Overcomplicating an estate plan can really hurt

As the end of the year approaches, we typically feel a push to plan our social calendars. We've got parties, holidays and other things that need our time and attention.

It's tempting to leave the new year's resolutions for January, but resolutions are usually centered around the idea of doing the things that need to get done: losing weight, getting organized and moving your career along with education and the like.

The reason we wait isn't because any of these goals are not important. They're just the opposite, really.

Our resolutions tend to focus on what is essential to living happy, productive lives, but there's typically a fair amount of work required to reach our goals.

Estate planning
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As a financial advisor, I see similar attitudes — people know action is important but still avoid taking any — when it comes to estate planning. It never shocks people when I tell them they need an estate plan. They already know that.

I do, however, talk with people who have routinely put off building an estate plan because of a lack of time or because of how uncomfortable it is to discuss what will happen after a loss. The emotional side of this kind of planning can be so daunting that it never happens.

Ideally, the goal is to do some proper estate planning and avoid overly complicating the process.

When someone dies without a plan, loved ones left behind have to not only deal with their emotional turmoil but with financial turmoil, as well. Dying without a plan in place creates an opportunity for relational damage among those left behind that often cannot be undone. No one wants that situation for their loved ones.

The best planning occurs when there's no pressure around the plan. I'm not a doctor, but common sense tells us that the best time to start attempting to get healthy is before you have a major health event. Limiting your cheeseburger intake before you have a heart attack is better than waiting until after a coronary.

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Still, it's fairly common for someone who suffers a heart attack to truly want to get into the best shape of his life. He throws out processed foods and doubles down on kale. The gym is suddenly incredibly important. He starts monitoring everything about his body in a way he never would have before, although — while that's needed to some extent — it's easy to overcompensate. That's common in estate planning, as well.

When you're backed into a corner, overcompensating is all too common. If you are talking with your attorney while experiencing stress, it's easy for him or her to want to allay your fears completely. In so doing, it's easy to lose track of what those decisions mean for your loved ones when you are gone.

This kind of over-planning can open up your estate to cost burdens that are unnecessary and avoidable, and which are especially detrimental if your plan kicks in while you require long-term care.

My team frequently reviews estate plans, and we often discover overly complicated structures. Recently, while going through a discovery process, I encountered a situation where the client's home had been transferred into an irrevocable trust. When this person sold her home and moved into assisted living, she missed out on $250,000 in tax-free dollars under the primary residence home sale exclusion.

It was quite a misstep. We consulted with an accountant, and our client's attorney to fix the situation going forward. It took some additional time and money to address it, but I was so glad that we were able to help.

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Of course, causing strife among your loved ones is an even worse outcome than losing money to fees due to overly complicated estate plans. We tend to see this kind of problem arise when an estate ties the heirs together in complicated trusts. Having your financial advisor with you when making these kinds of decisions will help you edit the plan in ways that offer simplicity, thereby easing the stress on your heirs.

One of the greatest concerns around estate planning is how much money the government will receive. You can minimize taxes as much as humanly and legally possible based on the current tax laws, but there's typically no need to introduce complication to achieve that goal. Proper planning is what will help you avoid paying excess taxes.

Just like the best time to get healthy is right now, thinking through the best way to structure your estate plan without encumbering your loved ones is easiest when there are no related pressing matters. It allows you and your team of advisors the time and emotional space to think through complicated options and assemble a plan that takes into account your values, goals, relationships and all of the other intricacies of your life.

So what if this year, instead of putting off the important issue of estate planning, you took action right now, when there isn't any pressure? You could walk into the new year with confidence, knowing that no matter what 2017 might bring, your estate is in order.

— By Bijan Golkar, CEO and senior advisor at FPC Investment Advisory