Poor estate documents can result in people unintentionally cutting loved ones out of inheritances, paying monstrous tax bills and unnecessarily burdening loved ones with expensive, confusing legal battles.
Beneficiary boo-boos. Failing to name a contingent beneficiary on retirement accounts and insurance policies or not reviewing named beneficiaries regularly is a big mistake. The default if no contingent is named, is likely your estate, which may be subject to probate, creditors, and delays.
“Selling” property for a buck. This was popular years ago in areas that saw very rapid land appreciation. Years ago, the thought was that you could sell property for a very low price and not have to pay taxes on the gain and remove it from your estate. Of course, you can sell property for whatever you want, but the IRS will deem it a gift, if it’s less than market value. As a result, your heirs will lose the “step up” in value.
Detailing specific investments in your will. Specific bequests are handled first, and the person who died, might not even own that investment anymore. His estate might have to buy it at a much higher price, which could hurt all of the other beneficiaries.
Not thoroughly considering a well-intended gift. Placing a well-intentioned but unrealistic restriction on the sale of a home, may mean that heirs might have to go through a lengthy court process to be granted permission to sell a home. During the process, the home’s value could decline dramatically, and there could be legal fees.
Leaving assets directly to a minor, without addressing guardianship. Who takes care of the money for a kid?
Ignoring the death of a beneficiary. If one of two beneficiaries dies, where does the money go? Does it go to the surviving beneficiary or to the family of the one who died? Ask your estate planning attorney about whether your state is per capita (Latin for “by heads,” meaning per person) or per stirpes (Latin for “by branch,” meaning that each branch of the family receives a share). That will make a difference in your planning.
Errors and imbalances of ownership. If too many of the assets are in one spouse’s name, it could bring about some taxes. If you shift the house or investment accounts to the other spouse, the estate becomes more equalized, and it reduces the possibility of owing taxes after the first death.
No residuary clause. This clause addresses everything you didn’t specifically name or forgot to put in your will (or things you don’t yet own but will before your death). It also includes things you might not know you own—which happens more often than you’d think!
Failing to plan for the unexpected. There are many things that you’ve probably never even considered. You can address this by placing assets in a trust where you can control how, to whom and when money gets distributed, unlike an outright inheritance from a will.
Thinking you’ll live forever. You’re going to die someday, regardless of whether you want to face that reality. Don’t leave your family in ruin because you don’t want to deal with an uncomfortable thought.
Don’t make a tough situation worse for your family, by failing to plan properly. Speak with a qualified estate planning attorney.
About the Author Kyle Robbins is the founder and sole owner of The Law Offices of Kyle Robbins. He received his J.D. with honors from the University of Texas School of Law and his B.S. in Food Chemistry and Microbiology from Oklahoma State University.