Most people see the end goal of their financial planning as having a comfortable retirement. Several of us even understand it also includes tax planning and insurance planning. However, the component that often gets the least attention is estate planning. With the estate tax exemption at $5.49 million, it’s easy to see why most people don’t place a priority on estate planning. Furthermore, a bulk of your wealth may pass outside of probate, as retirement accounts and insurance policies pass by beneficiary designation, while property owned as joint tenants with right of survivorship automatically transfers to the co-owner upon your death.
Situations like this create a market for do-it-yourself Wills or online Will kits. However, simple mistakes can cause a tremendous amount of headaches for your loved ones left behind.
Let’s assume your wishes are pretty simple. You have much less than $5.49 million, and you intend to leave a few items to family with the remainder of your estate going to your spouse. Unfortunately, you created your Will about a year before you married. Often DIY Wills will have language to include a potential spouse in the future—the key though is to actually include that language. We’ve seen Wills that clearly state the decedent is unmarried but then later leaves the estate to his or her spouse. When discrepancies like this arise, a probate judge will have to review the Will and determine if the decedent intended to include a future spouse or if the mention of a spouse was a mistake. The result could be that the judge invalidates the Will, requiring additional court involvement. While Wills can be written to cover a multitude of situations, it is best to review and update it when life events happen.
Another common mistake is misidentifying heirs. One decedent’s Will left money to a nephew and a valuable coin collection to his niece—except the niece was actually the nephew’s daughter, and a minor. The Will gave no instruction as to how to transfer this asset, and since a minor cannot take possession of property, a guardian ad litem needed to be named to represent the minor. The cost for this had to be paid out of estate assets. If you intend to leave money or property to a minor, the easiest option is to name a custodian in your Will and state that you are leaving the property to the named adult as custodian for the child under the Uniform Transfers to Minors Act. You can also create a testamentary trust, which is created at death, to hold assets for a minor.
While these two mistakes created minor hassles, a time-consuming and costly mistake came when one decedent with a DIY Will did not understand waiving surety bonds and the accounting and inventory requirement. The estate was left to his wife, who was also the executor. However, the surety bond is paid to the probate court to ensure the executor fulfills all her duties. Furthermore, the inventory and accounting requirement required the estate be accounted for down to the penny and reported to the probate court. The estate spent considerably longer in probate, and the cost required to inventory and keep up with the accounting came from the estate before any distributions were made, ultimately reducing what the spouse inherited.
Even if you have modest wealth, estate planning is a crucial part in your overall financial plan and should be prepared by an estate planning attorney.
If you have questions on your estate plan, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
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