What are the Most Common Estate Planning Mistakes?

There are so many estate planning horror mistakes, it’s hard to know which is the worst. One is the woman who had an estate plan created, but only named one guardian for her teenage daughter. When the guardian declined to serve, the girl was moved into foster care. Many estate planning attorneys recommend not one, but two alternate guardians, according to the article “Don’t get tripped up by these common estate planning pitfalls” from MarketWatch.

Joint ownership of bank accounts leads to a tangled mess. Seniors often add one of their adult children to ownership of their bank accounts, so the child can manage their affairs or keep an eye open for financial elder abuse. However, when the parent dies, the account is the sole property of the child, and siblings have no say over what the new owner does with the money. Even if the children agree to split the money evenly, the federal gift tax exemption is limited to an annual gift, gift tax returns have to be filed and a simple idea becomes expensive and time consuming.

If joint ownership of an account is necessary, it may be better to add all of the children or have in a separate writing the intention that this is an asset you want divided equally among the children. Easier still: create a new account dedicated to paying bills and maintain a small balance. Even better, if the institution allows you to arrange for the account to “pay on death,” then designate all of your children as beneficiaries. This approach will avoid probate, while treating all children equally and not exposing your account to any potential divorces, lawsuits, or bankruptcies during your lifetime.

Giving money to grandchildren directly. Putting a minor as a beneficiary of a percentage of an estate requires the involvement of a judge approving the bequest and the appointment of a custodian over the account until the minor becomes an adult. An estate planning attorney would likely recommend the use of a trust for the benefit of the minor. Alternatively, limit bequests to adult children and adult grandchildren.

An adult child or surviving spouse living in the house. A man created a property trust to allow his second wife to remain in the house he owned before their marriage. The couple had jointly paid off the mortgage. The man named his daughter from a prior marriage as the successor trustee. The daughter began making unreasonable demands on the surviving spouse to make expensive improvements. Years of bad blood between the two erupted into years of litigation. The parties finally agreed to revise the trust terms and name a professional trustee, but not after an expensive and stressful battle.

When one of the children is living in the house and the will says the home is to be divided among the siblings equally, what happens? Does the child who lives in the house get first right of refusal to buy out their sibling’s shares? Are they paying rent to siblings? What if the child living in the house decides to sell, after they personally have invested a lot of money improving the house?

Estate planning attorneys bring up these kinds of situations with clients not because they want to scare people, but because they have seen firsthand what happens when an estate plan fails to anticipate a variety of situations. The estate planning attorney needs to know about the family’s dynamics in detail, in order to create the best plan to achieve the desired outcome and prevent as many twists and turns as possible.

Reference: MarketWatch (Jan. 6, 2022) “Don’t get tripped up by these common estate planning pitfalls”

How Do You Split an Estate in a Blended Family?

Estate planning attorneys know just how often blended families with the best of intentions find themselves embroiled in disputes, when the couple fails to address what will happen after the first spouse dies. According to the article “In blended families, estate planning can have unintended issues” from The News-Enterprise, this is more likely to occur when spouses marry after their separate children are already adults, don’t live in the parent’s home and have their own lives and families.

In this case, the spouse is seen as the parent’s spouse, rather than the child’s parent. There may be love and respect. However, it’s a different relationship from long-term blended families where the stepparent was actively engaged with all of the children’s upbringing and parents consider all of the children as their own.

For the long-term blended family, the planning must be intentional. However, there may be less concern about the surviving spouse changing beneficiaries and depriving the other spouse’s children of their inheritance. The estate planning attorney must still address this as a possibility.

When relationships between spouses and stepchildren are not as close, or are rocky, estate planning must proceed as if the relationship between stepparents and stepsiblings will evaporate on the death of the natural parent. If one spouse’s intention is to leave all of their wealth to the surviving spouse, the plan must anticipate trouble, even litigation.

In some families, there is no intent to deprive anyone of an inheritance. However, failing to plan appropriately—having a will, setting up trusts, etc.—is not done and the estate plan disinherits children.

It’s important for the will, trusts and any other estate planning documents to define the term “children” and in some cases, use the specific names of the children. This is especially important when there are other family members with the same or similar names.

