Your will and living trust are probably the most important documents you will prepare in your life. Therefore, it’s a good idea to retain a qualified attorney to help. While do-it-yourself wills and living trusts are available, there are many opportunities for errors. Even simple mistakes can lead to your estate plan being contested or invalidated altogether if not done properly.
Here are some of the most common mistakes found in wills, estates and inheritance that can create a mess for your closest friends and family to sort out.
Waiting until later … and dying without a will
The biggest blunder when it comes to inheritance and benefactors is not having a will or living trust at all. Some believe they don’t own enough assets or have enough wealth to justify the effort involved in making an estate plan. However, an estate is rarely too small to justify not doing some kind of planning.
Passing away without a valid will is known as dying ‘intestate’, which means that state law determines how the estate is to be administered. These rules of intestacy follow a hierarchy of who should benefit from the estate. As every family relationship is different, those on the top of the list may not always be the most ideal recipients of your assets. And if you have no will or and no beneficiaries that fit under the hierarchy, the state may be entitled to your entire estate.
Not letting family know your will exists
Having a will is useless if nobody knows it exists. Make sure your loved ones know where to look for it when the time comes. You’ll want to ensure it is left in a secure place that is still accessible – like a locked drawer, home safe or safe deposit box.
Not specifying your funeral preferences
A funeral or memorial is the very last chance to celebrate a life well lived. Making your funeral preferences known in your will ensures your loved ones can honor your wishes to go out the way you want – be it with specific funeral provider, or simply the type of memorial you’d like.
To avoid the financial stress on your family later on, you can even arrange to prepay your funeral costs.
Failing to provide for dependants
If you have step-children and would like to include them as beneficiaries, simply stating “my children” in your will doesn’t automatically cover them. You need to explicitly mention any step-children by name in your will if you want them to be included in the distribution of your estate. Legally adopted children, however, will be considered the same as biological children.
If you purposefully want to leave someone out of your will, you should always seek professional advice. A lawyer may suggest preparing a supplementary statement to explain why you are not providing for the person, This won’t necessarily prevent that person from challenging the will, but it means they can’t argue that they have simply been forgotten.
Getting the executorship wrong
Choosing an executor to take ownership of administering your estate is such a vital role, yet so many people forget to name one, or choose poorly.
An executor or trustee will be responsible for ensuring your estate is properly distributed, as well as for arranging and paying for the funeral and other administrative expenses of the deceased (often in consultation with the deceased’s loved ones). As such, nominating an executor who isn’t capable of or willing to do the paperwork and organizational duties required could cost the estate time, money or both.
It isn’t necessary to hold any professional qualifications to act as executor or trustee. You can choose a friend or relative or appoint an independent trustee. If no executor has been named in a will, the probate court will appoint one, however that person may not have been the deceased’s first choice.
Having an invalid will
Many people think a photocopy of a will is valid. But an executor needs an original will document to legally administer your estate and get a grant of probate to manage your affairs.
In California, a will is not a valid legal document unless it’s signed in the presence of two witnesses (both of whom need to be 18 years or older).
Additionally, the will-maker can sometimes pass away without having finalized and signed it themselves and if it’s not signed, it’s simply not valid.
If you wish to make changes to a will after it has been signed and witnessed, it’s not as simple as crossing a few things out and adding a note in its place. To amend an existing will, you will have to make an official alteration called a codicil, that must be signed and witnessed in the same way as a will. Alternatively, you can make a new will altogether.
Being too specific
If your intentions are not explicitly clear, they may not be followed properly, or the will could even be ruled invalid. On the other hand, being too specific can also be problematic. For example, if you state that you wish for your “white Mercedes” to be left for your eldest child but you later sell the car but fail to amend your will, it can lead to confusion and potential disputes.
You can get around this by being more general with the details of certain assets – opt for language like “the car that is in my name” or update your will periodically.
Failing to take proper inventory of your assets is another pitfall. Most people remember the tangible assets like a car, property and jewelry, but often will-makers forget financial assets.
When making a list of assets to leave your loved ones, be sure to include all of the bank accounts, premium bonds, shares and any other potential funds you may have. Keeping a list of both the tangible and intangible assets will ensure you’re not accidentally leaving anything significant out of your will.
Ignoring competency issues
A will-maker needs to be of sound mind when making a will so in cases where there is an allegation that the deceased lacked the full capacity when they wrote it, often due to dementia, the will’s validity can be challenged. If competency is a possible issue, it’s best to consider get a letter from your doctor confirming you are of ‘sound mind’ when making your will to avoid any possibility of a disgruntled family member challenging your capacity later on.
Not accounting for debts and tax
Before an estate can be distributed, the executor will need to pay the deceased’s debts, some of which, such as an outstanding mortgage, can take a fair chunk of the estate. If you don’t account for this when specifying who gets what in your will, the distribution of your assets can be unfairly divided when a beneficiary becomes unintentionally left with the debt before taking their share.
For example, let’s say the eldest child is left life insurance to the value of $500,000 and the second child is left an investment portfolio also worth $500,000 – but the investment portfolio has borrowings of $100,000 attached to it. While it may have sounded like an even distribution on the outset, the first child actually received $500,000 worth of assets, while the second child only inherited assets to the value of $400,000.
Debts can generally be paid directly from the estate account but there are a number of tax considerations that can also impact on how much beneficiaries end up receiving from an estate. These include estate tax, income tax and capital gains tax. Any assets owned at the time of death can generally be transferred to beneficiaries without the need to pay capital gains tax, although the beneficiary will need to account for this when they eventually sell the asset.
Establishing a trust can be an effective way to minimize tax on income, particularly when leaving assets to beneficiaries who are minors.
Having an outdated will
Many people underestimate the impacts of big life events. As well as updating your will if you get married, divorced, have children or simply change your feelings about Uncle Frank, other life events that could require a change to your will may include:
the birth of another child or grandchild
the death of a loved one
buying a new home or another significant investment.
It’s also worth noting that all parts of a will are not automatically revoked when you divorce, so a former spouse may still have a right to claim on your estate. It’s wise to seek professional advice here because the law here can be complex. Regardless, wills and estate plans should be reviewed every few years or whenever there is a significant change to your personal or financial affairs.
Contact the Law Office of Joseph M. Barton at 415-235-9162 today to schedule a complimentary consultation with an experienced attorney about preparing your estate plan or updating your existing plan. A professionally prepared estate plan will save you money and give you lasting peace of mind.