Common Mistakes to Avoid When Preparing Estate Plans
An estate plan should provide for the distribution of your assets, the care of your dependents, and the naming of an executor to entrust the carrying out of your wishes. When properly crafted, it will save time, money, and stress for your loved ones – including reducing the likelihood of family disputes. These straightforward goals are easily stated but implementation is much more difficult.
Unfortunately, many estates are tumultuous and even disputed due to mistakes made when crafting an estate plan. Let’s look at some of the more common errors:
Avoid These Mistakes
- Selecting the wrong trustee – If you choose an incompetent trustee, it doesn’t really matter if you get everything else right in creating your estate plan. A trustee is responsible for managing a trust on behalf of its beneficiaries and distributing assets according to the trust’s specifications (see “What does a Trustee do after the Settlor dies?”). Finding the right person to be in charge (either a professional trustee or a non-professional) can be the difference between positive and detrimental family relations after you depart, so take the time to select the right person.
- Messing up your beneficiaries – Quite often, a spouse and children will be first in line for inheritance, followed by parents, siblings, extended family members. However, this is certainly not always the case – and it may change over time. Are certain friends more important in your life vs. a relative that is inconsequential? Would you like to provide for a charity? Do some people need money more than others?
- Not considering all your assets – It’s important to carefully consider all your assets and include a provision for everything that you wish to distribute to your beneficiaries. This doesn’t necessarily mean designating specific assets vs. splitting everything equally (i.e., there are important legal impacts of such strategies), but it does mean knowing what assets you have and evaluating if there is merit in unequal distribution and/or specific allocations.
- Asset distribution – Equality is a concept that many trustors use as a baseline when deciding how to divide up their estate. It is much simpler, and the initial perception might be that “fair” clearly means an equal split of all assets to beneficiaries – but this isn’t necessarily the case. In many circumstances, equal distribution of assets among beneficiaries is the right choice, but there are some cases where fair/equitable distribution (unequal distribution) better suits the trustor’s goals.
- Neglecting asset titling/funding the trust – Creating a will or trust can designate plans for your assets but it is very important to take the next step and ensure that assets are properly titled. The titling will impact who controls the assets, how your assets are distributed, tax consequences, whether or not they need to go through probate, and whether the assets are subject to creditors’ claims. To “fund” a trust simply means to transfer assets into it.
- Not executing the estate plan properly – This includes getting all the facts correct, attending to every detail, and having all the proper legal documentation in place.
- Forgetting about taxes, debts, and other liabilities – Taxes are a critical consideration in estate planning, even if your estate is under the federal estate tax exemption. These may involve gift taxes, Inherited IRAs, state taxes, etc. While debt is a day-to-day matter in most of our lives, it can become a challenge for your heirs. No debt, liability or claim should be paid until you meet with an estate attorney.
- Failure to hold a family meeting – While many trustors avoid discussing their estate plan with heirs, this can be a mistake in terms of the goal of avoiding disputes and maintaining family harmony. A family meeting can help to prevent surprises, should the trustor become incapacitated or pass away, as well as to minimize potential disagreements and discord.
This list could be very long –see “More Mistakes Made When Drafting an Estate Plan.”
Specialized Estate Planning Expertise
Taking the time and effort to create an estate plan is one of the most thoughtful steps you can take for your family and loved ones. For many families, the less decisions that are left for your heirs, the better it is for all concerned. Attending to the above issues can be a major step in heading off conflicts.
At Mortensen & Reinheimer, PC we have decades of experience in helping clients to navigate through myriad issues in estate planning. If you need legal expertise in addressing your specific estate planning needs, please contact Mortensen & Reinheimer, PC at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.
About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at tamsen@ocestateplanning.net.
