For many clients working with estate planners, the finished product is carefully packaged and centered around either a Will or Revocable Living Trust. After leaving the estate planner's office, seemingly innocent decisions can undo the work done to the Will or Trust and negate clients’ intentions. Three of these common estate planning mistakes are described below.
Creating Joint or Payable On Death Property.
For both financial accounts and real property, joint ownership or completing transfer on death designations can quickly create contradictions with an estate plan. By law, jointly owned property automatically passes to the surviving joint owner upon an owner's death. This is true both of bank accounts and real estate titled with rights of survivorship. A Transfer on Death designation directs the account holder to transfer the asset to a specific designee upon the death of the owner. Both joint accounts and transfer on death designations remove the account or property from the probate estate of the original owner and in many cases this may be a desired result. But often such designations are undertaken without regard for the overall estate plan and create inconsistencies that frustrate the carefully created plan. For example, if an individual's Will leaves a certain gift to charity, but the individual later changes his or her bank account to a joint account, there may no longer be funds available in the probate estate to complete the gift in the Will. Similarly even if a trust leaves a residence to all of the owner's children, if the property is in fact held in joint tenancy with just one of the children, the property will pass to automatically to that child.
Not Updating Beneficiary Designations.
Many people’s largest asset are retirement accounts and life insurance policies. The disposition of these accounts as a general rule is not governed by a Will or Trust. Instead upon an individual's death, these accounts will be distributed according to the beneficiary designation on file with the account or policy holder. Often these accounts and policies are employer sponsored meaning beneficiary designations are completed upon starting a new job and promptly forgotten about. It's not uncommon to find beneficiary designations directing that benefits be paid in a manner that is vastly different from the disposition in a more recent estate plan. Therefore, updating beneficiary designations is an essential part of any overall estate plan and ongoing diligence is required to be sure that later beneficiary designations complement the overall estate plan.
Failing to Fund A Revocable Living Trust.
A Revocable Living Trust only governs the disposition of the assets that are transferred to the Trust. This is typically accomplished by retitling assets, including bank accounts and real estate into the name of the trust. For many, one of the primary goals of a revocable trust is probate avoidance, but this is only accomplished if all of the assets that otherwise would have been probate assets are instead held in the name of the trust at death.
If you have questions about how to structure your accounts and beneficiary designations to match your estate plan, please contact a member of the Stafford Rosenbaum Trust and Estates team.