You may have heard about the importance of estate planning. Usually, this surfaces when a celebrity or extremely wealthy person passes away and a well-publicized probate battle ensues among the heirs. Many of these disgruntled heirs claim they were unfairly omitted or left with minimal inheritances from mistakes the decedent did not intend to make or who were mentally incompetent to make the disputed will.
Tales of estate planning gone wrong makes for juicy reading and a lot of head shaking, but there are also commonsense lessons we can take from these estate planning mistakes. Here are 5 estate planning horror stories that hopefully will not happen to you:
- Failing to leave a will. If you have any assets at all, it is important that you leave your wishes regarding how they are to be distributed in a will. If you fail to do so, then your state’s intestate succession law will determine who receives your assets. For example, if you have a girlfriend with whom you have a child, your child would inherit everything if you were to pass away, to use as he or she pleases at 18 years. Your girlfriend would receive nothing. If you were estranged from your parents but left no surviving spouse or children, your parents receive your assets, no matter how many years it has been since you spoke to them, or how bad a job they did raising you. If no immediate family survived you, then complete strangers may be the beneficiaries.
- Not updating your estate plan. Do not think that once you prepare and draft a will or take out a life insurance policy that your estate planning strategy is complete. God willing, life continues to happen. You may get divorced, remarried, have children, accumulate more assets, etc. Meanwhile, the people you named as your beneficiaries years (sometimes decades) ago remain the same. This can have strange results, such as an ex-spouse inheriting part of your estate, while a current spouse receives inadequate support to maintain his or her lifestyle.
- Naming an incompetent personal representative or trustee. Most people name a family member, such as a sibling or adult child, to be the personal administrator of their estate or the successor trustee of their trust. Unfortunately, not all siblings get along and horror stories abound of personal representatives taking advantage of their status in looting assets or charging for services not performed. The lesson here is to be cognizant of family dynamics and if there is ill will, consider naming an independent person or entity as personal representative or trustee. A professional will charge for its services, but if this helps avoid litigation, it will be money saved in the end. A lot of money.
- Creating an invalid will. This famously happened to a former Supreme Court Chief Justice who failed to follow the simple formalities in drafting a will. Each state has its own rules for what makes a valid will. For instance, in Colorado, you need to sign your will in the presence of two witnesses, who also need to sign it. There are also rules for how you can revoke, amend, or replace a will that no longer accurately expresses your witnesses. Failing to follow these rules to the letter can lead to estate plans that you thought you had replaced dictating who gets your stuff after all.
- Not creating a trust or failing to fund it. Avoiding probate is one of the most common reasons for creating a trust. A revocable living trust can also help a minor beneficiary mature before gaining access to the trust funds left for them or a special needs trust can assist a special needs children or adults without jeopardizing their continued receipt of public benefits. Giving large amounts of assets to someone before he or she is mature enough to handle them can lead to a beneficiary squandering what could have provided the means for investing in a home, school, or business. Consider placing your house and other valuable assets in trust to avoid probate and to provide oversight and creditor protection for your beneficiaries.
Consult with Dan McKenzie, a Denver estate planning attorney, regarding your estate plan or to have one created for you. With years of experience, his office can suggest certain measure to take so that your assets are secure and may pass easily to your intended beneficiaries while minimizing taxes and other potential problems.