As long as the parents are well and healthy, estate plans can be amended. If one of the parents becomes incapacitated, changes cannot be legally made to their wills. If one spouse dies and the survivor remarries and names a new spouse as their beneficiary, it’s possible for all of the children to lose their inheritances.

Most people don’t intend to disinherit their own children or their stepchildren. However, this occurs often when the spouses neglect to revise their estate plan when they marry again, or if there is no estate plan at all. An estate planning attorney has seen many different versions of this and can create a plan to achieve your wishes and protect your children.

A final note: be realistic about what may occur when you pass. While your spouse may fully intend to maintain relationships with your children, lives and relationships change. With an intentional estate plan, parents can take comfort in knowing their property will be passed to the next generation—or two—as they wish.

Reference: The News-Enterprise (Dec. 7, 2021) “In blended families, estate planning can have unintended issues”

Talk to Parents about Estate Planning without Making It Awkward

If you don’t have this conversation with parents when they are able to share information and provide you with instructions, helping with their care if they become incapacitated or dealing with their estate after they pass will be far more difficult. None of this is easy, but there are some practical strategies shared in the article “How to Talk to Your Parents About Estate Planning” from The Balance.

Parents worry about children fighting over estates after they pass, but not having a “family meeting” to speak about estate planning increases the chance of this happening. In many cases, family conflicts lead to litigation, and everyone loses.

Start by including siblings. Including everyone creates an awareness of fairness because no one is being left out. A frank, open conversation including all of the heirs with parents can prevent or at least lessen the chances for arguments over what parents would have wanted. Distrust grows with secrets, so get everything out in the open.

When is the right time to have the conversation? There is no time like the present. Don’t wait for an emergency to occur—what most people do—but by then, it’s too late.

Estate planning includes preparing for issues of aging as well as property distribution after death. Health care power of attorney and financial power of attorney need to be prepared, so family members can be involved when a parent is incapacitated. An estate planning attorney will draft these documents as part of creating an estate plan.

The unpredictable events of 2020 and 2021 have made life’s fragile nature clear. Now is the time to sit down with family members and talk about the plans for the future. Do your parents have an estate plan? Are there plans for incapacity, including Long-Term Care insurance? If they needed to be moved to a long-term facility, how would the cost be covered?

Another reason to have this conversation with family now is your own retirement planning. The cost of caring for an ailing parent can derail even the best retirement plan in a matter of months.

Define roles among siblings. Who will serve as power of attorney and manage mom’s finances? Who will be the executor after death? Where are all of the necessary documents? If the last will and testament is locked in a safe deposit box and no one can gain access to it, how will the family manage to follow their parent’s wishes?

Find any old wills and see If trusts were established when children were young. If an estate plan was created years ago and the children are now adults, it’s likely all of the documents need to be revised. Review any trusts with an estate planning attorney. Those children who were protected by trusts so many years ago may now be ready to serve as executor, trustees, power of attorney or health care surrogate.

Usually, a complete understanding of the parent’s wishes and reasons behind their estate plan takes more than a single conversation. Some of the issues may require detailed discussion, or family members may need time to process the information. However, as long as the parents are living, the conversation should continue. Scheduling an annual family meeting, often with the family’s estate planning attorney present, can help everyone set long-term goals and foster healthy family relationships for multiple generations.

Reference: The Balance (Oct. 15, 2021) “How to Talk to Your Parents About Estate Planning”

What You Need to Know about Probate

We often read about celebrities who die without an estate and how everything they own must go through probate. The article titled “What to know about probate” from wmur.com explains what that means, and what you need to understand about wills, probate and estate planning.

Probate is a process used to prove that a person’s will is valid and to supervise how their estate is handled. It involves a court that focuses on this area. Much about the process depends upon the state in which it’s taking place, since these laws vary from state to state.

When someone dies without a will, they have failed to provide instructions for the distribution of their property. Their assets will still be distributed, but the laws of the state will determine what happens next. The state follows intestacy laws, which outline pre-set patterns of distributing property. In one state, property will go to the spouse and children. In others, the spouse may get everything.

