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Will Your Old Estate Plan Still Work Today?

Review of an Existing Estate Plan - Top Mistakes and How to Avoid Them


Each time that I sit down with a new client who already has an estate plan, the first thing that I do is a thorough review of their current estate planning documents. From years of experience in doing these reviews, I've developed a checklist of common problems that I see time and time again. Here is the list of the 12 things that I look for when reviewing an existing estate plan.

Mistake #1 - Personal Effects in Your Pour Over Will

Technically speaking, personal effects, such as jewelry, artwork and collectibles, distributed through a Last Will and Testament, including a Pour Over Will, need to be probated. In reality, however, these items tend to disappear on a "first come, first served" basis, before any formal estate or trust settlement with an attorney begins. But if there are any arguments among your beneficiaries over your personal effects and the distribution of this property is listed in your Last Will and Testament, then a probate judge will need to settle these disputes after your will has been admitted to probate. If all of your other property has been properly funded into your Revocable Living Trust, then this defeats one of the main goals of your trust - to avoid probate! Instead, fund your personal effects into your Revocable Living Trust and specify who should get this property, and then give your Successor Trustee the complete discretion to settle any disagreements among your beneficiaries. This should keep your trust beneficiaries out of probate court.

Mistake #2 - Leaving Your Personal Effects Equally to Your Beneficiaries

Personal effects, including jewelry, artwork and collectibles, are often difficult to value, let alone divide "equally." I once had a client who fought with his brother for nearly three years over how to divide the "stuff" that was left in their mom's house because mom's Will stated that her stuff must be divided equally. The stuff was worth about $5,000, and yet the brothers spent well over $60,000 in legal fees before a resolution was reached.

The bottom line is that money is easy to divide, but "stuff" isn't. If your Will or Revocable Living Trust states that your personal effects must be divided equally among your beneficiaries, then make a plan for your personal effects - ask your estate planning attorney to revise the language to allow your beneficiaries to divvy up things as they agree, and if they can't agree, then give your Personal Representative or Successor Trustee absolute authority to decide who gets what, sell things and divide the cash, or simply donate things to charity. This should keep your loved ones out of court.

Mistake #3 - Estate Plans Without Any Estate Tax Planning

This is what frequently happens: A young couple has their first child and right before their first big vacation without their new baby the couple decides that they need wills. So, they rush out and get one of those last minute vacation estate plans. What they'll typically get is referred to as an "I Love You Will" - it simply leaves everything outright to each other and then if both parents die the balance will go into simple trusts for their new baby and any children born later. This type of plan has absolutely no estate tax planning involved in it. Then, twenty-five years later, when their youngest child finally goes off to college, they meet with me and, quite embarrassed, pull out copies of their "I Love You Wills."

Another thing that frequently happens is a couple who has a good estate plan drafted in their state that has no estate taxes but then they move to a new state that has estate taxes, or vice versa. In their new state their estate plan won't work as they intended because either their plan was drafted to specifically cover federal estate taxes only, or their plan was specifically drafted to cover both state and federal estate taxes.

Don't let this happen to you. Be sure to upgrade from "I Love You Wills" to a plan that incorporates AB Trust planning and, if applicable, state estate tax planning with ABC Trusts, long before your youngest goes off to college. And be sure that if you move to a new state your estate plan is reviewed by a qualified estate planning attorney in your new state, otherwise your plan may not work the way you intended.

Mistake #4 - Married Couples as Sole Trustees of Their Revocable Trusts

Married couples as sole Trustees of their respective Revocable Living Trusts poses a serious problem if one spouse becomes mentally incapacitated because the other spouse won't have any access to accounts titled in the name of the incapacitated spouse's Revocable Living Trust. Depending on the terms of the disabled spouse's trust agreement, the well spouse will either need to obtain disability certificates from family members and/or one or more physicians, or go to court and have their spouse declared mentally incompetent by a judge. Worse yet, if one spouse is unavailable simply because he or she is across the country visiting family, then the other spouse won't be able to do anything with the accounts titled in the name of the traveling spouse's trust until he or she returns from the trip.

While there will be certain situations when each spouse will want to serve as the sole Trustee, such as in a second or later marriage, generally I've found that these cases are in the minority. And if you're worried about the hassle of Co-Trustees having to act together, don't worry - Revocable Living Trusts can be drafted with a great deal of flexibility, including making spouses Co-Trustees but giving each the ability to act without the consent of the other spouse. If you and your spouse are serving as sole Trustees of your respective Revocable Living Trusts and there is really not any good reason why, then ask your estate planning attorney to amend your trusts to make each of you a Co-Trustee of the other spouse's trust and include language allowing each of you to act alone in your capacity as a Trustee. In the long run, this will give you the flexibility that you need to go about your business.

Read More...Mistakes 5-9

Checklist of Twelve Mistakes

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