10 Critical Mistakes in Estate Planning

Over my thirty-two plus year career, I continued to see mistakes in legal documents prepared by attorneys along with the failure to review and update these legal documents by their clients. No offense to the many "flawless" attorneys out there. These are the biggest mistakes that I often see:

1. Failure by the attorney to make certain that individual and joint assets are re-titled into the new Revocable Living Trust by the client.
2. Failure in drafting a Revocable Living Trust (mostly on purpose) that names a bank or corporate trustee.
3. Failure by the client to update their legal documents periodically.
4. Failure by the attorney, again on purpose, to force the creation of one or more Testamentary Trusts at the death of the grantors.
5. Failure to have clear language regarding beneficiaries ability to accept their share outright, or as a lump sum.
6. Failure in drafting a Revocable Living Trust that restricts all beneficiaries as if they were all addicted to drugs, having maritial problems, or are a spendthrift.
7. Failure to record a deed for real estate into the name of the Revocable Living Trust.
8. Failure by the attorney to make clear their fee and timetable to perform trust updates.
9. Failure by the attorney to obtain client signatures in all the proper places.
10. Failure by the attorney in not drafting a "see-through trust" when recommending the beneficiary of qualified plans and IRA's be the new Revocable Living Trust.

Let's take these one by one. 

Number one is very typical. The attorney drafts the document, then tells the client to re-title everything, yet nobody follows up to see that it is completed.

Number two in most cases is totally unnecessary for middle class families. Someone with a small estate has no need for a bank trustee. This should be a no-brainer by the attorney, but I have seen it often.

Number three is very common. Sometimes the grantor's beneficiary dies before they do and the Revocable Living Trust is never updated. Further still, the grantor may have wanted to change their beneficiaries, but did not get around to it.

Number four is a pure money grab by the attorney, in my opinion. The grantor paid the attorney for the Revocable Living Trust, then the attorney never explained and the client never read it to see that each beneficiary cannot have access to their share of the estate. Only the income from the principal and for their health and welfare. By adding Testamentary Trusts which are created upon the death of the last grantor, then this is what you end up with. This makes each beneficiary have to hire an attorney. You see, even though your parents left you a share, since you are three siblings for example, then all three have to hire their own attorney to draft their own Testamentary Trust. One attorney cannot represent three siblings. They are barred from doing so since each sibling has competing interests and different beneficiaries.

Number five is related to number four. There is no provision for an outright distribution or lump-sum distribution for beneficiaries when Testamentary Trusts are created. You do not need Testamentary Trusts if you pay beneficiaries outright.

Number six is where the attorney drafts the Revocable Living Trust so that all beneficiaries are considered spendthrifts or have marriage or addiction problems. Each family is different, but attorneys tend to treat all the beneficiaries the same when they draft legal documents, even if only one beneficiary has issues.

Number seven is related to number one. I see this a lot. The attorney tells the client to do a quit claim deed, but there is a breakdown in communication somewhere along the line and the quit claim deed does not get filed with the county where the real estate is located.

Number eight is where the attorneys gladly take the client's money to do the initial drafting of the Revocable Living Trust, but do not have a clear explanation about their fee to update the trust as the client's lives change, or tax laws change. Clients are left to wonder how much it costs for an update and typically blow it off and file it away in the "I'll do it later" category. For example, in Florida, the Revocable Living Trust, the Pour-Over Will and the Financial Powers of Attorney should all be witnessed by two people with their full addresses. Everyone, the grantor and the two witnesses signatures should also be notarized. You may have a problem in Florida if the trust does not have two witnesses and a notarization of everyone's signature. You do not want to find out when someone passes away about this issue. Do an Estate Planning Review!

Number nine is another no-brainer. Believe it or not, most attorneys leave the notarization up to someone who works for them in their office. This is ripe for mistakes. I have seen it numerous times where a signature is left blank, or not dated properly and where the grantor's date and the notary's date do not match. Plus, scribbling through something and initialing it, is a mistake. Never ever scribble through anything on a legal document. RE-DO IT!! The attorney that allows this on a newly created trust is not professional, but rather lazy, in my opinion.

Number ten can be costly. I had a client whose attorney let her husband name his Revocable Living Trust as the beneficiary of his IRA. His wife was a beneficiary, but there was also a corporate beneficiary. This failed to meet the definition of a "see-through trust" as far as the IRS is concerned, because a corporation is not a person. Therefore, you cannot "see-through it" to any person. As a result, the wife could not treat the IRA as her own and she had to take it all out in five years.

There you have my 10 Critical Mistakes in Estate Planning. Trust me, it is worthwhile to have someone like me take a look at your legal documents. Although, I am not an attorney, I am qualified by training and experience as a Certified Financial Planner® to review estate planning documents. By this I mean that I can read!

https://marianfs.com

I must be really stupid

I must be really stupid or something. You see, I have done several things that would make me engaged in the future of my family. Most people are not engaged in thinking about their family and their future. Instead they want to focus on doing nothing and saving their money so they can spend it on themselves. They must be the really smart people. I have to be the stupidest idiot on the planet.

