This article works through some basics - and more detailed issues - around wills and estate planning issues that continue to cause problems for even the wealthiest persons.

A continual theme in wealth management is the need for solid estate planning. As news stories regularly demonstrate, family feuds over money and physical assets are all too often a failure of planning. Of course, humans are not omniscient and make mistakes, sometimes acting in good faith and cannot foresee all contingencies. 

A recent famous case highlighted what happens when there is no will in place – it continues to be an astonishing fact that many high net worth individuals have not created one. The author of this piece, Michael Mandish, principal, tax services, Gorfine, Schiller & Gardyn, examines a recent legal row and ponders the lessons to be learned. 

The editors of this news service are pleased to share this article; as always they don’t always share views of outside contributors and invite responses. Email tom.burroughes@wealthbriefing.com

In April 2016, singer-composer Prince died at 57, leaving an estate valued at $100 million to $300 million, with unreleased recordings and videos in a vault at his Minnesota estate potentially adding hundreds of millions to that total.

As was highlighted in the media in the wake of his death, Prince left no will, resulting in ongoing turmoil with many of his estranged relatives who filed claims for pieces of the estate. A reported $5.9 million has been paid to consultants and attorneys, but estate issues remain unsettled and costs continue to climb.   

While the size and complexity of his estate make it an example being studied by lawyers and accountants, Prince was hardly alone. A caring.com survey in January 2017 indicated that only 42 per cent of Americans have a will, and only 50 per cent of Baby Boomers have one. 

Many people also have wills that are inadequate to cope with changing circumstances: births, divorces, changes in estate law, etc. These inadequacies can often be traced to those who signed estate plans without understanding that plans and wills are living things. Just as estates evolve with time and circumstances, so too should a will to be certain that the desires of the person who created the estate are honored.

For all of the concern about estate taxes, income taxes, and costs associated with probate, a will should begin and end with the wishes of the person who makes it. Those wishes may not be limited to money. Again, drawing upon Prince as an example, he was abstemious in life and highly vocal about it. Yet after his death, his mansion was rented to singer Justin Timberlake for a Super Bowl party, at which alcohol was served, according to a Washington Post article in April, marking the second anniversary of Prince’s death.

The best way to assure compliance with the benefactor’s wishes is to ensure that they are clearly communicated to the attorney and advisors who create the document delineating the estate, and to the beneficiaries who are rewarded in the will itself.  This is done before any consideration of estate or income taxes. It’s the job of the professionals to construct a plan that ensures that the estate can be conveyed in the most tax-advantageous way possible.

That can include assuring that a will is filed in the proper place in the event of multiple residences over different states. There are still a number of states that have estate taxes with varying exemptions and state tax rates.

Keys to plans and wills are completeness and clarity, and awareness and understanding of some of the pitfalls that can crop up along the way from will creation to execution. Ambiguity can be the enemy of clarity in a will.

For example, a person often will need help in coping with advancing years. The person may turn to an adult child, who is given authority to write checks on a bank account to pay bills. If the parent gives the adult child joint ownership of the account, as is often the case, then dies, the child owns the account. Siblings listed in a will as inheriting equal shares of the estate learn they are entitled to nothing from that account.

Heirs who are told in a will they inherit the decedent’s 401(k) account proceeds can be startled to learn that there are two or more 401(k) accounts or pensions, with different beneficiaries on the additional assets, because the decedent worked more than one job during his or her career. 

Here are two critical points:

-- It’s never too early, even for a single 30-something who is enjoying the first taste of success. Lack of a will can throw an estate to the vagaries of state law and cost of a potential investigation to seek out heirs. Absent heirs, statutes can even award the estate to state or local coffers; and 

-- An estate plan and its resultant will need periodic review. Changes, running the gamut from leaving one job for another, to leaving one spouse for another, to a spouse dying, to intended beneficiaries being born or dying, to estrangement from relatives, to philanthropic interests can all impact the intent of a person considering awards of an estate.

People often shy away from preparing a will because they do not believe their estate is large enough to warrant it. At death, a surprising number of them leave insurance, retirement accounts, savings and real estate that total a net worth of hundreds of thousands of dollars, sometimes more than $1 million. The results can be heirs fighting over the proceeds, causing rifts between siblings. In addition, provisions for guardianship of minor children is overlooked in many cases.

Thankfully, an advisor can assess the estate in a short time with a list of titled assets, including insurance policies and real estate. The assessment often yields potential problems that often can be fixed with a visit to a broker and/or a banker. This results in re-titling of assets to remove ambiguity that can come when the asset title does not match with its documentation or listing in a will. 

The key is to determine a client’s intent upon death, and a plan and resultant will can be produced economically and remove issues that arise in the wake of death. Those persons can even choose to gift assets to heirs while still alive to enjoy being able to watch them use the largesse.

Remember, too, that descendants often prize the smallest of things. For example, a grandmother’s engagement ring carries outsized sentimental value. Furniture can bring decreasing value in an era in which Baby Boomers are downsizing, but a father’s favorite chair yields memories for any number of children who sat with him, listening to stories.

To determine those potential pitfalls, conversations with heirs while still living can remove arguments upon death. Those conversations also can assure understanding of an estate among those who will benefit from it. Death of a parent, a grandparent or any other relative is traumatic enough without ensuing estate disputes that require adjudication.

Having all assets and documentation match is critical to estate planning, and it’s often overlooked. You don’t need to have assets on the level of Prince to quickly and properly address this issue before it’s too late. 

About the Author: 

Michael Mandish is a principal in Gorfine, Schiller & Gardyn’s tax department. He has more than 20 years of experience in public accounting, and has extensive knowledge regarding estates and trusts, probate and individual tax planning.