Global View Investment Blog

Common Estate Planning Mistakes

After 18 years of assisting clients with estate planning and estate settlement, I am dismayed by how often I see the same estate planning mistakes made over and over. Often times, the emotion and financial cost to family members is significant, yet most of the mistakes were easily avoidable.

For some people, the inability to conceive of their inevitable demise prevents them from acting as they know they should. Others have not received sufficient counsel from a qualified estate planning attorney. (Real estate attorneys are notorious for drafting wills without advising properly as to “higher level” planning options.)

At Global View, we want our clients to be as “worry free” as possible when it comes to their financial lives. As a fiduciary to our clients, we seek not only to manage their investment portfolios, but also to ensure that they have at least considered their needs and options with respect to insurance coverage, estate planning and asset protection. As part of that process, I want to make sure you are aware of 6 estate planning mistakes I see all the time.

 

Estate planning is too important to put off. Contact Global View to see how we can help.

 

Mistake #1: Thinking that everything will pass to your spouse even if you don’t have a will

It is shocking how many people think everything will pass to their spouse if they die without a will.

Under South Carolina law, if you are married and have children and you die without a will, one-half of your probate assets pass to your spouse while one-half will be split equally among your children. (If those children are minors, the court will need to appoint a conservator to manage the inherited assets until each child reaches age 18, at which time the child will receive them outright.) Your surviving spouse could thus end up owning your home, business and investment accounts jointly with your children or their conservator. Most clients would agree that this is not ideal.

 

Mistake #2: Believing that your will governs the disposition of your assets

A will only disposes of assets that are not held in trust and are not subject to a right of survivorship, a contractual beneficiary designation or a “payable on death” designation. While it was not the case 20 years ago, most assets other than real estate are now governed by some type of “transfer on death” designation. If your estate plan includes asset protection trusts for your children but your beneficiary designations leave accounts to them directly, those accounts will not end up in the trusts; the trusts you paid for and wanted will thus offer no protection for those accounts that passed outright.

I have also seen numerous cases in which an individual will left assets equally to children, yet one child had gotten him or herself added to sizable investment accounts as the joint owner with a right of survivorship. In such cases, that child usually ends up with far more than his or her siblings, which might not have been the parent’s intention.

 

Mistake #3: Not updating documents after divorce

While state law now provides many protections by automatically removing divorced spouses from certain estate planning documents, this does not apply in all cases. Also, since you can no longer rely on your ex-spouse to handle your affairs for you if you die or become incapacitated, it is imperative that documents be reviewed and updated after any divorce, annulment or legal separation.

 

Mistake #4: Thinking a ‘simple’ will is sufficient with a blended family

If you have children from a prior marriage but elect to leave assets outright to your new spouse under a “simple” will plan, you are risking that your children will never benefit from your life’s work in accumulating wealth. Many times, I have seen a surviving spouse change his or her will after the first spouse died so as to disinherit or reduce the share for the children or a prior marriage, sometimes within a year of the spouse’s death. With blended families, deep conversations about how to divide assets must be had, and it is imperative to consider using a marital trust to support the “new” spouse while also ensuring that assets eventually benefit your own children.

 

Mistake #5: Failure to execute well-drafted powers of attorney

While powers of attorney can be used for convenience (i.e., to allow an agent to handle transactions for you if you are unavailable), they are really meant to allow someone you love or trust to manage your affairs for you if you ever can’t handle them for yourself.

In a Health Care Power of Attorney, you can empower an agent to make medical decisions for you if and only if you ever can’t make or articulate them for yourself. With a Durable Power of Attorney for financial matters, you authorize someone to pay your bills, deal with your creditors, manage your business, invest your assets and take withdrawals without needing approval from the Probate Court. Without such a document, your spouse or other family members might have to petition the court to have a guardian and/or conversation appointed for you. That process can cost thousands of dollars and can subject your private affairs to constant and ongoing supervision by the court. This can be easily avoided with a couple of inexpensive estate planning documents.

 

Mistake #6: Not worrying about your children’s future ex-spouses or creditors

If you have a will or trust that gives everything outright to your children or other beneficiaries when they reach a specified age, there is a real possibility that assets you worked your whole life to earn will end up benefiting a child’s ex-spouse or business creditor. For clients with wealth worth protecting, using continuing asset protection trusts that can be created upon death (under a revocable trust agreement) is almost a “no brainer.” If you want the child to essentially have the assets, you can give him or her a high level of control over the trust established for him or her. If the child is a spendthrift, has a substance abuse problem or has a spouse you can’t stand, the trust can be drafted to be more restrictive (which offers even more protection). You can even provide for ongoing professional management by an independent trustee to ensure that assets benefit your children throughout their lifetimes and eventually pass on to your grandchildren or preferred charities.

Even if your children are amazing and financially responsible, you cannot be sure that they will never divorce or be named as a defendant in a lawsuit. Leaving assets in trust for them helps mitigate the risk that your financial legacy will be lost to an ex-spouse or other claimant.

There are many other estate planning mistakes to consider, so I’ll regularly post articles on the Global View blog that discuss other pitfalls that can be avoided with proper planning. For now, if you have concerns in this area, please contact your Global View advisor so that we can help review these issues with you and/or your legal counsel.

 

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Kurt Schumacher Jr.

Written by Kurt Schumacher Jr.

Kurt has been counseling individuals and families with respect to wealth preservation and transfer since 2001. After graduating from Harvard College and Harvard Law School, Kurt began his career as an estate planning attorney in Boston. After moving to Greenville in 2005, he eventually opened his own firm, Schumacher Law, LLC. Kurt’s legal practice has always focused on estate planning and settlement, asset protection, business succession planning and trust administration. As an advisor with Global View, Kurt now works with clients (and their tax and legal advisors) to create strategies that combine prudent investing with thoughtful wealth transfer techniques.

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