Estate Planning Biggest Mistake

It’s Not Just About a Will, Trust or Other Document

One of the biggest mistakes people make with estate planning is to assume that estate planning means getting a document. Whether it is a will, a revocable trust, living trust, or any other document, a document without a plan is unlikely to protect you or your loved ones. Nor will likely accomplish your goals. Signing the best will or revocable trust, without more, just won’t cut the planning mustard. So many estate plans, whether created by attorneys, online services, or other providers are focused on documents. People call estate planners, or go to an online website to get a document.

Ask Questions; Consider Options

Perhaps you’ve read articles or watched YouTube videos extoling the virtues of having a revocable living trust to avoid the costs, time delays and publicity of probate (the process when a will is accepted by a surrogate or probate court). There can be tremendous benefits to a revocable trust, but, that alone is never sufficient. Consider:

• How are your assets owned? If not retitled to the living trust the trust may not accomplish its goals as intended. If bank accounts are owned in trust for (“ITF”) or jointly with heirs, those assets will pass without regard to your legal documents. That could result in wealth passing differently then you intend.
• You cannot retitle retirement assets to a revocable trust or it will trigger gain, so your beneficiary designations must determine who receives those assets. What do those provide? What should they provide?
• Living trusts are a powerful tool to protect you as you age or if you face disability, but that requires funding now and other steps. Merely creating a legal document like a revocable trust alone won’t serve to reduce the risk of elder financial abuse. More is needed.
• What does your revocable trust provide in terms of further trusts for children or other heirs? Having a revocable trust that may reduce or even avoid probate, but having that trust simply leave assets outright to heirs, won’t protect them. Instead, having appropriately planned trusts to hold those assets for each heir may protect them from divorce, irresponsibility, and more. That takes a plan.
• Who will you name as successor trustee and what powers will you give them? The best trust with the wrong trustee, or inappropriate powers given to the trustee, can undermine all you hope to accomplish. More than a mere document is required.
• If you have inadequate property, casualty, liability, life and other insurance coverage, you may find that your estate is not protected and a calamity might result in little or no wealth to be bequeathed in the future. Knowing what insurance coverage, you should have is critical to protect you while you are alive, and your loved ones.
• Many people don’t deal with the reality of their financial condition. You can be very wealthy, yet spend too much on living expenses, or neglect your investment allocation and planning. Either of these missteps could derail your entire plan. Having a top-notch living trust but overspending might have you facing a reduction in lifestyle in the future just to get by. That is tough. The trust will have done nothing to address your real issue.
• The list goes on.

Key Point

The key point is you need more than just a legal document you need a holistic plan. If you start the estate planning process by asking an attorney “How much is a will?” you are not going to accomplish your goals. If you go to an estate planning website and purchase a form, any form, you won’t accomplish your goals. You need a plan!

Step #1: You need to start with your facts: information about family, loved ones and others involved in your plan, financial data, and information about other personal matters that might be relevant to you. “To you” means that this is about you, personal to you, and not generic stuff that everyone does. No two people have exactly the same family, assets, goals and personal feelings.

Step #2: You then need to identify your real goals. These need to be specific to you and not just generalities about saving taxes or avoiding probate. Everyone wants to save taxes and reduce probate costs and delays. That should be assumed. But those common goals are not enough to guide your planning journey. Consider all of your goals.

• Do you have religious, lifestyle or other considerations that affect your planning?
• Does a beneficiary have addiction or mental health challenges that should be addressed?
• Do you have any health concerns that affect your plan now, or which in the future may?
• Are charitable objectives part of your planning?
• Do you have children or other heirs that have different financial needs?
• Do you face liability exposure that could dissipate your wealth?
• Do you have unique assets like a coin or art collection that require special considerations?

The list goes on, but it should not be a list from an article or AI generated, it should be a list that you contemplate over time and with the serious consideration these matters deserve, compile.

Step #3: Then the plan is what connects your facts to your goals. That connection or process is what will help you determine what you really need. That will likely include documents, but almost always much more. It will also inform you about what you need in those documents to accomplish your goals. Just getting a document and feeling “one and done” is a false sense of accomplishment. A plan must be comprehensive, holistic, and tailored to your personal situation.

• If you face risks of running out of money, because of overspending or lack of adequate insurance coverage your estate plan should be built on the foundation of a thoughtful financial plan that addresses budgeting, financial forecasts, insurance analysis and so forth. That is the start of a plan. Documents can then be built on that. If you have no inkling of what your finances might be, making pecuniary (dollar amount) gifts may undermine the primary beneficiaries you care about who would take after those dollar gifts. Seeing financial models can help you pick a dispositive plan that really works.
• Say you are advanced in years and a child is living with you and taking care of you. How can you empower that child to have access to your finances to pay bills but without giving them uncontrolled power which might provide a temptation? Perhaps name the child as a co-trustee of a funded revocable trust along with an institutional co-trustee. Or perhaps you appoint a CPA as a monitor to track all trust expenditures and send that information to all of your children so that if there is any inappropriate conduct (the child caring for you starts paying his personal expenses out of your money) that will be discovered quickly and stopped.
• One of your four children is working in the family business. How do you assure that your business will continue and that child will have an opportunity to run the business, but your other children won’t be treated unfairly? Planning for this might include creating a trust to own the business to benefit all the family, revising the governing documents for the entity that runs the business so that the child running the business as adequate latitude to make business decisions without being challenged by siblings, but also restrictions to prevent that child from benefiting themselves unfairly at the expense of their siblings.

Conclusion

Getting a will or a trust may be essential to your estate plan, but no legal document alone is an estate plan. It’s seductive to think that signing a document solves all your problems but that is unlikely to be the case. Getting good results for your estate, just like exercise, requires planning, commitment and follow-through. Take the long and more difficult but realistic route.