Common Ways to Mess Up Your Estate Plan

Improper estate planning can lead to unintended consequences and dire results. A lot of my educational workshops and consultations are centered around clearing up many myths which people have heard and misconceptions they understandably have about estate and long-term care planning. The next series of blogs will discuss some of the common estate planning mistakes and show you how you can avoid repeating them.

Failure to Understand How Your Assets Pass on Your Death: Most people think that their Wills control how their assets pass upon their death. However, they have no idea how their assets are held or who they have named as beneficiaries on their accounts. It is important to recognize that Wills only cover assets held in your individual name when you die. If you own assets in joint tenancy (such as real property) or have named a beneficiary on your life insurance, annuities or IRAs, then those assets pass directly to the joint owner or designated beneficiary when you die. Those assets pass outside of your Will.

Let me give you an example: Your Will says that upon your death, everything goes to your beloved spouse and if your spouse dies before you, then equally to your two children. You have two bank accounts, one of which is in trust for your son John with a balance of $150,000 and the other in trust for Mary with a balance of $125,000. If you die before your spouse, who gets the accounts? Your children. It doesn’t matter what your Will says. If you die after your spouse, what happens? John gets $150,000 and Mary gets $125,000. Again, it doesn’t matter that your Will says that your children receive equal shares.

Here’s another example: After graduating from college and before getting married, you purchased a $500,000 life insurance policy and named your parents as primary beneficiaries and your siblings as contingent beneficiaries. After getting married and having children, you signed a Will leaving everything to your spouse and children. However, you never changed the beneficiary on your life insurance policy. You die. Who gets the $500,000 death benefit? Your parents or your siblings. Your spouse and children don’t receive a penny.

So what can you do to avoid such unintended consequences? Create a revocable living trust and have the trust be the owner or beneficiary of your assets. That way, when you die, your trust will control how your assets will be distributed. And, if you become disabled, your trust will control how your assets can be spent. If you ever want to change your beneficiaries, you only have to do it in one place, rather than dealing with multiple banks and financial institutions.


Failure to Avoid Probate: Another common estate planning mistake is failing to avoid probate. Probate is the legal process by which the executor named in your Will takes the Will to the Surrogate’s Court to prove that it’s valid and to be appointed as your executor. Before that happens, your executor has no authority to carry out the wishes contained in your Will.

I like to describe probate as a lawsuit you bring against yourself and entirely pay for. Why would anyone want to do that? With probate, the named executor must follow the states rules. For example, the executor must submit required documentation and notices to the Court and obtain consents from all of your heirs stating that they agree with your Will and won’t mess with it. It only takes one disgruntled heir not to sign a waiver and consent to begin a Will contest. This ties up the estate and forces the other heirs to settle or wait for their rightful inheritances.

Probate can be difficult, costly, time-consuming and frustrating. The average probate fees are 3 to 5 percent of the total estate and the procedure typically takes up to 18 months from start to finish.

Probate also exposes your private matters to the public. Once the petition is filed, anyone can examine your Will and obtain information about your assets and family members. Most people wish to keep their affairs private and continue to protect their loved ones.

Finally, if you own real property in your own name in other states, not only will you have to go through probate in New York, but in the other states as well. Multiple probates (and multiple fees and expenses) can be eliminated by creating a revocable living trust during your lifetime and transferring your assets into the trust.


Adding Your Children’s Names to Your Accounts: Some people, especially seniors, add one or more of their children’s names to their accounts for convenience purposes. They think that if something should happen to them, their children will be able to have easy access to their funds to pay their bills. Although true in a perfect world, this can result in some dire and unintended consequences.

For example, Evelyn is an 80 year old widow who lives independently. She has checking and savings accounts at her local bank with aggregate balances of $250,000. Evelyn goes to the bank and asks the officer to add her daughters, Jill and Jackie, to the accounts. Now Jill and Jackie become co-owners on the account, even though the money is not really theirs. Jackie loses her job and runs up credit card debt of $50,000. The credit card company files a lien on Evelyn’s account and the bank is forced to pay $50,000 of Evelyn’s money to the credit card company. While Evelyn thought that she was protecting herself, she was actually placing her assets at risk to her children’s creditors and predators.

Solution: A revocable living trust will protect your assets from your children’s creditors while allowing them to pay your bills if necessary.


Leaving Money to Your Children Outright: Many Wills distribute property outright to children. This is a bad idea for many reasons. When you sign your Will, your named beneficiaries may be adults without any problems. Although everything may be ok with your family at that time, we need to be concerned about the day your die. That is the time when we will ascertain whether your beneficiaries are ok, or whether they are minors or have any problems including disability or addictions, bad spending habits, bankruptcy or creditors, business failure or divorce. If assets are left outright rather than in trust, then they are available to your beneficiaries’ creditors and predators (including the government and in-laws).

There are ways to ensure that the inheritance you leave to your beneficiaries will be automatically protected. A properly drafted revocable living trust can distribute the inheritance in separate sub-trusts for your children so that it is immediately protected from predators and creditors. The trusts can be designed differently for different children, depending upon their issues or your concerns. Your trust can control where the inheritance goes upon the beneficiary’s death. Most of our clients would prefer to see a deceased child’s inheritance pass to their other children or grandchildren rather than to a deceased child’s spouse.

If you have a disabled beneficiary (perhaps a child with special needs) who is receiving government benefits (including SSI and Medicaid), no assets should be left outright to the beneficiary. Instead, the inheritance should be left in a properly designed Supplemental Needs Trust to protect the beneficiary and the beneficiary’s entitlement to government benefits. Supplemental Needs Trusts can be separate trusts or sub-trusts within a Will or Living Trust. Stand-by Supplemental Needs Trusts are always included in all of our estate plans. We never know whether a beneficiary may become disabled and become a recipient of government benefits. Protecting the beneficiary and the receipt of benefits is critical.