Common Mistakes Made By Trustees

I want to highlight some of the most common estate planning mistakes I think people routinely make (knowing that I can’t possibly cover them all in one column). You will notice that I’m not going to discuss the estate tax beyond saying that very few people are subject to it and that it can be effectively managed by an attorney and financial planner with expertise.

In my experience, No. 1 and No. 3 are the root causes of the other issues.

1. Failure to plan: I am constantly surprised to see how many people do not have basic estate planning documents in place. The statistics consistently say more than 50 percent of Americans do not have a will, so if you happen to have one, the odds are that one of your neighbors does not.

Estate planning is another one of those areas in financial planning that plays to our desire to procrastinate. The only immediate payoff we have to getting the core documents in place is to quiet that inner voice that constantly says, “I need to take care of this.”

With proper planning, many negative consequences such as not passing your assets as you wish, strained family relationships and even a lawsuit can be avoided.

Simply stated, dying without a will is easy, but picking up the pieces afterward is not. On the other hand, getting a basic will in place should not be complicated.

2. Improper trustee/executor/guardianship selection: Oftentimes, people will select someone who is just not equipped to serve as the executor or as trustee of the estate. The “trustee” or “executor” is the person who will supervise the distribution of the property in your estate.

I also have seen situations where the chosen executor is himself (or herself) a beneficiary of the estate and has a tense or strained relationship with other beneficiaries. This can jeopardize an entire estate plan. You should know and be comfortable with who is in charge of your assets.

Additionally, you should have a backup plan by naming successors should your primary choice be unable or unwilling to serve. For those with minor children (or disabled children), you should designate a guardian to be in charge of caring for them and their finances. This decision has major implications on their livelihood. Where will these family members live? Where will they go to school?

3. Failure to review: In the course of advising people, I sometimes come across wills made in the ’70s and ’80s. I have seen situations where the entire family generation has passed, family members have become incapable of serving in the roles contemplated in the will and family relationships have materially changed. Even well-drafted documents need to be reviewed; a truth of life is that life changes.

4. Improper beneficiary selection: Do yourself a favor and double-check your primary and contingent beneficiaries for your retirement plans and your life insurance policies. When you name someone as your beneficiary, that person will receive your property regardless what your present intentions are. Also, if you do not name a beneficiary, your estate could be deemed the beneficiary. This can have negative estate and income tax consequences.

5. Disposition of personal property: Occasionally there will be internal family conflicts over seemingly insignificant family heirlooms. Depending on the situation, making specific bequests inside your documents or even a simple letter expressing your wishes can help avoid this type of disagreement.

6. Powers of attorney: People will draft a will but forget to plan for incapacity. You can designate someone to be in charge of your finances through a power of attorney, and you also can consider designating your desires related to medical decisions through the Georgia Advanced Health Care Directive.

Technology has opened the door for people to create their own will cheaply via the Internet. I am not an advocate for these services and recommend that people visit with an estate planning attorney. For one thing, most states regulate the practice of law within their borders.

Nothing here should be construed as giving legal advice, and Internet documents may or may not conform to the legal requirements in your state. But as a practical matter, most people are not prepared to make these sorts of decisions, and it is easy to make mistakes.

The larger your estate, the more important expertise becomes.

I have reviewed the wills of judges and lawyers who did not have estate planning experience, and I have found critical mistakes in their documents.

If you are fortunate enough to have a net worth of more than $1 million, you can afford to visit an estate planning attorney to draft your documents.

Designing your estate plan is analogous to a major car repair. It should be done by an expert and not by novice that is “learning while doing.”

Hear me now, listen to me later: An ounce of prevention is worth a pound of cure in this area.