Details That Will Haunt You – Estate Planning Misunderstandings And Mistakes

Estate planning, like any area of the law, is not a domain to take lightly. Dealing with your earthly possessions and belongings after your death is something that can profoundly impact families, and not always in a good way. Misunderstandings can lead to errors and mistakes, which in turn can snowball into financial hardships, emotional conflicts, and a tarnished legacy.

This article dives deep into three such areas where mistakes are likely to happen and informs you how to avoid them. Ultimately, however, the only foolproof solution is to work with an attorney. It covers:

• The specificity of your will or other estate planning tools about the sources of assets.
• What happens when you fail to update a previous will, including from another state.
• What happens when trusts and wills conflict over handling certain assets.

How Detailed Does Identifying Information Need To Be When Drafting A Trust?

One of the most frequent and tricky estate planning questions arises when lawyers are working with clients concerned about the level of specificity and detail they need to include about assets being bequeathed.

When you do a revocable living trust estate plan, it is imperative that the documents say what you want them to. They must dictate how the attributes will be distributed and who is going to be in control of them.

The second part is funding, which requires retitling your assets to the name of the trust. After that, a schedule of assets will be created, which is a list or inventory of what the trust owns. It also lists the information that will be available to whoever takes over the trust after your death.

The schedule of assets gives the trustee awareness of what has been placed in the trust. It might list the addresses for real property or the name of the institution for financial accounts.

The details are unlikely to stop there, however, as the trustee will need to be able to access that account. Therefore it will include the type of account, and account number, possibly with the final account numbers starred or hidden. This gives them enough of the identifying numbers that they can contact the bank and identify the account, but some attorneys put the entire bank account number on there.

For real property, in addition to the address, you might have to include the deed and any other legal requirements or documents.

Unfortunately, merely being listed in the schedule of assets does not mean the asset or property has actually been retitled. Someone might have completed the schedule of assets but failed to retitle some or all of the assets into the name of the trust. Especially if they are trying to do everything without a lawyer, this would add serious complications, though it can be corrected. It might even require going to probate court.

What Happens If Your Estate Plan Update Fails To Take State Boundaries And Laws Into Consideration?

When state law distinctions get involved is the most frequent place where estate plans break down, especially if they have not already taken them into consideration. One current case from California and Arizona provides the perfect example of why.

Arizona and California are notably divided by a mere river, but the state laws are quite different. The probate code in Arizona is about one inch thick and about twice that in California. With more laws on the books and a ton more case law in California than Arizona, sometimes details fall through the cracks.

This example involves a pretermitted spouse. That is a spouse that was left out of an estate plan, for example, because the estate plan predated them. In this situation, the clients got married in January. The estate plan was done pre-January when the husband was single. He gets married in January, files for divorce in June, and dies at the end of June, with a quite large estate. Let us say, $40 million.

In California, the probate code says if you have a pretermitted spouse, they get one-half of the estate no matter who the beneficiaries of the estate plan are. In Arizona, pretermitted spouse law says the spouse gets half of the estate but cannot take their half if it was left to a child of the deceased. In this case, there is one child who is set to inherit 100% of the $40 million estate.

If California law governs, the pretermitted spouse gets $20 million because she gets half regardless of the will. If Arizona law governs, the pretermitted spouse cannot take from the child and thus gets nothing.

This is when estate plans fail, as the end result may depend on a court battle to determine which state’s laws should be applicable.

What Happens If A Trust Conflicts With A Will?

Another area of conflict and concern can emerge if there is one or more assets that have been allocated to a trust but also left to someone in a will…

Typically, the trust will prevail if it’s properly funded. The law on that is not absolute, but if a trust is properly funded, those assets are not technically in your estate because legal ownership has been transferred to the trust. They thus would not be governed by a will because the will only applies to your probatable estate.

Either way, having an attorney carefully review, or even write, your estate plan, is the best way to avoid such mistakes. They will cause, at best, expensive legal battles, and at worse, permanent errors or a shadow cast over your legacy. For more information on Updating Your Wills & Trusts In An Estate Plan, an initial consultation is your next best step.