7 Biggest Estate Planning Mistakes
Johnson May’s Sheli Fulcher Koontz gives insight on some of the BIGGEST mistakes people make when people put together their wills and trusts! Let her share with you what to avoid and what to include!
Below is an edited transcript of the video.
Welcome to this estate planning 101 class. Today, we’re going to cover some mistakes people commonly make with estate planning in about 30 minutes. Given the current COVID-19 crisis, estate planning has become more relevant, so let’s dive in.
Firstly, I want to provide a legal disclaimer. Everything I’m about to share is not legal advice but general information. If you have specific questions, feel free to reach out to our office for personalized advice. Now, let’s proceed.
My name is Shelley Fulcher Koontz, an attorney at Johnson May. I’ve been practicing law since 2001, specializing in estate planning and family law. My colleague, Natasha Hazel, is an exceptional estate planner and collaborates with me on estate planning cases. She developed this curriculum and has been teaching similar classes for many years.
One notable difference we’ve observed is how estate planning is viewed across the country. Growing up, estate planning wasn’t something I thought about, but Natasha, having come from the Deep South, noticed the emphasis on estate planning in places like Mississippi and Tennessee. Many couples even receive estate plans as wedding gifts. We wanted to address the lack of knowledge and focus on estate planning, hence this discussion.
When someone in the family passes away, it often becomes a crisis time. You may have witnessed otherwise rational people behaving irrationally during such situations. Not having an estate plan in place can lead to a potential hot mess, resulting in significant legal fees. While you may think it doesn’t matter because you’ll be gone, consider the burden you’re leaving behind for your loved ones. It’s not your intention to burden them with unnecessary expenses. My goal is to help minimize legal fees and eliminate the hot mess.
Mistake #1: Not Having an Estate Plan
Now, let’s explore some common estate planning mistakes. The first one is not having an estate plan. I confess, I didn’t have one for a long time, even though I’m a lawyer. It’s a classic case of the cobblers’ kids having no shoes. However, when I became a parent, I realized the importance of adulting and getting my own estate plan.
An estate plan typically consists of several components. It includes a general durable power of attorney, which designates someone to handle financial transactions on your behalf. There’s also a healthcare power of attorney, allowing an agent to make healthcare decisions for you. Additionally, a living will outlines your preferences for end-of-life care. Lastly, you’ll need a will and/or trust to specify how your assets will be distributed.
Not having an estate plan creates uncertainty, especially during times of crisis. This uncertainty often leads to irrational behavior. We want to prevent this chaotic outcome.
Mistake #2: DIY Estate Planning
So, that’s the first mistake: not having a plan at all. The second mistake people make in estate planning is using do-it-yourself or LegalZoom forms to create their own estate plans.
Now, let’s talk about why these LegalZoom forms may not be the best option for you. In Idaho, you can write your own will, known as a holographic handwritten will. However, it’s not necessarily a good idea. Many legacies have been tarnished by poorly written documents, leaving behind a mess for others to clean up.
When it comes to LegalZoom forms, they assume a perfect existence. These prefab forms available on the internet don’t account for real-life complexities outside the perfect nuclear family scenario. This is one reason why they can be problematic. Furthermore, these forms don’t provide answers to all your questions.
Mistake #3: Not Planning for Tangible Personal Property
The third mistake I want to discuss is the failure to specifically plan for the distribution of tangible property. Tangible property refers to items like jewelry and sentimental objects, not cash, real estate, stocks, or bonds. This is an area where disputes and significant expenses can arise in estate planning. People often underestimate the potential conflicts that can arise over personal belongings.
Now, let me introduce a helpful tool called a tangible personal property sheet. When I do estate planning for people, I provide them with this sheet, which is referenced in their will. They can list whatever items they want on this sheet. This sheet solves the problem of potential fights among children over personal belongings, saving the estate a significant amount of money. Both the tangible personal property sheet and the will reference each other, and all that’s needed is a signature. It’s important to note that you don’t have to make all those decisions upfront when you create your estate plan because that’s where many people get stuck. They don’t know how to handle the distribution of their personal belongings.
Some of you might ask, “Well, why can’t I just put post-it notes on my belongings and write who I want to have them?” The problem with that is it doesn’t reference your will. When you pass away, the person responsible for administering your estate, known as the personal representative, needs a clear distribution plan. They rely on the tangible personal property sheet, which is referenced in your will. This sheet ensures that the items listed are distributed accordingly. Not providing for the distribution of your tangible personal property can result in significant legal fees for your estate.
When you create your estate plan and make your tangible personal property list, it’s important to consult with the intended recipients. Ask them if they truly want the items you plan to give them. You may be surprised to find that their preferences differ from your assumptions. By addressing this in your estate plan, you can prevent unnecessary disputes and protect your estate from costly legal battles.
