Yahoo Finance 6 Biggest Money Mistakes Millionaire Parents Make When Writing Wills
Reaching millionaire status feels great, but it’s not without its complications. Millionaire parents who want to leave behind their assets to their descendants have a lot to consider, including who receives what and any legal implications that go along with passing down a significant amount of wealth.
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Not Communicating Enough
When it comes to writing a will, it’s important to have open communication with those involved — including any beneficiaries or heirs. This is even more important in cases where the goal is to build upon any existing wealth in the long term.
“Most high net worth families want to use their wealth to help their family flourish, as a whole, and as individuals, now and into the future, but they haven’t discovered an effective process for talking about and sharing their abundance,” said Kevin D. Quinn, J.D. and president at Legacy Counsellors, PC.
“The problem is, conversations about family wealth don’t come naturally and aren’t usually easy. Too often, patterns of avoidance and silence are deeply embedded and have been reinforced over many years or even generations,” Quinn continued. “This can leave these individuals feeling confused and anxious and unsure of how to best communicate with and help their family in the most productive ways.”
To avoid this issue and ensure that wealth grows, Quinn suggested building a new set of routines and habits that help the whole family develop shared values and communicate better.
“Imagine what could happen if this process could become part of a family’s identity, passed down from, and improved by, generation after generation,” he said.
It’s also important to keep the lines of communication open to avoid misunderstandings or falling-outs between family members later on.
“Failing to discuss the contents of the will with beneficiaries can lead to misunderstandings and conflicts,” said Jamie Wright, founder of The Wright Law Firm. “Having open conversations with family members about your wishes and the reasons behind your decisions can help avoid disputes and ensure everyone is on the same page.”
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Not Having an Executor for the Will
Some millionaire parents will either skip the executor altogether or choose someone who isn’t really qualified to handle their affairs after they’re gone. This, unfortunately, can lead to more issues when it comes time to passing down any assets.
“Choosing someone who isn’t up to the task can lead to mismanagement and delays,” Wright said.
A good executor should be organized, trustworthy and capable. They should also be someone who can respect your wishes and handle matters appropriately to prevent costly or stressful mistakes.
Many people will choose a relative or close friend as the executor of their will. This isn’t inherently bad, especially if that person meets all the requirements. But if they become unavailable, it’s important to have a backup executor just in case.
Foregoing Professional or Legal Help
Having a clear, accurate will is vital, especially for those with a lot of assets. But even millionaires might avoid paying for professional help — even if this can end up being a costly mistake.
“[Many millionaire parents] try to save money by not using an attorney and downloading DIY forms from the internet,” said Chris Wilbratte, partner at Echelon Financial/Osborn Morano CPAs. “Will they work? Maybe. But you don’t really know until the estate is probated. And if it is not accepted by the probate judge, the probate process will drag on and become very expensive.”
Along with this, any confusion about the existing will can lead to more expenses down the line.
“Ambiguous instructions or descriptions can lead to a contested will, added legal costs and family conflicts,” Wilbratte said.
Depending on how long the situation drags out, and the expenses involved, it might have just been cheaper — and easier — to hire a professional from the start.
Ignoring or Forgetting About Tax Implications
High-net-worth individuals don’t always think about it, but it’s extremely important to consider the tax consequences that come with leaving behind a lot of money or other assets.
“Estate and inheritance taxes can substantially reduce the estate’s value if not properly planned for,” Wright said.
He suggested working with an estate planning attorney or financial advisor who can help you implement tax-efficient strategies — like setting up a trust or making charitable donations — to reduce the tax implications.
Not Considering All Investments or Assets
Oftentimes, millionaire parents don’t simply have a checking or savings account with their entire fortune sitting in it. That money is generally wrapped up in other things, like investment accounts, real estate, life insurance and alternative asset classes.
“It’s easy to overlook digital assets, like cryptocurrency, online banking accounts and social media profiles,” Wright said. “Include clear instructions on how to access and manage these assets, and ensure that passwords and account details are stored securely.”
Knowing which types of assets you have, and any tax implications surrounding them, can be hugely beneficial when writing a will and determining who’ll get what.
Failing To Factor In the ‘Worst Case’ Scenario
No parent wants to consider the possibility that their heirs — which are very often their children — won’t outlive them. But it’s a vital part of creating a will.
“[Parents should] take into account the possibility that a beneficiary may pass away,” Wilbratte said.
They should also leave clear instructions on how to allocate their shares.
“Is it Per Stirpes or Pro Rata? Per Stipes passes the assets on to that person’s descendants, and Pro Rata is based on the number of living beneficiaries, and thus grandchildren might be inadvertently eliminated as beneficiaries.”
Factoring these possibilities into your will can help minimize any confusion and prevent a potentially lengthy or expensive contestation of the will. Plus, it can ensure your assets stay in the family, if that’s what you originally wanted in the first place.
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