice that you can share with your attorney or maybe do some things on your own. So what I'm saying today, I want you to go and consult with your attorney. But let's discuss some practical issues of things that you can avoid to avoid having an estate planning nightmare.

You know Myra, I always like to start with scripture and your situation reminds me of Proverbs 13:22 that says, "A good person leaves an inheritance for their children's children." And if you think about it, this verse really emphasizing that idea of leaving a legacy. But part of that is doing it wisely. And that's our goal for today. So let's get to it.

Now on today's show, I'm going to share 9 most devastating estate planning mistakes I've witnessed. These are people that I know, are people that I've come across in my practice and I'm sharing them with you today because they're real stories.

And I'm going to talk about some tips to protect your family's future. The first one. This is the biggest one. This is the one Myra you talked about and that's not having a will at all. So many people don't have them. I think I just read some statistics that 80% of the U.S. Population doesn't have a will. So, let me tell you about my client, Tom.

Now, Tom was a successful business owner. He had three young children. He would come in each year, we'd do his taxes. And I always like to ask my tax clients, you know, do you have an estate plan? Not that I'm an attorney. Not that I'm writing them, but it's always one of the things I like to talk about to kind of point them or give them some direction to go meet with an attorney and get that set up.

And he'd always tell me, say, Ralph, I'll get to that next month. I got so much going on. Well guess what? That next month never came. And at 47, Tom tragically died in a car accident. And here's the big problem. There were no plans made for his business. He was young. He was viral. He never worried about what would happen. And he had a valuable business.

We figured it was about $2.8 million in business, but because of his early death with no things in order, his business went into limbo. And his widow spent 18 months in probate court cause there were some other people that own percentages of the business. And she spent nearly $200,000 in legal fees trying to figure this out. And here's the most tragic part of it all as if losing your husband wasn't big enough, but the business failed during the process. There was no skipper at the head of the ship, and everybody was fighting about who's going to own this, and who's going to own that. And the biggest, the biggest tragedy of that was there was a simple solution. Because in this case, a basic will would have cost less than a thousand dollars. And it would have solved this whole problem.

It would have been a succession plan. So here's my tip. Schedule your will creation this week. If you don't have a will, or if it's been a long time since you update it, even a simple will is better than none at all. Put those things in a place. I did a show many months ago with my own personal attorney.

We talked all about this. You can't control when you're going to die for the most part, but you can control what happens afterwards. So tip number one, schedule your will creation this week, or update your will right away. Let's move on to number two. And this is one I've seen way too many times. And that's failing to update beneficiary designations. Let me tell you about Mary.

Now Mary has been a faithful client. Mary's the one that does everything right. She dots all the I's, crosses the T's, mean she comes to me at tax time. Her stuff is in perfect order. I mean, she's got her spreadsheets put together. She's got all her documentation.

But Mary made a crucial mistake. She lost her first husband. He passed away. He was kind of young. So she said, you know what? I think I might build a new life. And she moved on. She built a new life. She remarried. And then all of a sudden she passed away.

And after she passed away, her new husband discovered that Mary had this life insurance policy for $500,000. But here's the problem. That life insurance beneficiary was still in her deceased husband's name. So after a lot of fighting and ring them a rolls and all that, the proceeds went to an estate for her deceased husband. Not her current husband and her current husband ended up struggling financially. She never intended it to go to her deceased husband's estate.

She intended it to go to her current husband that she never took the time to update that beneficiary. So here's my tip. Review your beneficiary designations annually. Listen, go through every single thing you have. If you've got IRA accounts, if you've got retirement accounts, if you've got life insurance, if you've got CDs, if you've got bank accounts, I'm telling you, once a year, go through those things because listen, major life, major life events happen like marriage, divorce, births, or deaths.

You want to make sure that those things are in order. So that's my pro tip for that one. Let's move on to number three. And again, I'm not an attorney. I'm going to give you sort of a basic idea of this, but I want to tell you about the Johnson family. And they taught me a painful lesson about trust. And my number three on my list here is not considering a trust. And the Johnson's are humble.

