No one wants to contemplate their own mortality. But, if you really care about your loved ones, you don’t want to leave them in a terrible situation if you die without the right estate plan in place. It’s critical to consider the many aspects of your final wishes—and the documents needed to help ensure that they are carried out—so your family isn’t left with a big mess to sort out.
Here are five mistakes to avoid when it comes to estate planning:
1. Having No Will
We’ve probably all read the stories about famous people who died without a will, including Prince in 2016. With holdings valued from around $100-300 million and leaving behind six siblings, and a possible son in federal prison (not verified as a legitimate heir), the settlement of his estate has been a very public, very messy, and very expensive battle.
With no will, an estate always goes through probate, which means a judge decides what happens to all the assets, and it’s all public information.
Unlike a will, most trusts transfer assets privately without the need for probate. But remember, even if you have established a trust, you have to fund it, a lesson publicly learned from Michael Jackson, who left a $600 million estate and an unfunded trust, which ended up in probate court due to this avoidable oversight.
An estimated 63% of all Americans currently have no will at all according to uslegalwills.com, not to mention all of the other estate documents like powers of attorney, trusts, healthcare directives, etc.
2. Having An Outdated Will
Also per uslegalwills.com, of the estimated 37% of people in America that do have a will, nearly 9% of those wills are out of date. What happens then? Well, your loved ones may not get anything, or they may be liable for fees and taxes that were avoidable. With outdated estate documents, it’s a crap shoot for your beneficiaries.
Once again, we can look to the rich and famous for examples—like Philip Seymour Hoffman, who died in 2014. He had a trust drafted a decade prior in 2004 for his son, Cooper, but appeared to leave the rest of his estate in a poorly-designed structure, which left it open to public scrutiny. The mother of his three children (they had two daughters born after Cooper) was left with a huge estate tax bill—estimated to be anywhere from $12-15 million—because New York doesn’t recognize common law unions.
Poor planning can be very costly for heirs.
3. Having Only A Will
To repeat, having only a will in place means that your estate goes to probate court, and it’s all public information open to public scrutiny. (Something to keep in mind: Reporters hate it when famous people have trusts in place because then they can’t find out what’s happening with the estate.)
Having just a will and no other estate planning documents can impact your family in other ways. Just as funded trusts may protect your assets from public probate court, powers of attorney and healthcare directives can protect you and your family should a healthcare disaster strike.
A healthcare directive (sometimes called a “living will”) basically spells out your wishes should you be completely incapacitated in a hospital and possibly at the end of life. The directive basically explains what you want to do, when you want to do it, and who will make the decision to “pull the plug.”
The “who,” spouse or family member, obviously needs to be decided. But, so does the when—the “trigger.” Don’t leave the trigger vague or open to interpretation, like “when you are diagnosed with a terminal disease,” because you could live years after a terminal diagnosis! Consider the trigger being when two doctors agree that it’s the best decision, and you are being kept alive artificially with no chance of recovery. This takes the burden off your family.
Here’s another thing you should know: As a spouse, each of you should have a power of attorney in place as well. Why? Because you may need to make decisions to keep your spouse comfortable that weren’t considered in the healthcare directive. If the healthcare directive says “no artificial hydration” or doesn’t specify pain medicine, the hospital staff is required to follow the directive to the letter, not the family’s wishes. Meaning without a power of attorney, you may watch your spouse’s body start to feel agonizing pain or thirst and have absolutely no right to do anything about it!
Make sure you have the right documents in place to protect everyone—including yourself.
4. Having “Divide Equally” Language In A Will
Even the best estate plans, which have proper trusts in place alongside a will, may contain this tiny clause that can cause huge family rifts: “All tangible assets are to be equally divided.” You cannot divide a house, an automobile, a piano, or many other items equally.
Rather than allow your estate attorney to throw in boilerplate language, make the effort to check with your family members and find out what they really want while you are still around. Require the sale of any valuable property, or property desired by multiple family members which can’t be split fairly, right in your will.
You might be surprised to find out what each of your children really want and value—like the fishing pole you used when they were little or the casserole dish that was used to serve favorite family meals. A will without a tangible assets distribution schedule, or written list divvying up possessions, may cause the family emotional pain that was completely unnecessary if you had discussed these things while you were alive.
5. Putting Non-Blood Relations In Charge
Not that stepparents are all bad, they’re not. They may have the best of intentions while both spouses are still alive and are considering their stepchildren’s best interests in conversations. However, after one spouse passes away, things can change—drastically. Blended families are the most at risk, so remember that when you re-marry someone. Estate documents are critical to protect your children and ensure your final wishes for them are legally carried out.
Similarly, when discussing the distribution of an estate, keep the married spouses of adult children out of the conversations. The biological brothers and sisters understand the family dynamics and can usually come to better agreements if their spouses are not involved.
Conclusion
When is the best time to create an estate plan? Now. That is the only answer. Don’t put this important task off. Do it for your family.