Other decisions are made for your family when there is no will. If you have not named an executor, the court will appoint someone to oversee your estate. The court will also appoint a person to raise your children, if no guardian has been named for minor children. A family member may be chosen, but it may not be the family member you wanted to raise your kids, or it may be a stranger in a foster home.

Another reason to have a will is that probate can take a few months, or, depending on where you live, a few years, to complete. If there is litigation, and not having a will makes that more likely, it would take longer and will undoubtedly cost more. While this is going on, assets may lose value and heirs may suffer from not having access to assets.

Probate is also costly. There are legal notices to be published, court fees, executor fees and bond premiums, appraisal fees and attorney expenses.

Having an estate plan also means tax planning. While the federal estate tax as of this writing is $11.7 million per individual, it will not be that high forever. If the proposals to lower the federal estate tax to $3.5 million per person come to pass, will your estate escape estate taxes? What about your state’s estate or inheritance taxes?

Probate is also a very public process. Once a will is admitted as valid by the court, it becomes a public document. Anyone and everyone can view it and learn about your net worth and who got what.

With all these drawbacks, are there good reasons to allow your estate to go through probate? In some cases, yes. If multiple wills have been found, probate will be needed to establish which will is the correct one. If the will is confusing or complex, probate could provide the clarity needed to settle the estate. If beneficiaries are litigious, probate may be the voice of authority to quell some (but not all) disputes. And if the estate has no money and a lot of debt, it may be the probate court that sorts out the situation.

Every estate is different. Therefore, it is important to speak with an estate planning attorney to have a will, power of attorney and any health care directives created and properly executed. Every few years, these documents should be reviewed and revised to keep up with changes in the law and in your personal life.

Reference: wmur.com (July 29, 2021) “What to know about probate”

How Bad Can a Do-It-Yourself Estate Plan Be? Very!

Here’s a real world example of why what seems like a good idea backfires, as reported in The National Law Review’s article “Unintended Consequences of a Do-It-Yourself Estate Plan.”

Mrs. Ann Aldrich wrote her own will, using a preprinted legal form. She listed her property, including account numbers for her financial accounts. She left each item of property to her sister, Mary Jane Eaton. If Mary Jane Eaton did not survive, then Mr. James Aldrich, Ann’s brother, was the designated beneficiary.

A few things that you don’t find on forms: wills and trusts need to contain a residuary, and other clauses so that assets are properly distributed. Ms. Aldrich, not being an experienced estate planning attorney, did not include such clauses. This one omission became a costly problem for her heir that led to litigation.

Mary Jane Eaton predeceased Ms. Aldrich. As Mary Jane Eaton had named Ms. Aldrich as her beneficiary, Ms. Aldrich then created a new account to receive her inheritance from Ms. Eaton. She also, as was appropriate, took title to Ms. Eaton’s real estate.

However, Ms. Aldrich never updated her will to include the new account and the new real estate property.

After Ms. Aldrich’s death, James Aldrich became enmeshed in litigation with two of Ms. Aldrich’s nieces over the assets that were not included in Ms. Aldrich’s will. The case went to court.

The Florida Supreme Court ruled that Ms. Aldrich’s will only addressed the property specifically listed to be distributed to Mr. James Aldrich. Those assets passed to Ms. Aldrich’s nieces.

Ms. Aldrich did not name those nieces anywhere in her will, and likely had no intention for them to receive any property. However, the intent could not be inferred by the court, which could only follow the will.

This is a real example of two basic problems that can result from do-it-yourself estate planning: unintended heirs and costly litigation.

More complex problems can arise when there are blended family or other family structure issues, incomplete tax planning or wills that are not prepared properly and that are deemed invalid by the court.

Even ‘simple’ estate plans that are not prepared by an estate planning lawyer can lead to unintended consequences. Not only was the cost of litigation far more than the cost of having an estate plan prepared, but the relationship between Ms. Aldrich’s brother and her nieces was likely damaged beyond repair.

Reference: The National Law Review (Feb. 10, 2020) “Unintended Consequences of a Do-It-Yourself Estate Plan”