How can I avoid mistakes in my estate plan?
Many people have heard of the term “estate planning,” but may not understand what it means. Put simply, estate planning is about getting your affairs in order, protecting your assets, deciding in advance who will make decisions for you if you are unable to do so, and providing for your loved ones. Although there is a wealth of information at our fingertips online, the internet is not a reliable source for estate planning information and guidance. As as result, many individuals are poorly advised and misinformed. Let’s take a look at a few common estate planning mistakes.
A will is the most basic estate planning tool that enables you to decide how your property will be distributed after you die. For those with minor children, a will allows you to nominate someone to act as their guardian in the event you pass away and to designate who will keep your assets in trust for the children until they reach whatever age you specify. Your will also identifies who you are and who your family members are, preventing others from claiming a relation upon your death. Many individuals mistakenly believe that they do not need a will because they don’t have a lot of assets, are unmarried, or don’t have children, and some estimates are that 64 percent of Americans don’t have a will. By failing to create a will, however, the courts may make decisions that may not necessarily agree with your wishes. The bottom line: everyone needs a will.
Failing to Update a Will
Creating a will is not a “one and done” situation. Once your will is in place, it may need to be updated from time to time to reflect changes that occur during your lifetime: buying a home, getting married, having children, getting divorced, and so on. It is crucial to update your will so that it addresses these changes and that your beneficiary designations are up to date. Some observers suggest reviewing your will every two years.
Jointly-Titled or Beneficiary-Designated Accounts Inconsistent with Your Will
In an effort to avoid probate, people often name beneficiaries on their bank and investment accounts that are different than the beneficiaries names in in their wills. Your will only controls what will happen to accounts that do not have designated beneficiaries. Accounts that are “Payable on Death” (POD), “In Trust For” (ITF), or that otherwise name who will receive the asset upon your death (typically these include annuities, IRAs, 401(k)s, and other retirement accounts) will pass to the designated beneficiaries immediately upon your death and are not governed by your will. As an example, one of my longtime clients who supported numerous charities included in her will numerous, carefully-considered gifts to her beloved causes. However, upon her death, the Personal Representative of her estate discovered that she had named several individuals as beneficiaries on all of her bank and brokerage accounts. Consequently, there were no assets in the estate and the non-profits named in her will received nothing. Nonetheless, because they were named as beneficiaries in the will, the Personal Representative was forced to serve them all with every probate pleading at considerable expense and inconvenience.
The same is the case with respect to accounts that are jointly titled. If you add another person to your account, Florida law presumes that the account is held between you as “Joint Tenants with Rights of Survivorship” (JTWROS), which means that you both own the entire account and upon the death of the first of you, the survivor owns it completely. Once you add someone to your account, it is in effect as much their property as it is yours. Clients will occasionally tell me they have an account titled jointly with one child, with the understanding that the child will divide the money up with his siblings upon the parent’s death. Sadly, I have rarely seen the parent’s instruction carried out in practice, and there is nothing the other siblings can do about it regardless what the parent’s will says.
While we like to think that our heirs are deserving and have the emotional and financial capacity to manage their inheritance, this is not always the case. Some may not understand financial matters, others may be spendthrifts, or there may be underlying drug or gambling problems. In these circumstances, a will should appoint a responsible person or a professional to supervise these assets and protect these individuals from squandering an inheritance.
Appointing the Wrong Personal Representative or Trustee
It is common for many individuals to select a close relative or trusted friend, but choosing the wrong person to act as a personal representative (also know as an executor) or as a successor trustee can lead to very serious consequences and unnecessary delays and costs. It is important to select someone who has the skills, good judgment and integrity to fulfill this responsibility. When you pick the wrong personal representative or trustee, your estate may not be distributed as you instructed. Probate attorneys are often faced with the difficult challenge of ensuring that their clients, the personal representatives and trustees, adhere to the decedent’s instructions and and their duties as fiduciaries. The problem can be serious with personal representatives, but is far more difficult with successor trustees, since they operate without the supervision of a probate court.
For those who don’t have a will, the time to start an estate plan is now. At the same time, having a will is only the first step, and there are a number of estate planning tools that can help protect your assets and ensure your wishes are carried out. By engaging the services of an experienced estate planning attorney, you can avoid these common estate planning mistakes.