Common Estate Planning Mistakes to Avoid

Estate planning attorneys see them all the time: the mistakes that people make when they try to create an estate plan or a will by themselves. They learn about it, when families come to their offices trying to correct mistakes that could have been avoided just by seeking legal advice in the first place. That’s the message from the article “Five big estate planning ‘don’ts’” from Dedham Wicked Local.

Here are the five estate planning mistakes that you can easily avoid:

Naming minors as beneficiaries. Beneficiary designations are a simple way to avoid probate and be certain that an asset goes to your beneficiary at death. Most life insurance policies, retirement accounts, investment accounts and other financial accounts permit you to name a beneficiary. Many well-meaning parents (and grandparents) name a grandchild or a child as a beneficiary. However, a minor is not permitted to own an asset. Therefore, the financial institution will not name the minor child as the new owner. A conservator must be appointed by the court to receive the asset on behalf of the child and they must hold that asset for the minor’s benefit, until the minor becomes of legal age. The conservator must file annual accountings with the court reflecting activity in the account and report on how any funds were used for the minor’s benefit, until the minor becomes a legal adult. The time, effort, and expense of this are unnecessary. Handing a large amount of money to a child the moment they become of legal age is rarely a good idea. Leaving assets in trust for the benefit of a minor or young adult, without naming them directly as a beneficiary, is one solution.

Drafting a will without the help of an estate planning attorney. The will created at the kitchen table or from an online template is almost always a recipe for disaster. They don’t include administrative provisions required by the state’s laws, provisions are ambiguous or conflicting and the documents are often executed incorrectly, rendering them invalid. Whatever money or time the person thought they were saving is lost. There are court fees, penalties and other costs that add up fast to fix a DIY will.

Adding joint owners to bank accounts. It seems like a good idea. Adding an adult child to a bank account, allows the child to help the parent with paying bills, if hospitalized or lets them pay post-death bills. If the amount of money in the account is not large, that may work out okay. However, the child is considered an owner of any account they are added to. If the child is sued, gets divorced, files for bankruptcy or has trouble with creditors, that bank account is an asset that can be reached.

Joint ownership of accounts after death can be an issue, if your will does not clearly state what your intentions are for that account. Do those funds go to the child, or should they be distributed between heirs? If wishes are unclear, expect the disagreements and bad feelings to be directly proportionate to the size of the account. Thoughtful estate planning, that includes power of attorney and trust planning, will permit access to your assets when needed and division of assets after your death in a manner that is consistent with your intentions.

Failing to fund trusts. Funding a trust means changing the ownership of an asset, so the asset is owned by the trust or designating the trust as a beneficiary. When a trust is properly funded, assets funding the trust avoid probate at your death. If your trust includes estate tax planning provisions, the assets are sheltered from estate tax at death. You have to do this before you die. Once you’re gone, the benefits of funding the trust are gone. Work closely with your estate planning attorney to make sure that you follow the instructions to fund trusts.

Poor choices of co-fiduciaries. If your children have never gotten along, don’t expect that to change when you die. Recognize your children’s strengths and weaknesses and be realistic about their ability to work together, when deciding who will make financial decisions under a power of attorney, health care decisions under a health care proxy and who will best be able to settle your estate. If you choose two people who do not get along, or do not trust each other, it will take far longer and cost more to settle your estate. Don’t worry about birth order or egos.

The sixth biggest estate planning mistake people make, is failing to review their estate plan every few years. Estate laws change, tax laws change and lives change. If it’s been a while since your estate plan was reviewed, make an appointment to meet with your estate planning attorney for a review.

Reference: Dedham Wicked Local (May 17, 2019) “Five big estate planning ‘don’ts’”

More Reasons Why You Need a Will

It doesn’t take very long for any newly-minted attorneys in the trusts and estates practice area to see what happens when there is no will, says the Daily Memphian in a to-the-point article titled “Five reasons you need a will (and one reason you don’t).” The stress on families, unnecessary expenses and assets going to the wrong people, can easily be prevented with an estate plan and a will. However, in case you still aren’t convinced, here are the top five reasons:

You have a family. For those who are married with children, the laws of intestacy take over, if you don’t have a will. Assets are divided between the surviving spouse and the children in most states (check with a local estate planning attorney for your state’s laws). In theory, that sounds fine. But there are three situations where not having a will can make a mess of things:

  • Minors and developmentally delayed heirs. Minors and individuals with special needs may not legally contract or represent themselves in court. Therefore, they cannot agree to the disposition of assets. When a minor or individual with special needs inherits assets directly, the court must appoint a neutral person, often an attorney, to oversee that person’s best interests. It may also require the appointment of a guardian, so the court can monitor the use of the assets in the child’s best interest, until they are of age.
  • Bad relationships between surviving spouse and children. Under intestate law, the spouse inheriting reduces the amount the children inherit. If the spouse is a second wife, this can make a bad situation worse. A will can plan out the distribution of assets to care for the spouse and ensure that the children receive the assets, as determined by their parent.
  • Extramarital children. Children who are not born to legally wed parents have the right to inherit, regardless of whether their parents were married. What if an unknown offspring shows up and demands his share? This does happen.

You hate your next-of-kin. Not every family is as happy as their Facebook photos. If you don’t want your lawful next of kin inheriting your assets, you need a will. Remember that as time passes and people enter and exit the family, through birth, death, marriage and divorce, the person who is your next-of-kin will likely change over time.

Do you want to give specific gifts? Under the intestacy laws, your relatives (next-of-kin) inherit your property in percentages that are based on their degree of relationship to you and the number of other relatives at that same degree. Outside of designating a beneficiary or joint owner of an assets, having a will that is properly prepared under the laws of your state, is the only way to ensure that you can determine who gets what.

You know how you want things to work after you die. If you want to have any control over what happens to your assets, how you want your funeral to be paid for, what you want to happen to personal property, etc., a will may be the best way to do this. The person named to be your executor is legally responsible to carrying out your wishes, unless it’s impossible, impractical or illegal for them to do so.

You have a living trust. If you took the trouble to have a living trust, then you should also have a will. You need, specifically, a “pour-over” will. This ensures that any assets not titled in the name of the trust at the time of your death, are transferred into the trust. Otherwise, your non-trust assets are subject to intestacy law.

The ONLY reason you may not need a will? If every single asset you own has either joint ownership or beneficiary designations. That’s very unusual, in part because it takes a lot of detail to make sure that every asset is titled correctly. You can leave real property to another person through a joint ownership deed, which establishes that person as the co-owner of the property. Accounts can be left to a person of choice, by naming a person as beneficiary.

Joint ownership and beneficiary designations do supersede the intestacy laws. However, what happens if a beneficiary dies before you do and you neglect to change the name on the asset? There are also gift and tax implications.

A will can be as complex or as simple as you want. Speak with an experienced estate planning attorney, who can make sure that your will and any other documents are prepared to achieve your wishes for your estate, protect your family, and don’t leave anything to chance.

Reference: Daily Memphian (March 8, 2019) “Five reasons you need a will (and one reason you don’t)”