When it comes to estate planning, it's important for people -- particularly parents -- to understand that it's more than just a one-time event, but rather a lifelong endeavor. That's because whether they realize it or not, their circumstances will inevitably change and these changes will need to be reflected in their documents. Indeed, families can expand, real estate portfolios can grow and bank accounts can increase.
Those parents who question the need to revisit their estate planning documents should understand that doing so will enable them to 1) confirm that their estate tax liability is minimized, and 2) ensure that their planned asset allocation accurately reflects each child's needs and current station in life.
Interestingly, experts indicate that most estate planning parents will want to consider two very important points when they do get around to reexamining their asset distribution schemes.
According to experts, parents, particularly those who are rapidly approaching old age, need to consider that some assets, while not valuable monetarily, may nevertheless be treasured by more than one of their children. For example, a chest of drawers passed down for several generations may hold tremendous sentimental value.
Similarly, assets that are quite valuable monetarily may also be symbolic of cherished memories for children, such as a family home or vacation home.
Given this reality, experts advise parents to call all of their children together for an open and frank discussion of how these types of assets are going to be divided. This effort, they argue, can help eliminate surprises, defuse potentially litigious situations and help ensure that certain assets are really going to the appropriate child.
Outside of cash, a liquid asset is one that can essentially be converted (i.e., sold) relatively quickly for close to its actual value. For example, stock, bonds and other investments are considered liquid assets.
Conversely, a non-liquid asset is one that can't be converted quickly and/or is sold for less than its actual value. For example, a home is considered a non-liquid asset given that it can take months to sell and/or the fact that the sellers may not receive full fair market value.
This distinction is important for parents to consider, as experts indicate that a surfeit of non-liquid assets from cars to artwork can mean less money and more procedural headaches for their children managing their estate. Accordingly, they advise parents to consider leaving as much as possible in liquid assets.
If you have questions about estate planning strategies or would like to learn more about effective wealth transfer, consider speaking with an experienced legal professional.