Don’t Neglect the Third Stage of Estate Planning

Recently, I was out of the office for an early morning meeting with a client. While waiting in the lobby, I ran into a different client who happened to work in the building. I’d done some significant estate planning for her and her husband, and she told me that she’d been meaning to call me because they had follow-up questions about carrying out their estate plan.

I had a few minutes before my meeting and we were able to talk through her questions, which were actually fairly typical among my clients. But they reminded me how easy it is to forget that the estate planning process doesn’t end as soon as the documents are signed.

I’ll explain: It’s always such a relief for my clients on the day they sign their estate planning documents. Maybe it’s something they have put off for years. Maybe the last time they did any formal planning, they had young children and now their lives have changed. Whatever the reason, something led my clients to update their estate plan, and doing it is a critical step in the right direction.

But are they done as soon as they sign the documents? No, because signing documents isn’t the final step: Estate planning, in fact, involves three separate stages, and people must get through all to three to effectively complete the process.

The first stage is fairly obvious. Coming up with a plan and putting it to paper is the initial step in developing a comprehensive estate plan. The second – signing the finalized documents – marks an important milestone because it turns the plan from a list of things they want to happen into a formal, legally effective plan that must be followed.

Completing only the first two stages, however, can cause unwanted outcomes, unnecessary costs, and needless delays to the administration of the estate. More importantly, it leaves the burden of resolving these problems to the loved ones and charities designated in the estate plan.

So what is the third stage? Making changes to beneficiary designations or ownership of assets on which the plan is based. Without completing this stage, the estate plan is not complete.

For example, if the clients are using a trust, the trust needs to own the assets or be the beneficiary upon death.  This requires formal steps (often detailed paperwork or legal filings) after the estate planning documents are signed.

Similarly, when people choose to use beneficiary designations and joint ownership as a less expensive means to avoid probate without using a trust, this approach only works if assets are titled properly and beneficiary designations are securely in place.

Because estate plans need to be updated when ownership or family relations change, it’s more fitting to treat this third stage as an ongoing process rather than a single act that’s forgotten once finished. Life doesn’t stand still, after all, and neither should your estate plan.

Posted in Blog, Estate Planning.