In your experience, what’s the most costly mistake people make when preparing estate plans, and what can they do to fix them?
That’s the question we recently put to attorneys writing on JD Supra, knowing that the diversity of responses would make a good list of red flag items for anyone concerned that their estate planning is as it should be. Here is what we heard back:
1. Procrastination
You’d think this would be a no-brainer, wouldn’t you? And yet, Jim Tramonte at law firm Miller & Martin reminds us: “Like the shoemaker without shoes, many clients put everything else ahead of giving priority to their personal needs. And many times this will lead to lost opportunities for planning in a deliberate and purposeful manner. Clients who ‘wait for’ a terminal diagnosis to start the planning process often to do not have sufficient time to plan for and implement effective strategies for tax savings and asset protection that could provide great benefit to their survivors. So, we urge our clients to make planning a priority, and try to work with them to create a workable process within which we try to set reasonable internal deadlines for their replies and input.”
2. Too Many Amendments
From attorneys Leticia Vega and Alyssa Razook Wan of Fowler White Burnett: “Executing too many amendments may lead to amendments being lost or improperly executed, amendments which may conflict with one another, or amendments that cause the intent of the settlor to be lost in translation. We would recommend that if a trust already has one or two amendments and the client would like to make additional changes, it is best to prepare an amended and restated trust which revokes the original trust and amendments thereto. Another option is to revoke all prior amendments and execute one new amendment that incorporates the content from the prior amendments and the additional changes.”
3. Not Properly Tying Assets to Your Trust
From Lori Murphy, shareholder at Bean, Kinney & Korman: “The most costly mistake people make when preparing an estate plan is paying the extra cost for a revocable living trust but failing to properly tie their assets to their new trust. The revocable living trust is an excellent way to avoid probate, but only if the titling and beneficiary designations are properly utilized. It is not as simple as changing ownership to the trust name or designating the trust as a beneficiary. There are tax considerations and special rules for certain assets like retirement accounts. The best way to properly utilize the trust is to disclose all assets to the estate planning attorney who will provide instruction, and in some instances, assist the client with this process called ‘trust funding.’”
Timothy H. Smallsreed, a partner at Wendel, Rosen, Black & Dean LLP, adds: “Failure to transfer assets to a trust or their inadvertent removal as upon a refinance often results in an asset being outside the trust at the death of a Settlor and either a probate or a Heggstad petition is required, each of which is more often costly.”
4. No Prenuptial During Re-Marriage
From Beth Cohn at Jaburg Wilk: “Difficulties can arise in estate planning should an attorney represent a client that is divorced or anticipating a future divorce, who is also considering remarriage. Should such client have an existing joint estate plan with the divorced, or soon to be divorced, spouse, care should be taken that a prenuptial agreement is prepared by an attorney for the new spouse prior to changes in the existing estate plan.
The prenuptial agreement and the new estate plan must be coordinated so their respective provisions do not contradict and consideration should be taken to provide for client’s children, if any, in the new estate plan. Care should also be taken to insure that the beneficiaries of retirement accounts and life insurance policies are changed to remove the divorced, or soon to be divorced, spouse and provision made for client’s children, if any, and/or for a future spouse. To prevent undue stress and issues in such situations, an estate planning attorney should be involved at all stages of the process and should enlist the expertise of an attorney practicing domestic law to be certain relevant law in both areas of practice is applied.”
5. Citizenship Considerations
Attorneys Vega and Wan of Fowler White Burnett again: “A key issue that is common in an international estate planning practice is to determine whether or not both spouses are U.S. citizens. The unlimited marital deduction only applies when the surviving spouse is a U.S. citizen. If the surviving spouse is not a U.S. citizen, then a qualified domestic trust is a good option which may be created post mortem. It is important to confirm this basic point at the beginning of the planning process.”
The final word, from attorney Smallsreed of Wendel Rosen: “An annual audit of the schedule of assets in the trust can be the most cost effective component of an estate plan review.”
Now you know.
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