For the Love of Family: 6 Tales of Estate Planning Gone WrongKristin Appenbrink, LearnVest
For the Love of Family: 6 Tales of Estate Planning Gone Wrong
We won’t sugarcoat it: Estate planning can be tricky business.
If you attempt it, that is. Incredibly, many people haven’t even gotten that far.
According to a 2014 Rocket Lawyer survey, 64% of Americans don’t currently have a will—and 55% of them have children—leaving the security and financial well-being of millions totally unprotected.
Without a document detailing how you want your estate divided and distributed, your assets could end up in the hands of a relative you haven’t spoken to in years, or your teenager could have access to a fat bank account before she has even the first clue about how to manage money wisely.
But don’t just take our word for it.
These six legal pros from across the country witness these kinds of estate planning disasters every day.
To illustrate just how important is it to stay on top of your game, we’ve asked them to recount their clients’ most egregious estate planning mistakes—and share advice for how you can sidestep the same land mines.
Estate Mistake #1: Naming an Executor Who Doesn't Play Fair
“When you’re dealing with families, things can get complicated—quick. We see so many cases come through with unresolved feuds between siblings. It’s one of the most common causes of litigation over an estate.
I handled one case where a client’s sister had been named the executor of their father’s estate, despite the fact that she lived in a different state than both her father and brother, whom she’d been fighting with for years.
Ideally, in a case like that, the parents would have named an objective, independent personal representative—like another family member or a trusted friend—as their estate’s executor, instead of one of the kids.
But that didn’t happen here.
After the father passed away, our client started to take care of a few things around the house, not realizing he didn’t have the legal right to do so. Once his sister arrived, there were accusations about items being removed—and a long legal battle ensued.
Ultimately, even though the estate was to be divided evenly, our client’s sister had all of the decision-making power to decide how that happened, so long as the monetary value was equal. There is no way to challenge her decisions in court, and we’re still waiting to see whether or not the siblings can put their feelings aside and divide the estate fairly.
To avoid contentious situations like this, we counsel clients to consider the complicated dynamics between the family members named in a will. If there’s even a possibility of an estate causing fights or damaging relationships, we encourage them to look for an independent personal representative who can settle things fairly.”
—Tom Gisriel, attorney at Pessin Katz Law, Baltimore, Md.
Estate Mistake #2: Failing to Maintain a Valid Will
“Even with a seemingly simple estate—say, you just own a bank account and a house—it’s crucial to keep a valid will or a living trust. Otherwise, you’ll have no control over who will inherit your possessions.
Case in point? I once acted as counsel in a case where a man’s wife had preceded him in death. Because he hadn’t named a new beneficiary after that, when he passed away some time later, his will was no longer valid.
As a result, this man’s estate was divided between his next of kin: a woman in another country whom he’d never met and his wife’s estranged daughter.
Surely, it wasn’t his intention for strangers to inherit his estate! Had he simply updated his will, he could have allowed a friend or organization that truly meant something to him to benefit from his bank account instead.
Bottom line: It seems obvious, but even a basic will that only designates beneficiaries will protect your assets much better than nothing at all.”
—Michelle Lerman, a certified legal specialist in estate planning and author of “Create Your Best Legacy,” San Francisco
Estate Mistake #3: Making Heirs Duke It Out Over Coveted Items
“Parents are frequently the glue that holds families together, and once they pass away, [issues can arise] among relatives. I’ve seen this happen many times when there’s confusion about who should inherit certain heirlooms.
While we’re not in the midst of an estate nightmare just yet, I’m presently working with a client who’s potentially at risk for one. He’s a collector of vintage guns from WWII—and both of his adult children want them.
Together, he and I have been listing all of the specific pieces he owns, but it hasn’t been easy, thanks to his dementia. So far, he’s directed that everything be split equally between his children.
“There was no updated will, and he didn’t have children, so his estate was split between my client and her mother-in-law—and they don’t get along.”
