Wichita Estate Planning Attorney Offers 7 Tips for Avoiding Estate Planning Errors [Part III]
July 31, 2015
This is the final installment of our three-part blog series that provides a roadmap for avoiding common mistakes in the estate planning process. We have attempted to discuss seven of the most common estate planning errors. Our Kansas Estate Planning Lawyers recognize that you will likely have more specific questions about avoiding mistakes, so we invite you to schedule an initial consultation with attorney J. Joseph Weber.
Error #5 Failure to Designate the Right Executor
The selection of an individual who you designate as the executor of your will is an issue of critical importance. The administration of a will includes three broad stages: (1) gathering and conducting an inventory of all assets; (2) paying obligations of the estate, including tax liabilities; and (3) distributing the net assets to beneficiaries. These tasks can be complex and time consuming. The executor of your estate must have the time, commitment, and financial sophistication to properly administer the estate.
When appointing an individual to administer your estate, potential conflicts of interest must be taken into account. If the executor is a family member or a close friend, the designated individual might have a financial interest in the estate that presents a conflict of interest. If the person appointed to handle your affairs is a business associate, this also might result in a conflict of interest, such as the potential that a sale of the business could leave the executor unemployed.
Logistical issues also must be considered in the designation of an executor. The time, motivation, and inclination of the appointed individual to administer the estate must be considered. If the executor lacks the skill, time, or desire to handle estate affairs, key mistakes can occur, and the value of the estate can be diminished. Natural animosity or harsh feelings between the designated executor and beneficiaries also can interfere with effective administration of the estate.
Error #6 Relying on Non-Attorneys to Plan and Create an Estate Plan
There are many low cost options for preparing a living trust, will, or other estate planning documents. However, estate plans prepared without an experienced Wichita Probate Lawyer are rarely optimized to meet the objectives, intentions, and needs of an individual in the most efficient and effective manner. These boilerplate one-size fits all solutions are faulty for a wide range of reasons. The documents are not customized to comply with the specific legal requirements and formalities under Kansas law. Further, pro forma documents generally will lack the subtlety and sophistication to address the particular facts and circumstances of your situation.
Even if the documents are prepared properly, critical errors often occur in the implementation of an estate plan. The most common mistake of this type involves failing to transfer assets into a living trust. When a trust is left unfunded, assets in the estate will pass by intestate succession in most cases. A similar error involves failing to review the beneficiary designations of assets that pass outside of a trust like life insurance, deposit accounts, and/or retirement plans. These types of mistakes are particularly common when individuals proceed without an estate planning attorney and almost non-existent with legal representation.
Error #7 Failure to Stabilize and Plan for Business Owner Succession
Many small or family owned businesses are highly dependent on key personnel. If you own a closely held business, it is important that your estate planning extend to the succession and survival of the business. Appropriate precautions must be put in place to function as “economic shock absorbers” in the event a key employee suffers a permanent disability or death. Similarly, plans must exist to pay overhead if employees who are indispensable to the generation of income are lured away at a critical moment. Key employee life and disability insurance combined with business overhead coverage can ease such financial hardships.
The creation of a buy-sell agreement also is essential to protect a business in the event of the death of a stakeholder. There are many issues that arise that can create confusion and disruptions, including any of the following:
Failure to create any buy-sell agreement
Lack of a price setting mechanism based on the current value of the company
Lack of proper funding of the buy-sell agreement
Failure to convert the buy-sell agreement from an oral understanding to a written document
When these issues are not addressed by proper estate planning, heirs of a deceased owner might not receive the price they should receive. Alternatively, the surviving owners might lack the means to buy out the heirs of the deceased owner.
If you have questions about estate planning, estate administration, or the probate process, we welcome the opportunity to talk to you and answer your questions. We invite you to call the Wichita Estate Planning Attorney at the Weber Law Office or to submit an inquiry form through this website to schedule your initial consultation.