16 Avoidable Mistakes In Planning Your Estate
I have been an attorney since 1978. As you can imagine, I have seen things go well for my clients and things go wrong. I was a litigator for more than 20 years, regularly going to court to clean up messes that could have been avoided. This frustrated me to no end. As a way to help educate people, I taught Holyoke Community College (HCC) estate planning courses to members of the community; presented seminars across the region; and, of course, met with my clients. I understand how mystifying planning one’s estate can be. I want to make this a simpler process. To help you, here is my list of 16 avoidable mistakes and my recommended action plan for each one.
1. Not Having a Will
When someone dies without a Will, two big issues occur: 1) the “law of priority” determines who is in charge, a system based on the “family tree”, not on competency; and, 2) the decedent’s “family tree” beneficiaries, called “the heirs at law”, are the recipients of the decedent’s assets. Often these people are often strangers to the decedent.
Tip: Get a Will. Take control. You name the best person, as well as a #2, to be in charge, known as the Personal Representative (“PR”), and you name your own beneficiaries, people you actually know! With a well-drafted Will, after a death, we simply mail the package to probate court, never having to go to court once.
2. Not Having a Health Care Proxy
A physician invokes the patient’s Health Care Proxy (“HCP”) by noting in the patient’s medical records that the patient is unable to decide or communicate his/her health care decisions. Once invoked, the patient’s named agent does the deciding and communicating until if and when the patient sufficiently recovers. Without a HCP, the spouse or another person must be appointed by probate court to serve as the patient’s Guardian. This process is expensive, stressful and time-consuming.
Tip: Get a Health Care Proxy. Name the best person, as well as a #2, to “be you” when it comes to health care decisions.
3. Not Having a Power of Attorney
If a person, John Doe, becomes unable to know what he is signing, such as checks, deeds, contracts, Mr. Doe’s named agent can sign Mr. Doe’s name using Mr. Doe’s Power of Attorney (“POA”). Without a POA, someone has to petition probate court to serve as Mr. Doe’s Conservator. This process is expensive, stressful and time-consuming.
Tip: Get a Power of Attorney. Name the best person, as well as a #2, to handle your financial affairs, if you are unable to do so.
4. Having the document, but Naming the Wrong Agent
As a former litigator, I had many fights against the named or appointed Executor, Trustee, Health Care Proxy, and Personal Representative who was wrong for the job. The wrong person is a poor communicator, does not get around to doing the necessary jobs, and/or sometimes steals from the estate.
Tip: Thoughtfully choose a person who is a good communicator with other family members, gets the various jobs done timely, and is honest as the day is long.
5. Failure to Review Estate Planning Documents
Tip: Every couple of years or after any change or loss, look over your documents. Make sure your named agents can still do the job; and, ensure that there are no needed changes to the beneficiaries listed in your Will.
6. Forgetting About Automobiles and Other Titled Motor Vehicles
For liability reasons, I prefer having only one owner (as opposed to joint ownership) on a motor vehicle title; however, the vehicle ownership has to be probated upon the death of the sole owner.
Tip: To avoid probating motor vehicles, some people suggest pre-signing (before death) the back side of the title, as seller, without a date.
7. Failure to Name Primary and Contingent Beneficiaries on ALL Life Insurance Policies and Annuity Contracts
I do a significant number of probate administrations for a surviving spouse who was accidentally left off the beneficiary designation form of the deceased spouse’s life insurance or annuity.
Tip: To avoid probating life insurance policies and annuity contracts, check all of your policies for primary and contingent beneficiary designations.
8. Failure to Name Primary and Contingent Beneficiaries on ALL Retirement Funds
If retirement funds have to be probated because no beneficiary was named, the fund has to be liquidated and subject to a hefty tax withholding of 20-30%! On the other hand, a named beneficiary can set up his/her own inherited IRA and continue tax free growth.
Tip: Check all of your Retirement Funds for Primary and Contingent Beneficiaries.
9. Having Only One of Multiple Beneficiaries Listed on Bank Accounts
This issue is a major source of litigation. For example, an unmarried person, Jane Doe, adds one of the children to her bank account, usually “to pay the bills.” Upon Ms. Doe’s death, the surviving co-owner legally owns the entire account. What happens if this child chooses to keep all of the money? The other children frequently claim the co-owner child was supposed to share this account with them. Big Problem. What did Mrs. Doe intend? We don’t know because she passed away! Worse, before Ms. Doe’s death, if the co-owner suffers a divorce, bankruptcy, or judgment, half of Ms. Doe’s money is at risk!
Tip: If you are unmarried, add no one else on your account. If you have children, don’t be tempted to add one of multiple children to your account “to pay the bills.” Instead, sign a Power of Attorney permitting the trusted child to pay the bills. Allow your Will to direct where your money goes upon your passing. If you are married and want your spouse to receive the financial account upon death, name your spouse as co-owner.
10. Having Only One Member of a Married Couple Named on Real Estate
If this happens, the surviving spouse has to probate the real estate. If the deceased spouse had no Will, the surviving spouse usually has to deal with the heirs at law, who might be claiming a share.
Tip: Go to masslandrecords.com, click on your county, type in your name and look at your deed on-line. Call or email me if you need help understanding the deeds. If two or more people jointly own (not as tenants in common), no probate is required.
11. When Assets Can’t Be Located
Often, the PR has great difficulty locating all of the bank accounts and other assets. Have you ever noticed the list of unclaimed assets published in the paper? These are the Estates’ missing assets.
Tip: Leave behind a clear and current list of ALL assets and their location, and a current list of names and contact Information of ALL current Attorneys, Financial Advisors and other professionals.
12. Failure to Tell Trusted Family Members/Friends Where You Keep Your ORIGINAL Estate Planning Documents, Life Insurance Policies, Annuity Contracts; and, Failure to Leave Contact Info for Agents and Beneficiaries
Tip: Locate your ORIGINAL estate planning documents. I recommend that YOU hold these documents in a safe place rather than at the attorney’s office. You can tell if it is an original document by looking for your original signature, and not a copy of your signature, on each document. Gather all of your other important documents and keep them with your estate plan. Tell your trusted “people” where you are keeping these documents. With your important documents, leave a list of names, addresses, telephone numbers, and email addresses for all agents and beneficiaries.
13. Naming Too Many Non-Family and Hard to Locate Beneficiaries; and, Naming That Family Member Who Regularly “Disappears” and Cannot Be Found
Tip: When you think about your beneficiaries, imagine that the PR has to find every one of them.
14. Directly Naming a Beneficiary Who Has Special Needs Leading to the Beneficiary’s Loss of Public Benefits and/or the Beneficiary’s Inability to Properly Manage His/Her Inheritance
Tip: Sign a Special Needs Trust (“SNT”) sheltering the beneficiary’s money. Your Will can name the SNT instead of the beneficiary directly.
15. Naming Co-PRs who Refuse to Communicate or Cooperate With Each Other
Tip: I recommend naming one PR to serve, your first choice and a #2 choice. When co-PRs do not agree, often the dispute ends up in court. Having co-PRs is also just clunky, requiring double signatures for every key step.
16. Putting Off Preparing the Estate Plan Until “Later”
You know someone in this category!
Tip: Just do it. Don’t wait until you are “old enough” or “rich enough.”