Estate Planning is all about helping the people around you – because let’s face it, your estate is not going to be your problem. So let’s look at three common ways your estate plans can go wrong, and how you can tailor your estate plan to prevent it.
- People fight over the estate
This is one of the biggest fears, and for good reason. For some reason, inheriting money often brings out the worst in people, and it can bring longstanding family friction to the surface. Family members will argue that they’re entitled to more than they’re getting, or that Mom always loved Sibling A the most, or that the person in charge of the estate isn’t being fair. There are plenty of ways that this can go to court if the family isn’t getting along.
While this can’t always be prevented, there are some ways to minimize the chances of it happening to your estate. Have a plan that treats everyone fairly. If the distribution will be uneven, explain why. If you know someone is going to cause problems, build in consequences that will make them think twice about going to court. - The estate ends up in probate
For those not familiar with the term, probate is the process by which the government oversees the administration of an estate. It’s not ideal, and it usually takes longer and costs a lot more than it would otherwise. Probate in California is required if the estate is worth more than a certain amount (currently, about $200,000).
To prevent this, you should have a trust, and all your high-value assets and accounts should be moved into the trust. You can also designate beneficiaries on your accounts; anything with a beneficiary designation does not have to go through probate. However, if an asset is missed or a beneficiary designation fails (e.g., the beneficiary dies before you), then probate will likely still be required. That’s why I recommend reviewing everything every five years or so, to make sure your trust is up to date, your high-value assets are in the trust, and your beneficiary designations are still valid. (Tip: I once had to probate an annuity because the company lost the beneficiary designation form, so check every few years to make sure it’s still on file with the company.) - Assets are lost or restricted
One of the biggest pain points in estate administration is finding and getting control of all the assets, especially financial assets like bank accounts and investments. It’s rare that a person provides a list of all their assets to their chosen administrator/executor/trustee, so it’s entirely possible that an asset is missed because the person just doesn’t know it exists. Even if an asset is found, getting the institution to turn over control can be a feat in itself. Banks will often insist on a court order, even when the person has an estate plan, creating headaches for all involved.
To prevent this, make sure your chosen person knows where your accounts are located. You don’t have to give them actual amounts, but just knowing where to go and which account types to look for can be a huge help. The easiest way to do this is to write it down somewhere, but again, the point is that your person has somewhere to start and doesn’t miss something by accident. As to getting the financial institutions to give access when the time comes, talk to the institution to learn what their requirements are. It may make sense for them to have a document on file that tells them who has permission to access and under what circumstances. It won’t completely eliminate the problem, but in many cases, it will make things easier.
If you have questions about the above, or you want to make sure these issues don’t make your estate plans go wrong, you’re welcome to email me at kaway@kawaylaw.com.
