This is Part II in our three-installment blog post providing suggestions to help people navigate past common mistakes that can derail an estate plan. Wichita, KS Estate Planning Lawyer J. Joseph Weber often hears from individuals after they have made critical mistakes in planning, drafting instruments, and implementing estate plans. We also invite you to read the other installment in this blog series.
Error #2 Mistakes When Drafting a Will
One of the most common estate planning mistakes involves failing to prepare a will prior to death. When a person passes away without a will or trust, the disposition of an individual’s assets will be based on state intestacy law rather than the wishes of the decedent. A common mistake for individual with a will is the failure to review and update the will. Mistakes in the preparation of a will can be averted by calling a Wichita Estate Planning Attorney to schedule a review and to determine if revisions are appropriate. Circumstances that might merit a review of a will include:
- Significant changes in tax law, property law, or other relevant areas of law
- Birth, adoption, or passing of a child
- Move to another state by the party drafting a will
- Changes in the circumstances, needs, and goals of the testator and/or beneficiaries
- Marriage, separation, or divorce of the testator (will maker) or anyone named in the will
- Significant changes in net worth or income of the testator or beneficiaries
Wills also can be ineffective because their provisions violate state or federal law and/or formalities are not observed. These errors almost always occur when the testator proceeds without legal representation.
Error #3 Mistakes in Ensuring Proper Disposition of Assets
When estate planning documents like a trust or will are not drafted properly, specific assets might pass to the wrong individual or the right individual but at the incorrect time or in the wrong manner. The decision to pass a high net worth estate outright to an immature or intellectually challenged teen provides an example of this type of mistake.
Similarly, outright disposition of a large estate entirely to a surviving spouse who lacks the financial savvy and/or desire to manage a complex estate also can be a mistake. Trust arrangements with a professional trustee and/or a special needs or spend thrift trust provision, for example, might be more appropriate than an outright bequest in such situations.
Another example of a potentially problematic distribution of assets involves equal distributions which are inequitable under the circumstances. A family with three children might have two kids that are adults practicing law and medicine respectively while the third grown child suffers from physical and intellectual disabilities related to cerebral palsy. This situation might merit use of a “spray provision” that gives the trustee permission to provide additional income from the trust to the disabled adult child.
An unintentional distribution of certain assets also might occur because of the unanticipated death of a beneficiary. While an individual creating a trust or will might not leave an expensive sports car to a child who is not old enough to drive, this result might occur if the parent to whom the asset is gifted passes away.
Error #4 Failure to Make Appropriate Arrangements Regarding Life Insurance Policies
The distribution of proceeds of a life insurance policy is based on the policy’s beneficiary designation rather than estate planning instruments. However, the timing of the distribution might need to be considered if the beneficiary is a minor and/or intellectually incapable of dealing with the inheritance. The manner of distribution also should be considered because payment of the proceeds into the trust or a payout over time might make more sense than an outright gift. A primary breadwinner or individual who operates a family business also must carefully plan to ensure sufficient coverage is purchased. Another common issue that arises with life insurance proceeds is the failure to designate an alternate beneficiary or to update the designation based on changed family circumstances.
These are just a handful of potential mistakes that can occur in terms of the succession of life insurance benefits. When proper steps are not taken, the life insurance policy proceeds also might result in additional avoidable tax liabilities. Alternatively, the proceeds might not be protected from creditors without proper estate planning.
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 Kansas Estate Planning Lawyer at the Weber Law Office at (316) 265-7802 or to submit an inquiry form through this website to schedule your initial consultation.