If you’ve already created your estate plan (i.e. a will and trust, plus a few other documents), then you’re ahead of most of the American population. However, things can still go wrong, even when you’ve created a proper estate plan. Here are a five common estate planning mistakes:
- Failing to fund your trust.
I covered this in my previous blog article. Your trust is only in charge of the assets it owns in its own name. Everything else is still part of the general estate. If you do not change the title to your assets or, at a bare minimum, declare what assets are considered to be trust assets, then your trust will not be funded, and your estate will most likely still have to go through probate.
- Failing to properly title your assets.
This is the flip side of not funding your trust. Sometimes, a person does fund their trust, but then they later acquire a new asset in their own name. When they die, that asset is still in their name, and there is nothing to suggest that they intended it to be a trust asset. If the asset was worth enough, then it will have to go through probate. This is only slightly better than not funding your trust at all because, at least in this case, you’re only probating one or two assets rather than the full estate.
- Failing to plan for future disabilities.
Most people with a special needs child or beneficiary will make sure to include a Special Needs Trust in their estate plan so that the beneficiary is provided for and still has access to government benefits for the permanently disabled. However, many people do not consider the fact that not all disabilities are genetic. A person could get injured later in life, and that injury could be severe enough that they can no longer support themselves. In that instance, an inheritance is more of a curse than a blessing because an inheritance will disqualify them from government benefits for as long as they have the money (and applying or re-applying for government benefits is a nightmare all its own). If they want to keep their benefits, they would have to create their own Special Needs Trust, and a first-party Special Needs Trust is not as beneficial as a third-party Special Needs Trust (i.e., one that you create for them, as opposed to one they create for themselves). That’s why it’s a good idea to always have a Special Needs Clause, allowing the trustee to create a Special Needs Trust just in case it becomes necessary for any of your beneficiaries.
- Failing to update your trust.
Unfortunately, estate planning is not a “one-and-done” process. Life happens, and updating your estate plan as your circumstances change is important. Otherwise, you have cases like Heath Ledger’s, where his child did not inherit from his estate because he failed to update his estate plan after she was born. Michael Crighton had a similar issue, where he did not update his estate plan when he knew he would die before his wife had their baby, and his estate plan stated that only the people he referenced by name could inherit from the estate. After his death, his adult children used his estate plan to insist he did not intend for that child to inherit. You also have issues where all the nominated trustees are deceased, or someone was gifted an asset that’s no longer in the estate (and that was the only gift they were supposed to get), or the detested ex-spouse gets a chunk of the estate because they were never formally removed, etc., which leads to my next point.
- Failing to explicitly disinherit heirs.
If there is someone you don’t want to inherit from you, and they are (or could be) entitled to an inheritance under the law, you want to make sure that you mention them by name and explicitly state that they cannot inherit from you. Otherwise, they could claim they were unintentionally omitted, and your estate could be tied up in litigation for years. For example, I had a client some time ago whose husband had recently passed. About two years after their last estate plan update a woman approached him, claiming to be his child (from before his marriage, in case you were wondering). According to the widow, the more he got to know this woman claiming to be his daughter the less he wanted a relationship with her, but he never updated the estate plan. After his death, the woman petitioned the court to inherit as an omitted child. Since he had never stated his position one way or the other, the case proceeded to litigation. There are also cases where a known child was not included in the distribution list, but since they weren’t specifically disinherited, they had grounds to go to court for a share of the estate. All told it’s much better to explicitly state that you do not want them to inherit (and if you want to go the extra mile, give the reasons why.)
Of course, many other mistakes can be made in the estate planning process, but these are some of the more common ones. That’s why it’s always important to review your estate plan before and after signing and make updates as things change or as you become aware of new issues to consider.
Avoid these common estate planning mistakes by reviewing your estate plan with an attorney to ensure it’s up to date and covers what matters to you most. Please feel free to contact me with any questions or schedule a review at email@example.com.