Four common estate-planning errors can cause you and/or your heirs considerable stress and aggravation, family arguments, and unnecessary taxes and legal expenses. Below is a description of each error and strategies recommended by experts to handle each situation.
Not Planning For
the Disposition of Untitled Personal Property
Untitled personal property is items people own where
the owner is not identified with a written document (i.e., their “stuff”). Examples
include tools, furniture, photos, books, dishes, jewelry, collections (e.g.,
coins), artwork, and more. Talking about
untitled property is “sensitive” because of emotions involved, sentimental
meanings attached to various pieces of property, and differing perceptions of
what is “fair” in the distribution process. Also, there is often only one of an
untitled property item so it is impossible to divide everything equally.
Experts recommend that property donors determine their
goals first. For example, is it
important to give more to less affluent children or according to a child’s age,
gender, marital status, or birth order? There are several ways that untitled
personal property can be distributed including memorandums attached to a will
(i.e., a “separate writing”), lists given to a person’s executor or family
members, gifts made during a donor’s lifetime, drawing names out of a hat,
verbal promises, and labeling items.
Not Writing a Will
Many Americans die intestate (without a will) and, by
doing so, default to the “one size fits all” will provided by their state of
residence. This state-determined
property distribution formula may or may not be appropriate for their family’s
situation but there is no choice in the matter.
Estate-planning costs are also increased because a court-appointed
administrator must be appointed, and generally bonded, which increases an
estate’s administrative expenses. Some
people procrastinate on drafting a will because they do not know who to name to
key positions, such as executor and guardian, so they do nothing.
There may also be a mistaken impression that only
family members can be named, which is untrue.
It is not unusual for people to name a professional fiduciary, such as a
bank trust department, to serve as executor or to name a close friend, rather
than a family member, as guardian.
Another reason to have a will is to make gifts to charitable
organizations upon your death. State
formulas do not allow for this.
According to the book You’re
50-Now What? by Charles Schwab, less than 6% of Americans leave money to
charitable organizations upon their death, most notably because so many die
intestate. Expert tip: prepare a will and update it regularly.
Conflicts in the
Titling of Assets
This error is seen especially in remarried
households. People want an asset to go
to one person (e.g., a child from their first marriage) and put this in their
will, yet they own the asset with rights of survivorship with someone else
(e.g., a second spouse). In cases where
provisions in a deceased person’s will conflict with the titling of assets, the
title almost always determines the asset’s subsequent owner. Persons with complex estates and/or family
relationships should seek legal counsel to avoid making this error. Expert tip: check for will-title conflicts.
Incorrect
Beneficiary Designations
Errors in beneficiary designations can lead to the
disinheritance of heirs, delays in providing for the financial needs of loved
ones, and unnecessary expenses and tax payments. Three common errors made when naming a
beneficiary are: failing to regularly update beneficiary designations, naming
an estate as beneficiary, and failing to name a contingent beneficiary. Expert tip:
periodically review the beneficiary designations on IRAs, tax-deferred employer
plans like 401(k)s, and life insurance policies to make sure they are current,
especially if you’ve experienced a major life event such as the death of a
spouse, divorce, marriage, remarriage, or the birth of a child.