They're hard working folks. And through that hard work and dedication, they built a $2 million estate up. Like I said through decades of careful savings. And they said, you know what? The will be enough. Here's the problem. Now this wasn't a federal estate tax issue, but a state of tax issue. Because they didn't meet with an attorney, they didn't have a trust set up, their children ended up paying nearly $150,000 in estate taxes. Yeah, that's a big number. But it's money that could have stayed in the family if they'd established a proper trust. So this is my number three, and that is not considering a trust. So if you've got an attorney, you're going to go look at your estate documents, talk about the impacts of a trust. So here's my tip. If your estate exceeds a half a million dollars, $500,000, consulting with an estate planning attorney about trust options might just be the right thing to do. It's something my wife and I just set up about a year ago and everybody's situation is different.

And again, I'm not an attorney, but goosey and attorney and give it all to them and say, Hey, what do you think about a trust? Let's move on to number four. And this one is going to shock you. And that's forgetting about digital assets. Listen, we live in a cryptocurrency world. We live in this digital age. And last year I worked with a young entrepreneur. He was heavily invested in cryptocurrency, and he passed away unexpectedly. He had $75,000 in digital assets in this crypto wallet. But here's the problem.

He never told anybody how to get into it. His widow had no idea how to access it. And without proper documentation, guess what? As far as I know, as of today, that money was lost because nobody can get into his crypto wallet. So here's my tip. If you've got digital assets, create a digital asset inventory, including cryptocurrencies, because a lot more people are working with those and put in your online banking passwords, and social media accounts as well. One of the biggest things I see is people who have social media accounts, they pass away, and that thing just goes on out there and they have birthdays that pop up every year. And this person's been dead and gone for years. But if you had given somebody the information for that, they might be able to go in and cancel that account or close it out or put a nice ending tributes. So don't forget about digital assets.

That's another big estate planning issue. Let's talk about number five and this one isn't about dying. This one is about not planning for incapacity. I've got a client again, I don't use real names. We'll call him Robert. And this is a warning to every business owner that's listening. Robert had a stroke at 52.

Hey, I'm 52 years old. I get it. And he was unable to make decisions. And of course he didn't have any legal documents. He didn't have a power of attorney. And his family just sat and watched helplessly. There's nothing they could do. The business nearly collapsed. Now they were eventually able to get some legal authority, but it took three months.

And he was able to recover eventually. And when he did recover, the first thing he said is Ralph, I'm going to the attorney. And he sure did. He went and created a comprehensive incapacity plan. So this isn't about death. A lot of people think estate planning is about that inevitability of dying. What happens if you're incapacitated, that's where your attorney can help you put some documents in place to handle those situations. So here's my tip for this one. Establish both financial and medical powers of attorney while you're healthy. You can't do it once you're not healthy. If you're laying in a coma somewhere, or you can't function, you can't make those documents up at that point. That's the time to get them done ahead of time. So that's another thing to discuss with your attorney. Let's move on to number six. And this is one that's often forgotten as well. And that's ignoring charitable giving opportunities. Let me tell you about the Williams family.

And they shared their passion, like many like me, like many of you for supporting their local church. But they didn't understand the concept of, and I'm a threw out a term it's called a charitable remainder trust, and I'm not going to get into it today or what they call donor advised funds. Something they could have talked to the attorney about, so they fast word a little bit.

They sell their business. And they missed out on significant tax benefits that could have maximized their charitable impact if they had created with these charitable remainder trust or donor advised funds. It could have given him income for life and kept that in that trust for the charity at the end of their life.

So if you're a charitable person and you've got something somewhere, I'm going to give you a tip here and that's discuss charitable giving strategy with both your financial advisor and your estate planning attorney. This is where you want to bring both of those parties together. Look at your assets, look at your investments and then talk to both of those people. Might be good to pay a consultation fee and bring them both into the same room or schedule a zoom call. I've got one coming up with a client here in just a few days. Where I'm going to talk to his financial advisor and as his tax advisor, we're going to kind of work together to build the best plan.

It's not an estate plan, but like a tax plan for him moving into the next year. It's like I said, that's number six, ignoring charitable giving opportunities. We've got a few more to go. Let's look at number seven. Kind of goes along with what I talked about earlier and that, and that's not regularly reviewing the estate plan. So let me tell you about Janet. And her story is particularly tragic.

She did all the right things. She set up the estate plan 15 years before this. But what she didn't consider is how life changes. And during those 15 years, she got divorced. She started a successful business. She had grandchildren. But the problem is she never updated her documents. And listen to this. Her ex-husband inherited her IRA retirement accounts. And her grandchildren received nothing because she never went back and looked at those things that she had put in the place. You don't want to have that happen to you.

