It is extremely difficult to whittle down the common mistakes that are made while estate and trust planning to a “Top 10” list. I, myself, have seen numerous errors repeatedly made by people and estate planners alike. Sometimes, even the smallest of blunders can have enormous consequences. In my experience as a New Jersey Estate and Trust planning attorney, the following stick out as the most common, and possibly the most devastating, mistakes:
- Not Creating an Estate Plan. If you die without a Will, Trust, or estate plan in place, the state that you live in determines who receives your assets (not including assets with some form of designation or beneficiary on them). It astounds me how many people are okay with this, or are just misinformed to what this really means. In New Jersey, even if you have a Spouse at the time of your death, there is no guarantee that he or she will receive all of your assets. Everyone owes it to their family, loved ones, and themselves to create some form of an estate plan and document their wishes.
- Not Appointing the Appropriate Executor/Trustee. Almost as important as the estate plan itself, selecting the right person to honor your wishes is vital to your estate plan. I cannot count on two hands the amount of times I’ve helped families to reign in an uncooperative Executor or Trustee. Choosing the wrong person can cost your family time and money. Even for people who do not have loved ones that they trust to fill these roles, there are a number of Lawyers and Banks who would be more than willing to step in and be appointed Executor or Trustee. Oftentimes appointing a Lawyer or Bank will cost the same as appointing an individual as Executor or Trustee. Generally, these professionals are compensated via the state statutory commission, which is the same statutory commission that your loved ones serving as Executor or Trustee are entitled to by law.
- Not Meeting With an Experienced Legal, Financial, or Tax Professional. Poorly drafted Wills and poorly conceived estate plans can hurt more than they can help. Similar to how you don’t generally go to a Pediatrician for open heart surgery or a Plumber to shingle your house, you shouldn’t have a non-Trusts and Estates attorney prepare your estate plan. While a Trusts and Estates attorney may cost more upfront, the amount that they can save in the long term by preparing an appropriate estate plan, combined with the peace of mind that you will achieve, is well worth the cost.
- Not Planning for Disability. Planning for disability is extremely important whether it be for yourself or a loved one. As a Trusts and Estates attorney, I look at creating an estate plan as a fluid, forward-looking process. Part of my analysis includes looking at the health of my client and their loved ones. Improper planning, specifically when disability is involved, can negate an estate plan. For example, giving assets directly to an individual with a disability who is receiving public benefits may cause them to lose those benefits. Additionally, failing to plan for foreseeable future life events can result in the inability to earmark assets for loved ones. One of the saddest parts of my job is informing clients that because they didn’t plan earlier or planned without an experienced legal professional, there is not much that they can do to protect the little that they have left from their future cost of care. When it comes to a disability, planning is crucial.
- Making Outright Gifts to Minors or Spendthrifts. I regularly see simple Wills where minors (under 18) or spendthrift beneficiaries (people with debt issues or spending problems) receive large inheritances outright. Putting aside the fact that one cannot inherit outright before the age of 18, it is usually not a good idea for young adults and spendthrifts to inherit large sums of money. Generally speaking, they are not ready to handle that type of inheritance, and will often make large, uninformed purchases. Rather, planning for minors and spendthrifts should include a Trust, which can be created in the Will, which allows another, more financially responsible person, to manage their inheritance.
- Not Coordinating Joint Accounts and Beneficiary Designations with Your Will and/or Trust. Because assets that have beneficiary designations on them pass outside the Will, it is very important that these assets be accounted for in your estate plan. For example, imagine Tommy Testator has two children (John and Jane) whom he loves, and a Will that leaves all assets to his children equally. All of Tommy’s assets ($200,000) are at a local bank in a savings account, which has John as a joint owner because John lives at home and helps him pay his bills. What Tommy doesn’t know is that most joint accounts are survivorship accounts, including his, and when he passes away, the account becomes John’s solely by law. As such, when Tommy passes away, Jane will receive nothing. While most real life instances are not this cut and dry, failure to plan around a joint account or beneficiary designations may result is unequal inheritances.
- Setting It and Forgetting It. Most people remember Ronco’s famous slogan “set it and forget it.” Unfortunately, an estate plan is nothing like rotisserie chicken. People change; laws change; circumstances change. For example, as you begin to have children or you start to age and your health declines, it is extremely important that you review your estate plan with your attorney. I recommend that my clients, regardless of age or wealth, review their estate plans with me at the very least every 3-5 years (if not sooner) or whenever they have a “life-changing” event. When it comes to estate planning, there is so much more that a Trusts and Estates attorney can do for a client who is proactive, than one who is reactive.
- Not Planning for Out-of-State Property. Often overlooked in estate planning is planning to avoid what I call “double probate.” If you die owning property in more than one state, your beneficiaries may be forced to probate your Will in both states. The legal term for this process is called “ancillary probate.” For example, If Tommy Testator dies a resident of New Jersey owning real property in New Jersey and Florida (outright in his name), Tommy’s executor will have to probate his Will in New Jersey and Florida. This adds another layer of cost and complexity. Fortunately, there are a number of ways that you can avoid “double probate,” like putting the out-of-state property into a Revocable Trust. Any property within the Revocable Trust will avoid probate entirely.
- Not Considering Your Beneficiaries’ Marital Status. A common question that my clients ask me is: “if my daughter divorces her no good husband, will he get any of her inheritance?” The answer to this question is “it depends.” Generally speaking, if your child receives an inheritance and keeps that property separate from his or her spouse, and they thereafter get divorced, the spouse will not be entitled to any portion. However, the law changes when you “commingle” monies. For example, if the asset received is a house, and marital money is used to pay the taxes and maintain the house, at least a portion of the property will be marital property. If your child receives an inheritance and immediately deposits it in a joint account with his or her spouse, it is likely that at least part or all of it will be considered a marital asset. The best way to plan for this is to leave the inheritance in a Trust created under your Will for your beneficiary. This will also give you the ability to control what happens to the remaining assets after the death of your beneficiary.
- Not Planning for the Care of Your Beloved Pet. I am a huge dog and animal lover. It makes me sad to see what sometimes happens to animals after their owner passes away. People tend to forget that when they pass away and leave a healthy pet behind, that you were just a phase of his or her life, rather than the pet being a phase of your life. Not considering your pets in your estate plan could have grave consequences, like them being put down or sent to live in a shelter.
At Hynes Law Group, we are dedicated to ensuring that our clients have a suitable trust and estate plan in place and that their wishes are documented and honored. For readers of our blog and blog posts, we offer a free review of your current trust and estate plan. To take advantage of this offer, please fill out our “Contact Us” form at http://www.hyneselderlaw.com/contact-us/ and type “Document Review” in the comments section, or call us at 908-514-8008 and be sure to mention that you read this blog post.
-Jesse R. Hynes, Esq.
Hynes Law Group
2 South Avenue East, Suite 200
Cranford, NJ 07016