Legal News: 7 Major Mistakes of Not Having an Estate Plan

The list of major estate mistakes and poor choices is almost infinite. Here are some of the mistakes that are frequently made.


Not having a will means that at your death the distribution of your assets will be dictated by the inheritance laws of the state where you were domiciled when you died. These "intestacy laws" vary from state to state but, typically, leave percentages of your assets to various family members. There is always a remote chance that these laws will accomplish what you would have intended - but not likely. It is highly improbable that, by chance, your dispositive intentions as to who gets what, when and in what form will be fulfilled. This is true even if your estate is below the tax threshold. Your will applies to the disposition of your "probate assets" - those assets NOT otherwise following a beneficiary designation or the titling of the asset. Non-probate assets will pass by operation of law or contract. For example, whoever the beneficiary designation may have been when you originally began your 401(k) or IRA at the start of your work life will override either you will or the laws of intestacy. Evan a simple plan that is well thought out and results from the identification of your personal objectives will be much more successful than noting at all.

2). Online or DIY rather than professionals

There has been a noticeable uptick in the number of poeple who will look to the internet to prepare their own wills and trusts. There are dozens upon dozens of websites that will profess to offer you just the right discounted estate planning documents. Even wealthly clients who stand to benefit the most from expert planning advice have been impacted. Unfortunately, relying on web-based, do it yourself solutions is a recipe for disaster. Estate planning documents should represent the culmination of a well thought out financial and estate plan. Also, use an experienced estate attorney. All wills are perfect documents while they are in your desk drawer. Only when examined post-mortem are the inadequacies revealed.

3). Failure to Review Beneficiary Designations and Titling of Assets

One of the most basic and most overlooked items on every estate-planning checklist is the review of beneficiary designations and the proper titling of accounts. Unwittingly many people will often let beneficiary designations and asset titling determine their estate plans for them, contrary to their intentions.  Why? Regardless of what your well developed wills and trusts say, your beneficiary designations and the title of your assets will control the ultimate distribution of those assets. Most investment accounts allow for the designation of a beneficiary (IRAs, 401(k)s, company plans, etc.). Most recently, many states have enacted legislation to convert even otherwise ordinary bokerage accounts into accounts with bneficiary designations via Payable/Transfer Upon Death Registrations. All of these beneficiay designations absolutely control who gets the asset at your death. The titling of assets is a property law concept with estate implications. An account that is held jointly with right of survivorship will pass automatically to the survivor of the joint owners. Why does this matter? Assets can flow to the wrong people due to old, wrong and/or out-of-date designations, often with unintended estate and income tax implications.

4). Faiure to Consider the Estate and Gift Tax Consequences of Life Insurance

Life insurance proceeds are included in the estate when owned by the insured at death. However, the insured may choose to transfer all incidence of ownership during his/her lifetime thereby avoiding any potential estate tax inclusion. Notwithstanding this accessible planning fix (usually via trust), relinquishing ownership and control is not necessarily an automatic decision in some instances, large sums of available, tax-advantaged and asset-protected case has accumulated in permanent life insurance policies. Accordingy, the decision as to how an insuracnce policy should be owned and, as importantly, controlled, can be complex and is highly individualized in the right fact patterns, especially when tax is not the only important consideration, credible arguments can be made for both trust ownership and direct ownership. As in most estate planning, it is very much dependent on individual circumstances; family dynamics, net worth, financial/liquidity position, personal preferences and even, your philosophy on the transfer of assets to future generations.

5). Maximisizing annual gifts

Gifting is, probably, the oldest and best way to maximize uture estate taxes. The entire universe of exemptions and deductions, available for the reduction of estate taxes consist of: the lifetime exemption ($11,180,000 in 2018), the marital deduction (for gifts to citizen spouses during tlife or at death), the gift and estate tax charitable deduction, annual exclusion gifts ($15,000 in 2018) and direct transfers (not to be treated as gifts) for education (tuition) and medical care (both theoretically unlimited). For the wealthy, maximizing all of these is smart planning. Making annual exclusion gifts every year to as many family members (this includes anyone close to you) as is financially prudent (given your financial situation) is good planning.

6). Failure to Take Advantage of the Estate Tax Exemption

As every estate and financial planning practitioner will tell you (and probably already has told you), making lifetime gifts is a simple and effective estate tax minimization strategy. Simply giving away assets at no gift tax cost will allow both the corpus and its appreciation to escape the Federal estate tax on the passing of the donor. Using the exemption equivalent amount during your life is better than leaving it for use at death. Above and beyond the annual exclusion gift limit of $15,000, the federal applicable exemption amount for transfers during life (gifts) and death (estates) has increased (by indexing) to $11,180,000 per person for 2018 - by far the highest it has ever been since the establishment of the estate tax. Wealthy individuals who have both the means and desire to do so, should plan on making these gifts during 2018.

7). Leaving assets outright to Adult Children

In recent years, there has been a growing opinion among advisors for wealthy families that assets should remain in trust ,even for adult children, for as long as possible for the asset protection and other benefits that a trust can offer. For a wealthy couple with adult children, the question may no longer be a one of legal capacity or maturity (although those issues may still remain). The bigger questions may, more accurately, become who should really benefit from the fruits of my labor and how do I protect those assets from creditors, potential creditors and ex-spouses. Depending on your persepective dictating from the grave may or may not be a perjorative expression. For as long as trusts have been in existence (800+ years), the idea of controlling assets for as long as allowed with a set of instructions has been considered acceptable and often sought after planning. In fact, centuries ago, keeping assets in trust forever was, more likely than not, the goal, hence the genesis of the "rule against perpetutities." This rule was law in all 50 states to prevent perpetual of "dynasty" trusts. Over the last several years, many states have been modifying this rule to allow for longer trusts or have outright abolished the rule. Whether or not to leave assets in trust for adult children depends on many factors, not the least of which is personal preference. However, in our litigious society of high divorce rates, leaving some assets in trust with fairly liberal access is certainly worth considerations.