Mistake #4: Selecting the Wrong Person as Fiduciary
Moving on to the next mistake—it’s common for people to select their oldest child or all of their children to act as fiduciaries. A fiduciary is someone who manages another person’s affairs and has a high level of responsibility under the law. In estate planning, there are five types of fiduciaries: personal representatives (or executors), trustees, court-appointed guardians, and conservators. Personal representatives handle the administration of the will and probate assets, while trustees manage trusts. Court-appointed guardians care for minors or incapacitated adults, and conservators handle financial matters for minors and incapacitated adults.
Appointing the wrong person or multiple children as fiduciaries can lead to complications. It’s crucial to carefully consider who is best suited for each role. These positions require background checks, court training, and ongoing responsibilities such as submitting annual accountings. So, when selecting fiduciaries, think about who can genuinely take care of your children or incapacitated spouse.
So we’ve got the personal representative, trustee, guardian, conservator, and the fifth fiduciary is what we call an agent or an attorney-in-fact. These come under what are called powers of attorney. If you start using the right vocabulary right out of the gate, then if you ever get tasked with any of these jobs, you’ll know the right words to use.
Now, when picking a fiduciary, the biggest mistake people make is automatically selecting their oldest child or selecting all children. But you really need to pick the right person for this job. If your oldest child doesn’t do well with money, you probably don’t want them managing your affairs. If you have children that don’t get along, having all of them serve together in this role is going to create a mess and a huge expense because they won’t all agree with each other, and they may have to each lawyer up to work out and negotiate agreements.
Wrong choices for fiduciaries are people who have no money skills or live too far away. Birth order is also something to consider. Sometimes the oldest child is the right choice, but not just because they’re the oldest child. Consider birth order and sibling dynamics. Additionally, you don’t have to have family members be your fiduciaries. It needs to be people you trust and people who can handle the job. You can also choose a professional depending on the size of your estate. There are companies out there that provide professional trustee work and fiduciary services in general.
Make a choice, and don’t hesitate. You can have two people serve together as co-fiduciaries, and sometimes that works out well. You can have your will state that these two people should serve together, and if one of them can’t, the other person can serve by themselves. Have backup choices in case your first choice doesn’t work out. Talk to these people and ensure they are willing to take on these roles. There’s no reason to spend money on an estate plan only to have the chosen individuals decline the roles.
Mistake #5: Feeling Obligated to Treat All Children Equally in the Inheritance
Another mistake people make in estate planning is feeling obligated to treat all of their children equally. If you’ve got differing relationships with your children—inheritance is a gift, it’s not a right. You are not required under any law to provide equally for your children. If you’ve got a child that you know is around a lot, helps you with lots of things, and another child who is either estranged or has distanced themselves, you don’t have to provide equally.
We have people that come in occasionally, and they leave stuff to the organizations they were part of, friends, and other family members that they really had great relationships with. And sometimes, they don’t provide for their children at all. But consider your children’s contributions to you and your livelihood, and don’t feel like you have to treat them all equally, because you don’t.
Mistake #6: Not Specifying Burial Instructions
Another common mistake is failing to specify burial instructions. While it may seem morbid, it’s crucial to communicate whether you prefer burial or cremation to your family. Without clear instructions, family members may clash over differing interpretations of your wishes. Explore the available options, such as cremation, burial, or even turning ashes into diamonds through specialized companies known as life stones. By including your burial instructions in your estate plan, you can reduce conflict and ensure your final arrangements align with your desires.
To address burial instructions and other funeral preferences, we include a funeral letter as part of the estate planning process. This letter is referenced in your will and allows you to specify details like whether you want a service, flowers, specific music, or even a big celebration. It’s an opportunity for you to outline your desired arrangements and minimize potential conflicts among family members. In Idaho, the funeral letter and other related documents may require notarization. However, you don’t need a lawyer to make changes. Simply sign a new document in front of a notary to ensure its validity.
Mistake #7: Not Updating the Estate Plan
Lastly, it’s crucial to regularly update your estate plan. Even if you are highly organized and have an existing plan, it’s important to review it periodically. Life circumstances change, such as births, deaths, marriages, divorces, or changes in assets. For example, if you’ve left everything to your spouse and you get divorced, you may need to revise your estate plan. Similarly, if a family member becomes incapacitated, it’s essential to review the plan to ensure their wishes are still represented. Additionally, if you move to a different state, it’s important to have your estate plan reviewed by an attorney familiar with the laws of that state. Updating your will can be done through a codicil, which is a change made to a specific section of your will, or through an amendment for a trust. In some cases, it may be more cost-effective to rewrite the entire will, and an attorney can provide guidance on the best approach for your situation.
These are some of the significant mistakes people commonly make with estate planning. If you have any questions, please feel free to ask, or you can contact our offices at Johnson May, where we’ll be happy to discuss your estate planning needs. In light of the ongoing coronavirus situation, it’s a reminder of the importance of estate planning, and we want to ensure that you avoid these common mistakes. Thank you for allowing me to discuss estate planning mistakes today. Have a great day!Tags: