By Attorney Suzanne Sayward
Estate planning can be a complicated process; even the most straightforward situations can go awry if not done properly. Working with an experienced professional will ensure your assets are protected and wishes carried out. Here are five common estate planning mistakes to avoid.
1. Not giving enough thought to distribution of tangible personal property. In my experience, it’s the “stuff” that people fight over. It’s easy to divide up the bank account; it’s not so easy to divide that beloved painting, mom’s wedding ring, or dad’s trumpet. This is (usually) not about monetary value – it’s about sentimental value. You can reduce the conflict among your beneficiaries by writing down how you would like certain things distributed. This does not need to be very formal; in fact, it is often preferable to make these designations by a separate memorandum rather than in your Will. That way, you can modify or add to the memorandum from time to time as you wish, without the need to see your lawyer and change your Will.
2. Not getting professional advice. I understand that attorneys are expensive and that most people do not have unlimited funds to spend on their estate plan. But signing a Will and other estate plan documents printed out from the internet often means that you, or your family, will end up paying a lot more to fix what was done incorrectly than if you had paid to have them drafted correctly in the first place. I could list many examples of this from my own practice but column space is limited. One recent example involves a client whose mother used a form Power of Attorney which did not include the authority to transfer assets or other provisions needed to allow her family to undertake long-term care planning. When mom got sick, the family had to go to court and ask for authority to undertake long-term care planning to preserve assets. The difference in cost between doing it right from the start versus “saving money” on estate planning? About $5,000.
3. Poor choice of fiduciaries. The Personal Representative of your Will (formerly called the executor), the Trustee of your Trust, and the person you name as your attorney-in-fact under your durable Power of Attorney are all fiduciaries. Under the law, fiduciaries owe the people they serve the highest duty of good faith and fair dealing. Fiduciaries can be held liable if they fail to discharge their obligations properly. The duties of a fiduciary may include selling real estate, managing investments, paying bills, filing tax returns, negotiating contracts, and a selling a car, to name just a few. In addition, a fiduciary may be charged with managing assets for one or more beneficiaries over a long period of time. It is important to select people who are both capable of carrying out these duties and available to carry them out.
4. Failing to update Beneficiary Designations. A common misconception is that once you sign your Will you have completed your estate plan. However, it is important to ensure that the beneficiary designations on life insurance, annuities, retirement assets and other assets are in keeping with your intentions and with the rest of your estate plan. Beneficiary designations should be reviewed every time you update your estate plan. The reasons these are important and necessary include:
a.Your Will only controls the disposition of assets you own in your own name (not jointly owned) which do not have a beneficiary designated (for example, bank accounts, investments, real estate). So even though your Will leaves everything to your spouse, if you have an old life insurance policy on which you named your sister as the beneficiary, your sister is getting the life insurance money at your death, not your spouse, unless you update your beneficiary designation.
b.When financial institutions or life insurance companies merge, or are taken over by other companies, the paperwork does not always follow properly. I have seen more than one situation where the beneficiary designation on file with the life insurance company was not the most recent or correct one.
c.When you create or update your estate plan documents, you may change your distribution provisions or you may create a Trust as part of your plan, both of which may warrant a change of beneficiary designations.
d.If you have created an estate tax saving plan, failing to properly designate beneficiaries means your plan is unlikely to achieve your estate tax savings goals.
5. Failing to update your plan from time to time. Your estate plan is not a “one and done.” So long as you are alive, your personal situation may change, your family situation may change, your financial situation may change, and the laws may change. You need to review your estate plan from time to time to ensure that it continues to be appropriate for your situation.
6. Failing to plan at all. Even though this article is called “Five Common Estate Planning Mistakes,” I am tossing in a bonus number 6, which is the biggest mistake – failing to plan at all. Choosing not to create an estate plan is a choice to let the government create an estate plan for you. I think most of us would agree that is a poor choice.
Attorney Suzanne R. Sayward is certified as an Elder Law Attorney by the National Elder Law Foundation. She is a partner with the Dedham firm of Samuel, Sayward & Baler LLC. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.