You see, I must be stupid because I have a pour over will and a living trust. Not only have I taken the time to have a will prepared, but also a living trust. In addition, I have amended my living trust as needed. Further, my wife and I have sat down and made the choices related to our health care, in case we become incapacitated. We have power of attorney documents for both financial and health care decisions. I must be stupid, because I paid an attorney to perform these services for my family. I am an idiot for not using an online service or software company to provide me a template and prepare these documents myself. I am even dumber for doing this while I was legally competent.

The smart people must be the ones who do not hire attorneys and pay them their fees. The really smart people must use online services or software companies and prepare their own legal documents. Or better yet, the really, really smart people must be the ones who do not have a will at all. These really, really smart people must be the ones who do not have a living trust, nor do they have living wills or powers of attorney documents, either. Boy I wish I was as smart as the really, really smart people.

You see, paying 3% in probate fees because you do not have a will must be a really smart strategy. Also, these really smart people know that if they go through probate, then everyone will know how smart they are, because everything about them becomes public knowledge.

Having to go to court and have a legal guardian declared to take care of your minor children must be a smart strategy, too. Instead of paying the attorney while you are alive, you pay the attorney and court costs when you are dead! The attorney has to file court papers for every year of your minor children's life until they turn 18 years of age. In fact, I know of a guy who remarried and had passed away without a will. He had remarried and had two minor children. He was so smart. A guardianship had to be established through the courts. He got to pay the attorney and court costs after he was dead.

The state law for those dying without a will in his state was that his two minor children got two thirds of his estate. The other third was fought out in court. His new wife sued the mother of his children. The new wife, you see wasn't in the will because there was no will, so she decided to hire an attorney to sue his estate in probate court so everyone could keep up with what was going on. It was all public knowledge by this time. This new wife even wanted to control the money for the minor kids that were not even her kids. You see this guy was real smart. He didn't have a will. He was so smart. He was even a doctor! Doctors are way smarter than I am. They go to college and medical school. That makes them way smarter than me.

You see, the really smart people do not want to have to make that "pulling the plug" decision with a living will. They have no need to worry about the future hospital costs, since they will be "veggin out" anyway. These smart people know that putting the "pull the plug" decision on the shoulders of their family members is no sweat off of their back. It doesn't matter that their family member may have regrets for the rest of their lives for having to make that decision. What's important is that the really smart person saved those darn attorneys fees. That trumps everything else. Nothing else matters when it comes to saving money for smart people.

You see, I must be really stupid, because I have life insurance and my wife has life insurance. This insurance is in place to help the surviving spouse in case one of us were to die prematurely. Yet, I must be stupid, because the smart people do not have any life insurance. How could I have been so stupid to buy life insurance when I was still healthy. If I would have only waited until I was uninsurable, then I could have saved all those life insurance premiums. Boy was I dumb.

I know of one guy who had two dads. One of his dad's, his biological father had little to no life insurance, even though he had four kids. The other dad, who was this guy's step dad, also had four kids, including his step son, but he must have been stupid. He bought $1,000,000 worth of life insurance. Both dads died prematurely. However, the step dad had to be stupid to buy $1,000,000 of life insurance. Are you kidding me? The sacrifice for the life insurance premiums must have been enormous. What kind of idiot would care enough about their four kids, even when one of them wasn't even his own, would spend money on life insurance? That step dad must have been really stupid. Just like me.

I know for a fact that I am really, really stupid, because me and my wife have a Long Term Care insurance policy. The really smart people must be the ones who do not have Long Term Care insurance. These smart people know that Long Term Care insurance is expensive, therefore they are smart enough not to buy any of it. They are smart enough to know precisely when they are going to die. They know for certain that they are just going to keel over one day and they will never need it. Either that, or they believe that their adult kids will not mind dropping everything in their own lives to care for them. This is obviously the smart way to take care of  Long Term Care issues. Put it all on the shoulders of their adult kids. Boy these people are so smart. I must be stupid, because I am paying for Long Term Care insurance. I am such an idiot. I could have saved that money and let my kids take care of me.

My conclusions for being stupid beyond a shadow of a doubt are that I paid for attorney fees to plan for me or my wife's early demise. I paid what most people would consider to be too much in attorney's fees. I paid for and continue to pay for life insurance and Long Term Care insurance. Pure stupidity. I could have saved all that money and the money that I have to continue to pay in the future. I am not selfish and self centered like all the smart people. That is a bad character flaw that I have...that is not being selfish and self-centered. I need to work on being more selfish and self-centered, then I might be one of those really smart people.

You see, smart people will read this blog post and receive confirmation on how really smart they are compared to me. I must be really stupid.

If you want  to discuss how hiring an attorney and paying Life and Long Term Care insurance premiums has made me so stupid, then feel free to give me a call.