Writing a “Top Ten” list for mistakes in an estate plan is especially challenging, as there are a myriad of mistakes that both clients and their estate planning attorneys frequently make.
However, in years of being involved in all aspects of estates, the following issues especially stand out for our top 10 list:
1. Failing to Have an Estate Plan:
This first mistake should be rather self-explanatory as the only thing worse than having an improperly executed estate plan is not having one at all.
There are only two guarantees in life: death and taxes. Yet, it is shocking the number of clients who believe this rule does not apply to them or that they have the ability to eliminate any and all risks of death in their daily lives.
If you do not have a will or a trust, there is no need to panic (yet). Six out of every ten adult Americans do not have an estate plan either so you are not alone. By reading this article you are clearly taking steps in the right direction to identify the potential problem and to research your personal estate planning needs.
2. Online “Do-It-Yourself” Wills and Trusts
Imagine a scenario were a person when to school, worked in their career for over 30 years, raised a family, moved into their dream home, saved enough money to retire comfortably with their spouse, and then decided to put all of their worldly possessions in a will that they downloaded from the internet for $70 just in order to save a couple of bucks. Seems crazy, right? Unfortunately, this scenario plays out daily.
As most of us know, one size does NOT fit all. The same applies to estate planning as no two estate plans are exactly alike. With estate plans, the stakes are extremely high. This is because errors are typically not identified until after the testator or settlor have already passed, which by then it is already too late. Small errors in a will or trust can have huge ramifications for your family. Further, Florida is known as a “strict compliance state,” meaning unless the will or trust executed perfectly, it is likely that the will or trust will not be considered valid by the courts. Meaning, even though the testator’s or settlor’s wishes are clearly dictated on paper, the testator’s or settlor’s assets pass by the laws of intestacy.
We here at the Finity Law Firm not only specialize in correcting mistakes of wills and trusts that were completed through online forms or vendors, but we also give individual attention to each client with an attorney to create an estate plan that is personalized for the individual needs of both you and your loved ones.
3. Failure to Fund Inter Vivos Trusts
Each year, thousands of people spend thousands of dollars to create an individualized trust, and then fail to fund the trust after its creation. Typically, without trust property, a trust cannot be validly created, which can cause many estates to pass through intestacy while a beautifully executed trust just sits there invalidated because it was never funded. This is the equivalent of buying a brand new car and just keeping it in the garage because you failed to connect the battery to it.
This is not an error on part of the clients, but rather a failure of attorneys to give the advice and representation necessary on how to properly fund a trust. Here at the Finity Law Firm, we immediately fund all trusts before you leave our office and also help each client re-titled larger assets such as real property, motor vehicles, family businesses, bank accounts, life insurance policies, securities, and retirement accounts into the trust.
4. Substantial Bequests to “Adults”
Imagine how you managed money when you were 18 compared to how you managed money when you were 30 and it is easy to imagine how quickly immature adults can improperly use inheritances that many times took a lifetime to build. Far too often teenagers are left with substantial sums of money without proper understanding of how to invest and plan for the future.
If you have minor children or teenagers, it best practice to use a trust whereby a trustee can manage money and assets on behalf of and in the best interest of your children. Further, as a settlor or grantor of a trust, you have the ability to choose when to make certain distributions such as upon reaching a certain age or upon certain life events such as graduation from college or upon marriage to set customizable goals or benchmarks for your children in the future.
5. Having a Non-Wills, Trusts, and Estates Lawyer Prepare Your Estate Plan
While all licensed attorneys are capable of creating a will or a trust, selecting an attorney because you have worked with them in the past in an unrelated legal matter does not meant that they are qualified to create a personalized estate plan.
Attorneys who are not regularly in the estate planning area of law are unlikely to be up-to-date in the latest estate planning tools, tax code, and compliance laws. Just as doctors special in certain areas of medicine, select an attorney who specializes in wills and estates to create your comprehensive estate plan.
6. Providing Insufficient Discretion to Trusted Trustees
Deadhand control is a term used to describe the control of property after a person’s death (ie controlling property from the grave). In Florida, and throughout the United States, there are policies in place to deter or limit deadhand control. The purpose behind these policy concerns are to limit control from the grave that might not be in the best interest of the beneficiaries years after the trust’s creation.
