Estate Planning – Proceed with Caution


Anne Bednarz, CFP®, AIF® Financial Advisor

My last blog post was on the subject of the joys of preparing for and welcoming a new child into your life (click here to view blog). Another area of interest for me professionally, although not nearly as joyous, is planning for the end of life. Having an estate plan is important for everyone, especially those with minor children. Even if you have no dependents, it is still an essential part of life to have a will, as it can take a burden off your loved ones to know what your wishes are and how your estate should be handled as they grieve your loss. However, even when a person does have a will, it is important to proceed with caution if you are working to settle his or her estate. Many of the decisions that you make now are irreversible and can have lasting financial effects.

If the deceased person has a will, an executor or personal representative will be named to take care of the estate. If a will does not exist, then an administrator will be named by the court and the laws of the state in which the deceased was living at the time of death will govern how the assets are distributed. It is the executor/administrator’s responsibility to handle the estate as a fiduciary and to do it to the best of his or her ability. This person is responsible for distributing the remaining assets to the beneficiaries after debts, taxes, and expenses are paid from the estate, unless otherwise stated. This is something that should not be taken lightly, as once the assets are distributed the decision may not be reversible.

Recently, I saw this firsthand with a client. Her father had passed away, and while he did not have a large estate, he did have assets to pass to his children. Most of these assets were tax-deferred, such as an IRA and a state pension. The accounts were set up so that the children were the beneficiaries, and each would receive an equal share. However, one of the custodians took the word of the executor that all the beneficiaries would like their portion to be distributed directly to them by cash/check and not transferred trustee-to-trustee, which means the assets would have been sent from the father’s account directly to the beneficiary’s inherited IRA account. My client called me when she had received a check from the custodian for her inherited portion of the account, and said she would like to deposit it into a tax-deferred account. Once the check was in her hands, even though she hadn’t cashed it, it could not be deposited into an inherited tax-deferred account. All of the money would be taxable to her in the year it was received. In her situation, she had lost the ability to defer the distribution over time, which could have reduced the tax liability associated with the inheritance.

Luckily for my client, her father had lived a long life and his estate wasn’t extremely large. It did cause tax ramifications for her, but it could have been much worse had it been hundreds of thousands of dollars of assets that were distributed without the proper handling.

This is one of the areas where a financial planner can be helpful when dealing with tough situations. I would encourage everyone when working to distribute an estate to contact a financial planner, an attorney, and an accountant, since many of the decisions cannot be reversed once they are made.

This is also a good time to review your own estate plan. One of my professors once said that estate planning is not an event; it is a process that occurs as life unfolds. The death of a loved one is difficult on its own, but it is important to ensure that you make the right decisions so that you don’t create additional financial difficulties.

If you have questions or comments, please feel free to contact me at 806-747-7995 or