Six estate planning mistakes to avoid

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MEDIA RELEASE. Blended families should take a holistic approach to estate planning and how they pass on their wealth, because getting it wrong can cause irreparable damage to their finances and their family relationships, according to Stanford Brown private wealth adviser, Kirsten Lynn.

“Tax effectiveness and asset protection are important, but so too are legacy and the preservation of family bonds,” Ms Lynn says.

“Demographic trends have heralded significant changes in how we plan for intergenerational wealth transfer. Recent decades have seen a rise in longevity, change in family units, relative growth in property prices, a sharp spike in private school fees, and an increase in numbers of dual income professional couples.

“These trends have changed the shape of the estate planning advice for families seeking to protect and pass on their wealth. Blended families can face particular complexity in planning how to pass on ownership and control of their wealth.”

Ms Lynn points to six planning mistakes for blended families to avoid.

Expect a single solution

“Blended families bring more complexity and trade-offs in estate planning, as partners consider the difficult decisions about distributions and appointments,” Ms Lynn says.

“There is no one single solution. Blended families and their advisers will generally settle on a strategy in line with the competing responsibilities and goals, and the emotional and financial trade-offs. What that looks like will vary from family to family. There are simply a lot more options for how and where the wealth should pass.”

Not ask about your beneficiaries’ hopes and expectations

It is important to talk to our loved ones about how we want to pass on our wealth, and why, she says. “It’s not uncommon for couples to realise there is a divergence of views on wealth transfer for the first time in an estate planning lawyer’s office.

“Without asking your family about their hopes and expectations, and without considering the interests of your beneficiaries, you have a greater risk that you won’t achieve your estate planning goals and that there will be a challenge to your estate.”

Focus only on what happens after death

Thinking about transferring your wealth before your death can open up planning opportunities, such as providing help to a child when it is most needed, making a philanthropic gift when you see the impact, or undertaking lifetime restructures of your asset base, Ms Lynn says.

“How you transfer control of your financial decisions during your lifetime can impact the gifts you intended after your death. Whom you appoint and the powers you give them requires careful consideration.”

Intermingle family finances

Couples in subsequent relationships may have accumulated wealth separately and plan for their assets to go back to their own families and children, and it is important to keep this in mind with how you manage your joint finances, she says.

“It’s worth getting advice about how your decisions now affect your plans later on. It is important to take the time to plan before you sell your home or help your partner renovate their house, or before you buy a home as joint tenants,” she says.

Tie your beneficiaries together financially

Life estates and capital reserved trusts are examples of strategies which tie your beneficiaries together after your death and may produce family conflict, Ms Lynn says.

“Consider how and when your children may inherit, and under what circumstances, particularly if your partner is likely to outlive you by some time.”

Assume your family will never be blended

In many first marriages, you and your partner probably agree that you want your wealth to eventually pass to your joint children on the death of the survivor, and you are probably comfortable leaving it all to each other in the first instance, she says.

“However, estate planning is ultimately about planning for protecting your loved ones if anything happens to you. In first marriages, some couples are choosing to acknowledge and plan for the prospect of later remarriage if one of them passes away. They want to protect the wealth they have built together to benefit their children.”

“Ultimately, how you plan for the transfer of your family wealth can help to preserve or contribute to damaging relationships in your family,” Ms Lynn says.

“You should consider whether your financial and estate planning recognises your values, your family dynamics, and the goals and interests of the parties involved,” she says.

Stanford Brown provides intelligent financial advice solutions during all stages of life to ensure our clients live a truly great life.