Top 10 Estate Planning Mistakes (Part 2 of 2)
This article was first published as a two-part series by the Elite Advisor Forum,
a publication of CEG Worldwide and SourceMedia, and is reprinted with permission.
As we discussed last month, even the most experienced advisors can make basic mistakes when it comes to estate planning. Here we’ll look at the dangers of giving one sibling preference over another, ignoring personal effects, not following through on title to assets, allowing clients to ignore healthcare directives, and, of course, not having an estate plan at all.
6. Giving one child control over another. A typical response from clients about the question of who should be trustee is often followed with “can my responsible child be the trustee?” This is appealing, because it keeps the burden off other family members or friends and it avoids the trustee fee that would be paid to a financial institution. While we have no doubt that there are many situations where the child is perfectly capable of handling the job of trustee, we advise against giving one child control to the exclusion of another child. Our experience is that it can be a costly mistake that causes disputes that could have been avoided.
Even in the best family situations, the child that is left out of the decision making process will most likely not be pleased. There are important decisions that need to be made in the trust administration process, such as whether to sell certain assets, valuation issues and when to make distributions. Giving one child control over these economic decisions to the exclusion of another creates an unpleasant dynamic even when everyone has good intentions. It is generally a better practice to name a financial institution, if practical, given the size of the estate, or a trusted and responsible family member or friend (other than a beneficiary), or even naming all children as co-trustees, rather than giving one child control over another.
7. Ignoring the personal effects. The personal effects can be the most difficult asset to divide and distribute. Beneficiaries can have strong personal feelings about what items of the personal effects they want and they can disagree about the value of certain items. It is important to have a system in place in the estate plan to resolve these disputes. There may also be special circumstances resulting from the structure of the estate plan that require consideration. For example, if a residence is left in trust for use by a beneficiary such as a second spouse, with the residence to ultimately pass to children, then the contents of that residence should be specifically addressed. Otherwise, you may have an unpleasant situation where the beneficiary of the residence has the contents immediately removed by the beneficiaries of the personal effects. If there are any items with a large value, they should be addressed specifically.
8. Not following through on title to assets. A fully funded living trust is the desired goal in any estate plan. An hour of time now can save thousands of dollars later. In California, if the client signed a Will and a general assignment of assets to a living trust, we often can petition the Court for confirmation that an asset is owned by the living trust, but this process takes months and is not guaranteed. The professional advisors should help the clients with completing this process. It is tedious to the clients and they may not understand the significance or the ultimate cost for failing to follow-through, so this is an area where the assistance of professional advisors is critical.
9. Letting the client avoid the Advance Health Care Directive. The process of thinking about and completing an Advance Health Care Directive can be unpleasant. The client has to consider health issues and topics such as life support and organ and tissue donation. The health care power is a critical part of everyone’s estate plan. When the health care power is needed it is invaluable. If the client resists completing the health care power or wants to think it over, encourage them to complete one now and change it whenever they want. It is generally better to have something in place, rather than nothing.
10. Not doing an estate plan at all. If your client is going to live forever and will never be disabled, then skip the estate plan. For everyone else, make sure your estate plan is in order to protect your family.
An estate plan is essential to the long-term well-being of your family and heirs. Because your family’s needs change and the legal and regulatory environment continues to evolve, your estate plan should be reviewed and amended periodically.
Burton A. Mitchell is the chairman of the Taxation, Trusts & Estates Department at Jeffer Mangels Butler & Mitchell LLP. A prominent tax and estate planning attorney in Los Angeles, Burton has been recognized in Los Angeles Times Magazine as one of Southern California’s Best Lawyers in 2008 – 2011 and has been featured in the Los Angeles Business Journal’s “Who’s Who in LA Law–The Best of the Bar, the Standout Lawyer for Trusts and Estates.” Contact Burton at 310.201.3562 or BAM@jmbm.com
Jill Skinner’s practice focuses on estate and gift tax planning, probate and trust administration. She advises individuals on a broad variety of matters, including living trusts, insurance trusts, qualified personal residence trusts, children’s trusts and defective grantor trusts; formation of partnerships and limited liability companies; and other transfer tax techniques. Contact her at 310. 785.5381 or firstname.lastname@example.org