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Estate planning mistakes are unfortunately a frequent occurrence. Individuals from all walks of life and with widely varying degrees of experience fall into a few common estate planning errors. While there is no shame in making mistakes, it is the essence of estate planning to attempt to anticipate the broadest possible range of eventualities and prepare for those most likely to emerge.
In this blog post, we discuss common estate planning mistakes. Since most people are not in a position to estimate the frequency at which various estate planning scenarios arise outside the context of their own lived experiences, working with an experienced estate planning attorney – who sees and engages with a broad swath of estate planning situations on a daily basis – can help individuals preparing or adapting their estate plans to avoid estate planning pitfalls.
One very common mistake all too many estate planners make is failing to prepare adequately for the possibility of their own incapacity. Most individuals who undertake to prepare an estate plan do prepare, often extensively, for the circumstances they expect to follow from their own eventual passings. The unfortunate reality is that the decisions that often must be made on an incapacitated loved one’s behalf can in their own way be at least as painful and emotionally taxing as the eventual loss of that person’s physical presence.
Careful estate planners can in many cases spare their children, spouses, or other loved ones a great deal of painful self-doubt – as well as taking steps to ensure that their own healthcare aligns with their wishes, even if they are someday unable to express those wishes in “real time” for themselves – by including important incapacity planning documents such as a Living Will and durable power of attorney for health care as they develop their comprehensive estate plans. To get the most benefit – for the estate planner and their designated health care proxies or other decision-makers alike – it can be a good idea to not only carefully document individual preferences, but discuss them, and the reasoning that informs them, with the people named in the documents and entrusted with the responsibility of managing a loved one’s medical care.
Life is unpredictable, however, and estate planning attorneys see far too many tragic and confusing situations in which the disposition of an individual’s personal property, or the proper recipient of the payout for their life insurance policy, becomes complicated by the fact that the person for whom they had intended the assets either has preceded the decedent in death or has become, for any of several reasons, impossible to locate – despite the exhaustive efforts of the life insurance company or the executor of the deceased person’s estate. To help prevent this type of sad situation, individuals preparing their estate plans can make sure to identify a contingent (sometimes also, informally, called “secondary”) beneficiary for each beneficiary designation in their estate plan – and make it a point to review and update these designations with the same regularity as they apply to the other portions of their estate plans.
Whereas it is very common to draft some estate planning documents with relatively general language that can encompass a variety of scenarios – such as specifications that the value of investment stocks be divided equally among all surviving children – there are some types of property, and some ways of disposing of said property, that may benefit from more detailed attention. This can be especially true with items that are left to beneficiaries less for their total value as assets than for their personal and emotional significance, as – unlike investments, savings accounts, or in many cases even tangible property such as real estate – these items may not be equally appropriate for, or equally appreciated by, all beneficiaries who share (for instance) the same degree of kinship with the decedent.
Moreover, if you have planned to leave different categories of property to different beneficiaries, and your assets in one of these categories become unexpectedly diminished for any reason, then well-intentioned but inflexible language can result in an unintentionally uneven distribution of the inheritance. Some changes may even be treated by Ohio law as a revocation of the “devise” (the conferral of property on a specific beneficiary) under O.R.C. § 2107.36. While no one can foresee every possible scenario or outcome, estate planners can take steps to prevent this type of unfortunate accident by working closely with an experienced estate planning attorney to articulate clear terms to be followed in the event of untoward disruptions in the scale and scope of property disposed via estate planning documents such as the will. If you have questions about how to approach this potentially complicated set of factors, consider scheduling a consultation with Rhodium Law to discuss your situation.
Estate planning documents should be updated regularly. Every three to five years can be a good starting point, in the absence of major life changes. These major life changes may include changes in lives of people close to the person preparing the estate plan, not only in their own life exclusively. Examples of life changes that may prompt a need for updating your will and other estate planning documents include:
A wedding – whether your own or that of someone close to you – can be a good occasion for reviewing estate planning documents and updating the overall estate plan. If the marriage is your own, then the existence of a spouse will have substantial implications for the legality and applicability of terms in any will that has already been executed, even though O.R.C. § 2107.37 specifies that a marriage subsequent to the creation of a will does not wholly invalidate the will. Individuals who maintain a grantor trust may wish to consider naming their spouses as both beneficiaries and trustees; keep in mind, however, that the extent to which the terms of a trust can be changed once the trust instrument has been executed will vary substantially depending on the trust type and structure.
