Working with financial advisors alone is insufficient for estate planning.
Money is a common source of stress for most Americans.
They fear not having enough to meet their current needs or future goals.
This anxiety is exacerbated by the fact that many enter adulthood with little to no financial literacy.
Financial advisors can be beneficial to these individuals in areas such as saving, budgeting, investing, retirement planning, and estate planning.
While financial advisors can offer valuable guidance on money and assets, they often lack the necessary legal knowledge, expertise, and experience required for comprehensive estate planning.
Accordingly, failing to work with an experienced estate planning attorney can leave loved ones struggling to navigate unintended beneficiaries, estate taxes, and probate delays.
Some mistakes made by financial advisors can be costly to estate planning goals.
While many mistakenly believe beneficiary designations are a simple solution for avoiding the need for a last will and testament or trust, this method does not account for complexities related to minor children, family dynamics, and asset protection.
Often, advisors will encourage the initial designation of beneficiaries but forget to remind their clients about the need to review and update these after significant life events.
Neglecting to update beneficiary designations can have devastating consequences for inheritances.
Some ex-spouses have received life insurance payouts, leaving children and new spouses without replacement income.
This "unintentional disinheritance" can occur even if a last will and testament provides alternative instructions.
Yikes!
Coordinating designations and estate planning documents is crucial for effective financial and estate planning.
Financial advisors can often overlook or downplay the benefits of trusts to wealth preservation.
Trusts afford individuals greater control over their asset management and distribution compared to joint accounts or beneficiary designations.
Trusts can be structured to provide for the needs of children with special needs, shield assets from creditors, or prevent direct distributions to inexperienced or irresponsible young heirs.
Why would advisors hesitate to recommend this estate planning instrument?
Trusts are outside the scope of service for financial advisors.
Because they cannot provide this support themselves, advisors may not prioritize this suggestion.
Even so, estate planning attorneys can collaborate with financial advisors to create enhanced protections for clients with complex family situations or substantial assets.
Sometimes, advisors can have tunnel vision when it comes to reducing or avoiding taxes.
Although tax strategies are important, they can be insufficient when factors like asset protection, incapacity planning, or family dynamics are overlooked.
Saving money is not the sole focus of estate planning.
Estate planning addresses both individuals and their property, rather than focusing solely on saving money.
Through powers of attorney, guardian appointments for minor children, and other instruments, estate planning attorneys can help families prepare for incapacity or death.
Financial advisors may not address incapacity in their guidance.
Families require healthcare directives and financial and healthcare powers of attorney to avoid having to petition the courts for the authority to act on behalf of a loved one in times of crisis.
Clients should be able to understand how their investments and other accounts will be managed if they are unable to do so themselves.
Collaboration is a sign of a good financial advisor.
Because states have complex and varying estate planning laws, incapacity and estate planning can be tricky.
Most financial advisors are ill-equipped to help their clients navigate these issues on their own.
When your financial advisor works together with your experienced estate planning attorney, you can benefit from the wisdom of both professionals.
If you do not yet have an estate planning attorney, you can request a consultation with Harvest Law KC in Overland Park, Kansas.
We can work with professional advisors to align goals.
Financial advisors can easily overlook critical legal documents that fall outside their scope of practice.
Coordinating beneficiary designations with trusts or wills is essential to avoiding confusion for heirs.
For families with more complex needs or greater wealth, trusts should be considered as part of the overall planning strategy.
When a financial advisor emphasizes tax savings only, other legal protections afforded by comprehensive estate planning can be overlooked.
Bottom line: When it comes to providing professional services, collaboration is the key to success with all professionals staying in their respective lanes, so to speak.
This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
Reference: U.S. News & World Report (Sept. 10, 2021) "5 Estate Planning Mistakes Financial Advisors Make"
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