Avoid These Six Estate Planning Blunders
- Post Divorce Changes and Life Insurance
Divorced couples often enter into marital settlement agreements in which property is divided between them and each party to the divorce waives their rights to the property of the other that is not divided. A husband or wife may assume that this will effectively limit his or her spouse’s rights as a beneficiary under a life insurance policy. Unfortunately, it does not and in a post death scenario a divorced spouse may remain the beneficiary of the life insurance when the deceased spouse really had no intent that the surviving spouse would remain the beneficiary. It is very important that after divorce each party change the beneficiary designation on all life insurance policies.
- Failure To Fund Revocable Trusts
Many estate planners utilize revocable trusts to avoid the necessity of probating an estate and to avoid any necessity of a guardianship if the individual becomes incapacitated. Estate planning attorneys advise their clients that in order to be effective these trusts must be properly funded with the assets that the individual owns. Often, individuals fail to follow through and fund their revocable trust with their assets. If the revocable trust is not properly funded and the individual dies, the decedent’s assets will become subject to the probate process. In addition, if the individual becomes incapacitated the burden of funding the trust will fall upon a successor trustee. While the successor trustee should be able to fund the trust, it is often difficult to deal with banks and other third parties to complete the funding process creating unnecessary legal fees and costs that could have easily been avoided.
- Deathbed Changes To Estate Planning Documents
It is probably human nature to procrastinate changing estate planning documents until the last minute. Often, individuals who have been diagnosed with a severe illness put off making changes that they intended to make until the last minute. Typically, an estate plan was completed several years before the individual has been diagnosed with a severe illness and during that period his or her estate planning goals have changed. Waiting until the last minute adds additional exposure to challenges to a will or trust that has been changed at the last minute. Estate planners are often called upon to make these changes at the last minute under less than ideal circumstances (during hospital or nursing home confinement or even while as a hospice facility) exposing the will or trust to challenges based upon the individuals alleged lack of capacity or the alleged undue influence of loved ones whose share of the estate has been increased by the changes to the will or trust. Waiting until the last minute is something that should be avoided to minimize post death challenges.
- Failing to Properly Plan For Children, Grand-Children or Loved Ones Who Are Physically or Mentally Challenged or Who Have Alcohol or Substance Abuse Problems
Clients often do not want to reveal, even to their own lawyers, problems with respect to children, grand-children and love ones. It may be a physical handicap, mental illness, inability to manage money, alcoholism or drug abuse problem and the client will just ignore it. Proper planning with trusts can maximize the benefits available for these individuals. With respect to physical handicaps and mental illness, special needs trusts are available to permit the individual to keep certain publicly provided benefits while at the same time providing assistance to the individual. Discretionary spendthrift trusts that permit a trustee to make discretionary distributions to a beneficiary can be utilized to protect the wealth from dissipation by an alcoholic, substance abuser or spendthrift. There are numerous ways trusts can be prepared to ensure that the individual with a “problem” does not burn through the wealth and protect that individual from themselves. Clients need to discuss these family issues with their estate planners so the estate planner can properly prepare an estate plan to avoid these issues.
- Proper Selection of Personal Representative or Trustee or Both
One of the most important decisions to make is who is going to be entrusted with the duty to carry out the client’s estate plan as a personal representative or trustee or both. A personal representative or trustee of a trust has a fiduciary responsibility to carry out the intent of the decedent to ensure that all of the assets are distributed to the decedent’s loved-ones in accordance with the estate planning documents. Also, if a trust is established for the benefit of a surviving child, grandchild or loved-one, the trustee must act in accordance with that trust instrument. Often, individuals fear that failing to name all children as co-personal representatives or co-trustees will offend a child. Not all individuals are equipped to handle the duties and responsibilities of a personal representative or trustee and only those who are capable of handling these duties should be selected. In addition, many children cannot serve together as co-personal representatives or co-trustees because of existing family feuds or dissension. There is nothing worse than discovering that two children who have been named to serve together are not able to deal reasonably with each other. Disclosing to the estate planning attorney these issues and selecting individuals who can carry out these duties and responsibilities is extremely important. Often, brothers or sisters, aunts or uncles or nieces and nephews are the best choice to serve in these capacities. If no such person is available, professional or corporate personal representatives or trustees will be the best choice.
- Losing Estate Planning Documents
Clients lose estate planning documents. Original wills and trusts must be placed in secure places with limited access given to third parties to avoid their loss. While there are procedures available to probate a lost will by utilizing a copy of the will or a lost trust by using a copy of the trust, these procedures are often very costly and difficult. Utilizing safe deposit boxes with limited access by other individuals is essential. Often the estate planning attorney will keep the original in a protected vault to assure that they are preserved. There is nothing more frustrating than completing an estate plan for a family and then learning post death that the original documents cannot be located and being faced with the possibility of having a client be deemed to have died intestate or the possibility of having an earlier will or trust dispose of the decedent’s assets. In both cases the disposition is likely to be inconsistent with the client’s wishes.
William T. Coleman is a partner with the law firm Brinkley Morgan in Fort Lauderdale, Florida. His practice areas include: organizing and structuring business entities including corporations, limited liability companies, limited partnerships and partnerships including tax planning; negotiation and structuring of business transactions; structuring shareholder agreements, limited liability operating agreements and partnership agreements for maximum tax benefit; corporate and business reorganizations; negotiation of purchase and sale agreements for businesses; tax planning for businesses and entrepreneurs; preparation of contracts, distribution agreements and independent contractor agreements for both domestic and international business entities; structuring investments and businesses for inbound international clients; estate planning and preparation of wills, trusts, durable powers of attorney and health care surrogate forms; planning for generational transfer of family businesses; probate and guardianship; state and federal tax litigation; pension law including preparation of tax qualified pension and profit sharing plans; qualified domestic relations orders; tax planning for divorce; tax planning for gay and lesbian couples including state and business planning; formation and representation of not-for-profit entities and charities; income tax, estate tax and gift tax audits. He may be reached at (954) 522-2200 or firstname.lastname@example.org.