You're doing things with the intention of, like we said, in the Bible verse. Leaving things for your children's children. I don't know what the relationship was with her and her ex-husband. I guarantee it wasn't her plan to give him her retirement accounts. So my tip here. And I'm encouraging you to do this.

Write this on a calendar. If you keep a paper calendar, write it on there every year. If you keep a digital calendar, write it, put it in there and set up a recurring calendar reminder to review your estate plan every January. Pull out all the documents. Like I talked about a few minutes ago. Look at your beneficiaries. Because life changes. You might have grandchildren, you might lose children.

You might get divorced. You might get married. All of those things. And the impact on your estate planning and they need to be considered. Got two more to go. Let's look at number eight. And that's what I call the, do it yourself estate planning. Let me tell you about Michael. Now, Michael was a brilliant engineer. Thought he could save money.

He used an online world creator. He's an engineer. You know, he had the regulations, he had the manuals for everything. And he thought to himself, why do I need to pay an attorney to do this? Man, there are all kinds of websites. There's legals, and I'm not throwing any of those under the bus because they do have value, but listen, he just thought. No big deal. I'm going to go and do this online.

But here's the problem. That online documents that he created didn't address estate specific requirements. And it ended up his family had to spend $25,000 in legal fees to work through those things. And again, I'm not an attorney, but there were specific things to his state that those online documents didn't take into consideration.

That's why, if you're going to do this, another key tip. It's worth paying for professional help and listen while I'm here. Some things are just worth paying for professional help. So you've got to, here's my tip. View estate planning as an investment, not an expense. If you think of it as an expense. I can see the negative to that, but it's an investment. Because here's the deal. The cost of doing it wrong will far exceed the cost of doing it right. Think about it in this case. So Michael caused his family $25,000 in legal fees. I guarantee that for one 10th of that, he could have had the most robust estate plan done by a local attorney who understood the rules and regulations. And the legal ramifications in the state, but he did that do it yourself thing.

He thought he could outsmart the system. He's a brilliant guy. He thought he could save money, but man, that was not a wise choice. Well, let's look at number nine and that's the last on my list for today. And this one's a little bit controversial. I'm going to take us some people when it comes to estate planning, they don't tell nobody what's going on.

Nobody in the family, nothing. And that's failing to communicate with family. Let me tell you about the Andersons. And the Andersons were, was that kind of family. They were very private people. They never discussed money with their children. Just something they'd never talked about. The children would sometimes ask and. Mr. Anderson would say, you know, we've got it all in place. It's all taken care of. Don't you worry about that. We don't talk about that. And I'm telling you, there's a lot of people that think like that. We'll fast forward a little bit. Both parents pass away. And listen to this one, the children discovered that the estate was divided unequally. I guess in this case, the children all assumed that it would be divided equally amongst them.

But all of a sudden, the youngest, when they looked at the documents was receiving significantly more than anybody else's. And you can only imagine what happened. It was that family conflict. It was like Myra talked about in her listener call or listener message today.

It destroyed relationships in the family. This one was fighting with this one, because how come this one got more than this one? And I don't know all the specifics of the situation. But looking back at it, I really feel like those relationships could have been preserved with some simple communication.

So if you're in that same position, here's my tip. Hold a family meeting to discuss your estate plans and the reasoning behind your decisions. Hey, if you're willing to put those things in writing, then you ought to be willing to have a family discussion about it, and maybe you can prevent those conflicts and that destruction of relationships. Just by having that conversation. Kind of been through that myself when my mother passed away two years ago, March. My mother never really shared with me.

She just always said Ralph, there'll be, you'll be taken care of. And I'm not going to share a lot of details, but in the end, it wasn't what I expected. And it did cause a rift between my sister and I, and I don't know that that'll ever be fully repaired.

But it could have been prevented if mama just sat us down and said, Ralph, Renee, my sister's name is Renee, here's how I'm handling things and here's why. That would have been a lot easier for both of us to understand if she had sat down and said, here's the why. So that's number nine, failing to communicate with family.

And like I said, this may go against everything you believe, but let me just tell you, like I said at the beginning of this. Death brings out the ugly in people. I have seen families that get along great, and somebody passes away, and men, it's like the Hatfields and McCoys. I mean, we got attorneys on both sides.