The problem is that his son already has a few pieces at his house, which could make it easy for him to hide something and feign ignorance once it’s time to officially split up the collection.
Right now, both children have agreed to carry out their father’s wishes, but given a history of bad relations between them, it remains to be seen if they will do so.
So here’s my advice for clients planning their estates: Clearly write out exactly what you want to bestow to each heir, as well as the physical location of each item.
And if you’re the potential heir, I’d encourage you to talk to your parents or grandparents about which possessions mean the most to you before they pass away. As an extra insurance policy, have them put it in writing. It’s easy to challenge a verbal agreement in court, but much harder to disprove a written document.”
—Ben Neiburger, an elder law attorney and CPA, Chicago
Estate Mistake #4: Neglecting to Update Your Beneficiaries Following Big Life Changes
“One of my clients found herself in a huge mess after her husband passed away unexpectedly—before updating anything related to his estate.
This meant that major assets, like his life insurance policy and some savings bonds, still listed his first wife as the beneficiary. As a result, his ex got to keep all the money.
Even worse, because there was no updated will, and he didn’t have children, [the rest of] his estate was automatically split between my client and her mother-in-law—and they don’t get along. She even had to buy the house from her mother-in-law just to keep living there!
People mistakenly think that once their first will is signed, they’re done with it forever—but that’s not the case. Instead, you should review it every five to six years to make sure nothing in your life that has any bearing on your estate has changed.”
—David Pessin, attorney at Pessin Katz Law, Baltimore, Md.
Estate Mistake #5: Forgetting About Valuable Personal Effects
“When clients are planning their estate and writing their will with an attorney, there’s usually a catch-all category at the end of the property and financial assessment called ‘personal property.’
Most attorneys will just set a ballpark monetary value for this category, based on the rest of the assets in the estate. Many times, this works out fine—but not always.
I’ve seen several clients who are beneficiaries of estates where Civil War memorabilia or Chinese pottery were left out of the will but discovered later.
If the value exceeds the amount designated in the personal property section of the will, the beneficiary may have to deal with a significant tax burden.
Sometimes the only way to pay those taxes is to sell off items in the collection at an auction or in a fire sale. When this happens, beneficiaries can lose up to 50%–70% of the value of the items. That’s not just a costly mistake—it’s a heartbreaking one.
But you can help prevent this by keeping detailed records of your most valuable possessions, even if you’re unsure whether they’ll increase in value over time. While most people think about their possessions as emotional investments, it’s important to think about them as potential financial assets too.”
—Paige Stover Hague, attorney and principal at Crowninshield Consulting, Boston
“If you name a young beneficiary with no restrictions, he’ll have unfettered access to his inheritance at age 18—and that can lead to trouble.”
Estate Mistake #6: Gifting Money to Minors With No Rules
“If you are setting up your estate and have minor children or grandchildren to whom you wish to leave money, it’s so important to tread carefully.
If you name them a beneficiary with no restrictions, that young person will have unfettered access to his inheritance at age 18—and that can lead to trouble.
I had a case once where a 19-year-old man inherited $750,000 from his grandfather in one lump sum. Spending this money wisely definitely wasn’t a priority, and he blew through it quickly, developing bad habits that ultimately led to him passing away—and jail time for his wife.
Of course, there’s no guarantee this particular situation could have been completely avoided, but getting such a large inheritance at once definitely contributed to his problems by funding them.
The best tool you can use to prevent a situation like this is a living revocable trust that provides for the health, education and well-being of your young heir. It’s an agreement you create that allows you to manage your estate, and designate a trusted agent to execute your wishes after your death.
That trustee—a family member, friend, or someone unrelated to you—can use the money responsibly to, say, cover the child’s school tuition, buy him a car, and generally help instill proper money management lessons.
Then, once the child hits 25, he can inherit the rest of the estate. Ideally, this will ensure that the minor is set up for a financially secure life—for the long-term.”
—Pat Simasko, attorney and partner at Simasko Law, Mount Clemens, Mich.