We live in an ever changing society. Technology, tax reform, applicable state laws, and the economy seemingly change almost daily. All of these variables can dramatically affect the terms and success of a trust. The adaptability of a trust starts with the nomination of a trusted trustee that will be able to adapt to changes that were either unforeseeable or failed to be in existence at the time of the trust’s creation. If you have difficulty selecting a trustee, speak with an estate planning trustee to discuss the best options for your individual trust.
7. Issues with Beneficiaries
Issues with beneficiary designations most commonly arise in three situations: (1) insufficient assets; (2) contradictory beneficiary designations within an estate plan; and (3) removing immediate family members from the will without any prior communication.
The first issue typically arises after a person fails to properly calculate taxes, funeral expenses, and other liabilities after death. For tips on how to avoid estate taxes, click our link found here. Today, the average cost of a funeral is between $7,000 – $10,000. This figure only includes the basic necessities such as the costs for a funeral home, funeral director, casket, embalming, grave plot, grave liner, and a modest headstone. While cremation is a cheaper option, a burial is still the most common funeral cost in America.
In Florida, it is customary for beneficiaries to take assets subject to the mortgage or note on either real or personal property. If you want a friend or loved one to take an asset “free and clear” know that you have the ability to do that, just be cognizant of how much principal and interest is still outstanding on the asset and how paying off the debts of that asset off could affect your other distributions (as that money has to come from somewhere).
Second, contradictory beneficiaries within an estate plan typically arises when a person designates a beneficiary for a bank account, life insurance policy, or retirement account in their will, but forget that they already designated a beneficiary with their respective company years, sometimes decades in the past. This creates two designated beneficiaries for the same asset. Remember that bank accounts, life insurance policies, and retirement accounts are private contracts between you and that specific company. This means that beneficiary designations made according to the account or policy terms will prevail against contradictory terms made in a will.
Last, and by far the most difficult, if you plan on disinheriting an immediate family member it is best to either intentionally leave a nominal amount to that family member or have the discussion with them as to why you are disinheriting them. Small specific bequests and/or open communication reduce the chances of a will contest by that beneficiary after your passing. Defending will contests can significantly reduce the assets you anticipated to be in your estate for an issue that could have been previously resolved and not left to any surprises after death.
8. Improperly Naming the Beneficiary of the Life Insurance Policy
If you name yourself or your estate as the beneficiary of your life insurance policy, you will expose all of your life insurance proceeds to your creditors. By naming an irrevocable, spendthrift trust as the beneficiary of your life insurance proceeds you will keep the proceeds out of your taxable estate and out of reach of your creditors.
You have been paying your life insurance premium in to order to take care of your family after death, do not make simple errors that could prevent your family from accessing this money that they rely upon and why you got the life insurance policy in the first place.
9. Relying on Oral Promises of Family Members
On the opposite spectrum of not giving enough flexibility in an estate plan is giving too much freedom by relying on family members to keep oral promises after they have been paid a lump sum of money and/or assets under a promise that they will “take care of” another family member.
Unfortunately, time and money have the tendency to change the perceptions of people as well as their sense of entitlement. Establishing a trust will be more costly at the onset, but it can ensure the proper care of your loved ones for decades after your passing.
10. Joint Wills
A joint will is a single document that serves as the Last Will and Testament of more than one person, usually a married couple. Not all joint wills are bad which is why this is only ranked number ten on our list.
There are certainly some situations where a joint will is entirely appropriate (of course with taking the proper precautions), such as a couple is in a long-term marriage with no children outside of the marriage who are looking to save to some money in the later stages of life.
However, where joint wills create a huge issue typically arise with either second marriages or if either spouse has a child outside of the marriage. The rate of surviving spouses, even after long-term marriages, that change the terms of the will after the passing of their spouse to disinherit all of the deceased spouse’s children from a prior relationship is staggering!
After one spouse dies, the joint will now becomes the sole will of the surviving spouse which allows them to individually make as many amendments to the will as they wish. Typically, these amendments are used to favor their own children, while leaving nothing to the deceased spouse’s children.
Even if the deceased spouse was the primary breadwinner, his or her surviving children will have minimal legal recourse to set aside the amendments to the will. This is one of the last forms of legalized theft in America.
If you must use a joint will for economic reasons, please discuss with an estate planning attorney to take the proper precautions that ensure that children or love ones cannot be disinherited after your passing.
To avoid these costly mistakes & ensure your estate is set up properly, we recommend meeting with an Orlando Estate Planning Law firm like us.
Please give us a call for a free consultation today (407) 636-4066 or fill out our contact form HERE.
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