We got federal cases being filed. So just think about that. Think about that family meeting. And, or at the very least put something in writing that says, hey, here's what we're going to do. So I know we've covered a great deal today and I've got some action steps for you to take right away because as you know, it's great to have good intentions. All these stories where people who had good intentions for the most part. But first, let me ask you this. We are definitely getting close to Christmas.

And are you losing sleep wondering how you'll afford everything on your holiday list this year? I don't know how many times I hear clients say I am so tired. I'm sick and tired. A lot of times they'll say. Every year Ralph, I get buried under a mountain of holiday debt. The kids want this, the nephews and nieces want this.

My husband wants this. This one wants that. And their goal was to create this magical Christmas memory, but they really don't have a goal of going into stressful debt. And that's what it does. This debt creates stress. So I thought about that about a month or two ago, and I said, let's get ready for the Christmas holiday.

I'm going to write a guide and the guide's name is surviving the holidays without going broke. It's straightforward to the point. And I feel like if you get this guide, it'll give you some peace of mind. So you might ask Ralph, what's in the guide? Well here's what's in the guide. There's a proven budget system that actually works.

If you follow the direction in the guide I put to, I'll show you a budget system that will work and we're getting short on time. So make sure you do this today. There's also some smart shopping strategies to help slash your cost. I go through some things that you could consider. I talk about ways to create magical memories without maxing out credit cards.

And listen, you want to avoid that. I have a section about teaching kids gratitude and what I call the gimme more world and listen. This is a big issue. And there are things that you can do to teach your kids gratitude that will help you and help them for the long term. And finally, I rounded out what the central core purpose and that's how to keep faith and family at the center of your celebration. I'm encouraging you, don't let January's credit card bill steal that holiday joy. You can download your free guide now. You go to askralphpodcast.com/christmas. And make this your most meaningful and dare I say, affordable holiday season yet. Listen. Your stress-free holiday season starts here. Again, that's at askralphpodcast.com/christmas.

One more time. askralphpodcast.com/christmas. And this guide will impact you. And I promise you some action steps. So here we go. So here's some things that I would recommend that you do. Number one thing, schedule an appointment with an estate planning attorney this week. If you don't have these documents in place, call and schedule because here's the truth. You may take a little time to get in to see somebody, but take action today. Call them, set up that consultation.

And while you're waiting, create a complete asset inventory. Everything you own, including those digital assets that we talked about. Grab all your documents and review and update all your beneficiary designations. Like we talked about a little while ago. If you've got over half a million dollars in your estate, consider establishing a trust that's on your to-do list to talk to your attorney about. While you're with your attorney, set up both the financial and medical powers of attorney.

Let them explain to you what those things look like. This is sort of a rehash but create that digital asset access plan. Give somebody the capacity to get into those digital wallets, or those social media accounts. Now maybe you've gotten a robust plan. So here's my next thing I'm going to do. I'm going to encourage you to schedule that estate plan review. Look at every single document. Look at every single piece of investment you have. Does it have a designated beneficiary? Has that person changed? Do you want to make some changes?

And like I said, we're going to go controversial here, but hold that family meeting if you've never done it to discuss your plans. Just lay it all out there. Tell everybody what your thoughts are. Be willing to listen cause maybe you might make some changes. Cause maybe you're, you know, maybe you didn't think about it. Like that's really unfair. Why did I do it that way?

We talked about doing that charitable giving. So consider those charitable giving strategies. This is a great time to think about that. And then while you're thinking about that, do this, keep all those documents in a secure known location and share that with somebody. So they know where to find it. Worst case, and I did a show about this a couple weeks ago. You might have all these estate documents, but if you haven't told anybody where to find them, they're about useless. And remember this, these aren't just legal documents. This isn't just a legal decision. I said at the beginning, there's a legal component.

There's a financial component. But there's also an emotional component. That's why I call these legal documents. They're really love letters to your family. They're love letters, because they're going to protect your family when you are no longer able to do it. Now tomorrow, we'll be discussing 9 retirement expenses you might not have considered.

So make sure to tune in and remember, share the show with people. I don't care what age they are. These estate planning issues can impact people any time at anywhere in their age. So remember this, my passion is to help you achieve financial success. I want to see you live out your dreams. I want to see you grow in faith. And I know together we can master your finances from a Christian perspective. So as I always end the show, stay financially savvy out there and may God bless you.

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00:26:15

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