Jan 16

Financial Planning: Seven Sins

by Steve Darty

Skillful estate planners concoct murder, boondoggling and nefarious financial ruin, then transform into their own devil’s advocate so they may exorcise the evil they’ve created. More pleasantly put, they plan for life’s unknowns.

Still, most estate planning transgressions result from a recurring set of less-than-sensational failures that we can call “estate planning’s seven deadly sins.”

Failing to control health care decision-making: Today, about 85 percent of all deaths occur in hospitals, nursing homes or long-term care facilities. The result is longer periods when we may lack decision-making capacity. Who would make decisions on your behalf and would there be family conflict? The solution is having a comprehensive health care directive, also known as a health care power of attorney. This identifies your decision-makers and articulates your health care wishes, iving critical guidance to your family.

Failing to control assets during incapacity: Without the appropriate legal documents to manage our assets during incapacity, it may be necessary for our family to obtain a conservatorship to manage our affairs should we become unable to do so. However, conservatorships are are time consuming, expensive, emotionally trying for our family, and sometimes cases of abuse go unnoticed. We may avoid a conservatorship by using a durable power of attorney to delegate an agent the power to make financial decisions on our behalf. Most important, we choose our agent, not a court.

No medical retirement plan: Everyone is concerned about death and estate taxes. Perhaps a greater concern is providing for long-term care or assistance at home should that need arise. The cost of nursing home care is in the range of $5,000 to $6,000 per month, and for many families this is catastrophic. One approach is to self-insure if you have the assets to do so. The second approach is to use public benefit planning to structure your affairs in order to qualify for medical assistance through Medicaid. The third option is to transfer this risk to a long-term care insurance company. This can also be expensive, so shop around for quotes.

Thinking adult children do not need inheritance protection: What if your heir suffers a divorce or gets sued? Statistics tells us that approximately half of American
marriages end in divorce, and in this economy business ventures are not for the weak of pocket. Protect your lifetime’s savings from the chopping block with the use of an asset protection trust. This way, what you leave behind grows and compounds for years to come while protecting it from divorce settlements, lawsuits and, yes, the beneficiaries themselves.

Not preserving tax-deferral benefits from retirement plans: For many people, one of their largest assets is their retirement plan. Here’s the problem: There is a potential double taxation of both estate taxes and income taxes immediately upon death resulting in a loss of up to 75 percent of your retirement plan – ouch! The onger beneficiaries keep funds in an IRA after your death, the more wealth they can create. Protect your retirement funds by utilizing an IRA designated beneficiary trust. This specialized trust is uniquely designed to hold, protect and distribute retirement accounts for your beneficiaries.

Failing to plan for tangible personal property: You know what most heirs fight about? It’s not the family home, but rather Me-Maw’s accordion or Dad’s guns. In addition to a will or trust, it’s imperative to have a personal property memorandum that identifies where keepsakes are to go. For my clients, I create several pages of blank lines so they can hand write these items and wishes, allowing them to modify these decisions as often as they wish without having to redraft the entire will.

Not leaving a “treasure map”: Perhaps the best gift we can leave our heirs is a well-written letter. Include a list of steps they should take to locate important ocuments, keys, passwords and a list of people to be notified. This is also a great opportunity to say thank you, immortalize your values and beliefs, express your wishes, recount your blessings or perhaps rant with Old Testament flair. Finally, explain why you left what to whom. Heirs can be deeply hurt by our failure to explain the intent behind our bequests. Sinful or not, forgiveness for this transgression comes slowly if at all. 

Steve Darty is principal of the Darty Law Office in Missoula, an estate planning firm that helps clients with wills, trusts and estate administration. He can be reached at
549-0306.

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