Two Estate Planning Mistakes and Tips for Avoiding Them [Plus Real-Life Examples]

Written by Barry Prim, MBA on October 19, 2020

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Creating a will is one of the most important things you can do, especially if you’ve accumulated substantial or unique assets.

But, simply creating a will doesn’t always solve the potential problem of what happens to your assets after you pass. In fact, executing a poorly worded document can make things worse!

In my 30-year career dedicated to trusts, estates and investments, I’ve seen many properly drafted documents do exactly what the person intended. Unfortunately, I’ve also seen a few mistakes.

Creating a great will or trust requires expertise and honest reflection on what the consequences might be well into the future. Of course, no one can predict everything that might happen, but with the right guidance and discussion it’s possible to avoid some issues.

Here are a few trust and estate mistakes (and real examples) I’ve seen in my career that could have been avoided. By sharing them, we hope you can learn from them and avoid them on your own.

1: Using Language That is Too Specific

Tip: While some sort of specificity can be helpful in a trust, be very careful about just how specific to make it. Over time, circumstances can and will change.

Example: Decades ago, a doctor created a trust for his daughter who was in her late 20’s. She was married and had two children. He funded it with investments and put a very specific direction in it to only pay her $400 per month, which, at the time, seemed reasonable.

No principal encroachment was allowed for any reason, and the remaindermen (who receive the assets in the trust when it terminates) were the children of the daughter (or their children should they die before their mother).

Forty years later, the daughter is still alive, her children are deceased, and her grandchildren are alive but not close to their grandmother. The trust, however, has now grown to be rather large. For most of the daughter’s life, she didn’t need the money. But, late in life, the daughter becomes very sick and doesn’t have enough resources for treatment.

She petitions the trustee for help, but the language does not allow it. The trustee decides to petition the court for guidance, but in the hearing, the grandchildren protest any modifications or distributions to help.

This could have been easily avoided with some of the more common language used in documents today that allow some discretion for the trustee.

2: Picking the Wrong Executor/Trustee

Tip: Most people will turn to a relative or close friend to serve as their executor or trustee. While this sounds logical, it can create issues if the person is not familiar with the responsibilities and duties involved in being a fiduciary for someone else.

Choosing who will serve in this role needs to be well thought out and discussed with whoever gets chosen—especially if there are unique circumstances and family dynamics (which is almost every time!).

Example: A very successful businessman, with two children, decided to name his number-two employee as the executor of his estate.

The assets in his estate were the very successful business, some cash and some real estate. Everything was left to the two children equally with no provisions for his former employees.

During his life, the businessman ran the business effectively, but he was not afraid to compensate himself well. (This included many cars, trips, gifts for his wife, etc.) After his death, his number-two employee assumed that’s how he would run the business as well. (This included lavish gifts for his wife and children.)

But, running a business in an estate is not the same as running your own business. As a fiduciary, your standards and your responsibilities change.

After years of expensive court battles, the former employee was removed as executor, but not without a lot of bad will and destruction to the business—the exact thing the businessman didn’t want to happen.

Avoiding Estate Planning Mistakes

It is vitally important to think carefully about how a will or trust is designed.

Although Waverly Advisors doesn’t draft legal documents, we would be happy to consult you as you start the process or to review any current wills or trusts and make sure they are doing what you intend.

There are many items to consider, such as how the assets are titled, how the portfolios are constructed and much more. And we strongly recommend using an estate planning lawyer who is experienced in these areas.

We know it can seem to be a daunting task, but in the end, you will be relieved in knowing what you’ve worked so hard for will be handled effectively and in accordance with your design.

Reach out to your Waverly Advisors, or ask a member of our team to connect with you to start the conversation.

Waverly Advisors is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice. You should not assume that any information provided serves as the receipt of, or as a substitute for, personalized investment advice from Waverly Advisors. This information should be used as a reference only. Talk to your Waverly Advisors, or a professional advisor of your choosing, for guidance specific to your situation. A copy of Waverly Advisor’s current written disclosure brochure discussing our advisory services and fees is available upon request.

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