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This article is the second in a series of articles designed to educate and inform the reader on common estate planning pitfalls and mistakes we see in our practice, and solutions to avoid them. Often these mistakes result in undesired outcomes, create undue stress on loved ones and require costly measures to fix things that could have been avoided with minimal planning. Our second topic for discussion covers some unintended outcomes of estates for individuals who decided to draft their own estate plan.
Estate Planning Mistake #2. – Not Having An Attorney Draft Your Estate Plan.
What a comprehensive estate plan is and why you should have one in place, was discussed in the last article. We also discussed potential problems estate planners try to avoid when crafting an estate plan. (Click here for a link to the previous article.)
Having a comprehensive estate plan that has been drafted by an attorney who dedicates a significant portion of his or her practice to this particular practice area will help your loved ones to avoid possible unintended consequences – consequences that you will likely not be around to understand and appreciate.
Some professionals have described estate planning as one of the most complex facets of law today. This practice area has become very specialized and requires an attorney to possess a thorough understanding of community and separate property law, real property law, contract law, probate and trust law; as well as multiple tax provisions, including income tax, real estate tax, estate tax, generation-skipping transfer tax and gift tax. Estate planners must also possess an understanding of multiple types of assets such as bank accounts, securities, retirement, pensions, insurance, corporations, and LLCs just to name a few.
Using a one-size-fits-all plan.
Online and document preparation services typically include a standard set of disclaimer statements ensuring that the consumer is aware that the site or service is not a law firm, not a substitute for legal advice, and that the user agrees to a terms of use agreement. Plans offered as templates, or do-it-yourself plans, are typically designed as one-size-fits-all type plans.
Our firm is asked to review many of these types of plans for potential or existing clients. One-size-fits-all plans do not typically take into account the contingencies we discussed in the last article, such as what happens if your beneficiaries predecease you, when should young children inherit their share of your estate, or if a loved one is currently receiving some type of government assistance and how an inheritance affects that individual’s benefits. Of course, blended families typically have additional considerations when it comes to planning for family legacy assets and wealth.
It is worth pointing out that a one-size-fits-all plan tends to contemplate an estate with a very high net worth because this type of plan must work for all estates of different sizes. Estate plans for higher net worth individuals typically have additional provisions which a more modest estate would not require. Often, these additional provisions are aimed at reducing the possibility of an estate tax (currently at 11.7 million dollars). In more modest estates, this level of planning is over engineered and ultimately binds the trustee in carrying out specific tasks which have no benefit to the heirs and are always costlier and more burdensome on the estate. This point cannot be overemphasized enough and is often the primary reason for many do-it-yourself estate planners to request that our firm restate and republish their documents – the goal being to save additional unnecessary administrative costs and expenses in the future. A one-size-fits-all plan may save some costs today, but may also have unintended consequences on how your fiduciary manages your affairs in the future.
Your plan may not accomplish what you think it does.
When reviewing estate plans for potential and existing clients, we often find that an existing estate plan does not exactly state what the individual desires or believes it states. Estate plans integrate very specific and rigid language, typically intended to mirror a particular set of code provisions, and it is easy for an untrained eye to misinterpret a particular provision, or simply to make an inference that a statement is broad enough to carry out a particular set of desires.
Your wishes are more likely to be carried out exactly as you instruct if you ensure that you have a thoughtful plan in place.
Your documents may fail to simplify your estate.
Drafting your own estate plan increases the risk of a misstep which could render a document wholly, or even partially, invalid. Usually after it is too late, documents are found to contain ambiguities which can create uncertainties as to the validity of a specific provision and lead to a family dispute that must be settled by a court.
Contested instruments in an estate plan can be very expensive to resolve with the court. Often, family relationships are entirely destroyed as a result of simple mistakes and ambiguities in the planning process. Part of any individual’s estate planning goals should include avoiding legal disputes, the deterioration of family relationships, and involvement of the court.
Solution:
Work with an estate planning attorney to review or draft your estate plan. A competent estate planning attorney can ensure that your estate plan is properly tailored to fit your exact needs without unnecessary future administrative costs, ensure that very specific and particular requests are carried out exactly as you desire.
Our next article will discuss some common pitfalls with not having the correct documents in your estate plan and whether a simple will, or perhaps a trust, is best for you and your loved ones.
For more information, please visit us at www.KirkSimas.com, or call us at (805) 934-4600 to schedule an appointment.