While most people who have the foresight to prepare comprehensive estate plans will likely recognize the importance of updating these plans if they themselves marry or remarry, it can be easier to overlook the possible need for updates in the event of a close family member’s change of marital status. However, updating specific estate planning documents – such as a will or life insurance policy – to account for the changes in a loved one’s own likely estate planning structure and their probable future goals and needs can also be a good idea. In many cases, a wedding may also result in a “blended” family structure, adding stepchildren or step-grandchildren; some estate planners may wish to make specific provisions for these new circumstances.
If a wedding presents one set of possible changes to an estate plan, divorce offers its own set of variables for consideration. Just as reviewing estate planning documents and evaluating any need for possible changes after you or a close family member get married can be a good idea, you may also wish to consider a similarly comprehensive review of your estate plan in the wake of a divorce.
Individuals who themselves become divorced will find that most provisions made for the former spouse in any estate planning documents will be treated legally as if the spouse had predeceased the estate planner; while this legal arrangement can prevent an ex-spouse from unduly taking advantage of an individual’s untimely death, however, it does little to facilitate the former spouse’s replacement with more appropriate beneficiaries – to say nothing of other important roles frequently granted to spouses, such as healthcare proxies and attorneys-in-fact. Updating any healthcare directives and power of attorney documents that named the former spouse is especially crucial, as the ex’s removal will not ensure that they are replaced with a more appropriate individual.
Similar to a new marriage, the arrival of a new child or grandchild may in many cases present an important occasion for reviewing the documents that make up a comprehensive estate plan. Although general provisions that set aside a portion of an individual’s estate for their children, or for their grandchildren, may play a role here, many individuals who have the resources with which to do so like to avail themselves of the opportunity to set aside a separate account, or even a small trust – perhaps designed as an educational trust – for each new family member. The expansion of the family through birth, adoption, or a new marriage that brings with it stepchildren can all be important occasions for revisiting and updating estate planning documents.
One of the most common estate planning errors is neglecting to plan for the potential tax implications of the estate planning design. Simply creating a will, or even a trust, does not guarantee that the assets identified in the document will be transferred directly to the beneficiaries designated by the testator (the person who creates a will). In fact, depending on the individual’s state of residence, the size of their estate, and the location of any physical property included in the estate assets, there can be a number of tax implications that may impact the actual property and asset value the beneficiaries named in the will receive. To ensure that the greatest possible value is passed on to beneficiaries, it may be helpful to employ a number of tax-efficient strategies for wealth transfer. An estate planning attorney familiar with Ohio law may be able to advise you regarding the options available in your situation.
If you have already committed one of these common estate planning errors, there is no cause to feel embarrassed – these estate planning mistakes would not be common if they were not made by many, many individuals, including those who have a wealth of experience and justifiably consider themselves knowledgeable across a wide range of contexts. The reality is that no one person is an expert in every area, and identifying all of the relevant considerations in order to prepare estate plans that will be precise enough to accurately convey the individual’s wishes, yet flexible enough to stay relevant even in light of life’s many surprises, can prove challenging even for seasoned professionals.
Working hand-in-hand with an experienced estate planning attorney can make it easier to avoid estate planning pitfalls and help to make a truly effective, custom estate plan more attainable, as developing a deep knowledge of each client’s individual needs can put an attorney who has the requisite familiarity with state and applicable federal laws in a position to anticipate the situations that may arise out of the client’s existing circumstances. A dedicated estate planning attorney will in many cases use their understanding of a client’s preferences and priorities to inform the development of a tailor-made estate planning design that eliminates redundancies while focusing on the right balance of precision and flexibility to address each client’s unique concerns.
At Rhodium Law, we pride ourselves on the breadth of legal knowledge and the depth of client-focused attention we bring to each and every estate planning situation. Reach out to us today to schedule your free consultation and learn why we are passionate about crafting our clients’ ideal estate plans.
