A will or trust can not only fail to carry out the decedent’s intent, it can actually frustrate the intended estate distribution, and cost the decedent’s loved ones significant time and money, not to mention anguish.
Particularly in an era of online-assisted do-it-yourself legal work, poorly made self-made and cookie cutter wills and trusts abound. The average person does not know the nuances of creating a valid testamentary instrument, nor the ramifications of poorly drafted provisions.
Aside from poor drafting, changed circumstances or wishes may also result in ineffective estate planning. Here are ten of the top reasons estate planning documents may fail.
1. Failing to Account for the Possibility of Beneficiaries Predeceasing You
What if your children die before you? How do you want your estate to pass? To your children’s children? To your spouse? To your children’s spouses? Failing to address this could result in disfavored relatives receiving all, or a portion of, your estate.
2. Failing to Update your Planning to Reflect New Spouses or Children
While most states have laws in place to account for such a scenario (the omitted spouse or child being referred to as a “pretermitted heir”), your intended estate disposition is far from guaranteed, and lengthy and expensive court intervention is likely to occur. Just ask Heath Ledger’s child.
3. Failing to Update your Planning to Reflect Divorce
As with pretermitted heirs, most states have laws in place to address and largely avoid inheritance by a divorced spouse. Again, however, your intended estate plan is unlikely to be fulfilled, since it will instead be dictated by state law, and probate court litigation is a strong possibility.
4. Not Giving Your Trustee or Executor the Necessary Authority to Carry Out your Wishes
If your trust or will spells out your intentions clearly and concisely, your planning may still be undone by failing to give your trustee or executor the powers to carry out your wishes. As a prime example, Supreme Court Justice (read: savvy legal mind) Warren Burger drafted his own 176 word will. Among other things, his will failed to address payments of funeral costs, failed to list alternative executors, did not list alternative heirs, and did not detail his executor’s powers. This latter omission resulted in his executors having to seek probate court authorization in order to dispose of certain assets. Moreover, his estate paid over $450,000 in taxes – something that probably could have been avoided with a simple, but properly drafted, trust.
5. Failing to Account for the Possibility of Named Trustee or Executors Being Unavailable
What if your named executor or trustee passes away before you, or during the period they were intended to act as trustee or executor? A good trustee or executor is arguably the most important aspect of good drafting; if the choice of a successor executor or trustee is left to others, your estate may be presided over by an individual who will not diligently attempt to carry out your wishes, or – worse – is untrustworthy and may use your assets for their own benefit. Moreover, if court intervention is necessary to name a new trustee, the process could be time consuming and costly, to the detriment of your beneficiaries.
6. Not Providing Specific Directions
Not including specific enough instructions can result in ambiguity and legal conflicts. Robin Williams’ estate is currently the subject of intense litigation between his wife and children. Two of the issues at stake revolve around how much money is necessary to maintain the home Williams’ left (with costs to be paid) to his wife, and the division of specific items of personal property.
7. Doing Nothing
Not executing any estate planning will necessarily lead to expensive and lengthy probate court administration (in California, an estate of only $500,000 can result in $26,000 executor an attorney fees, which are set by statute) and possibly litigation, which can increase the time and cost of ultimate settlement exponentially. Pablo Picasso did no planning, and his $30 million estate took six years and 19 lawyers (representing five heirs) to settle. The total legal fees and costs were not revealed. Though an extreme example, Picasso’s lack of planning underscores the potential cost - it can result in the complete exhaustion of an estate, leaving nothing for heirs.
8. Not Completing Your Planning
Michael Jackson created a trust, but failed to fully fund (transfer assets to) it. This lead to a public and costly court battle.
9. Not Keeping Track of Your Planning Documents
Having a well drafted trust or will does you no good if your relatives cannot find it. Florence Griffith-Joyner’s will could not be located, resulting in a four year long probate administration. Estate planning attorneys generally will maintain a copy or duplicate of your will or trust, as a back up to the loss or inadvertent destruction of your planning documents.
10. Not Planning for Your Disability
Proper estate planning includes preparing for your mental and physical incapacity. Who do you want and trust to handle your finances on your behalf when you are no longer competent to do so? Who do you want to make health care decisions for you if and when you are unable to do so? Disability planning also includes written directions to family and health care professionals expressing your wishes on things such as such as pain management and the use of extreme measures to keep you alive. By failing to plan for your disability, you could find yourself in a world of hurt. Literally.