It doesn’t take much to tarnish a gem of an estate plan, and with it your legacy.
A misplaced word, missing clause, or miscommunication between lawyer and client can send your will and your ordered estate plan spinning into chaos.
You can avoid such a fate.
A good estate planner wants to know about everything you own or have an interest in before beginning.
If the lawyer doesn’t ask for details, you probably need another lawyer.
A good estate planner also will ask your goals and philosophy of money, show you different ways of trying to meet those goals, explain the tradeoffs in each method, and let you choose which route to take.
Unless your estate is very simple, be wary of a lawyer who has only one solution or quickly determines what to propose.
Lawyers and clients don’t always speak the same language. And too often clients aren’t willing to make their lawyers explain enough. The result can be unintended consequences in the will.
You can avoid this fate by writing in your own words what you want to accomplish with your will, and what you think the estate plan accomplishes.
You should do this before you talk to the lawyer and give the lawyer a copy of your will. Then as you and the lawyer develop a plan, update your statement to include the changes you believe have been made.
Show each revision of the will to your lawyer. This method reduces the room for error, and you’ll find out quickly if you and the lawyer miscommunicate in your discussions.
You do it with almost every significant thing in your life, and probably with some things that aren’t very important.
Spend a little extra money to get a second opinion on the will and any other estate plan documents.
Take your statement of goals and the documents to another estate planning lawyer for a review and comment.
After all, estate planning is fairly complicated, and gets more complicated each year. A small mistake can greatly change your estate plan.
For example, a bypass or credit shelter trust allows your estate to take advantage of the lifetime estate and gift tax exemption.
The trust can pay income to your spouse for the rest of his or her life, then pay the remaining property to your children.
On the other hand, the tax exemption could be lost if the trust gives your spouse the power to change the beneficiary.
Some trusts make that simple mistake and cost the estate additional taxes.
Naming the oldest adult child as executor of an estate is very common and often works fine.
It is a big problem, however, when the children have a history of animosity or there is some rivalry. It is not unusual for children who were able to behave civilly while their parents were alive to go to war after a parent’s death.
The results are an irreconcilable family and money wasted on attorneys’ fees. If you have any doubts about your children’s ability to get along after you are gone, name someone outside the family as executor.
A specific bequest gives certain property to a certain person. Specific bequests are appropriate for valuable or unique items.
But putting a lot of specific bequests in your will causes problems. You have to update your will every time you lose, sell, or give away one of the items.
How are you sure that the children are getting equal shares?
What happens if an item can’t be located after your death?
What happens to items that somehow didn’t get named in your will?
What happens when the market changes the total value of your estate?
The specific bequests could leave your family with less than you intended.
It is better to limit specific bequests to valuable items and those you know have meaning to certain individuals.
Then have all the other items disposed in the “residuary clause.” This is the clause that says “all the remainder or residue or my estate goes to…”
Normally this clause divides the property among the surviving spouse or the children.
The residuary estate often is divided equally among the children or other loved ones.
The trick is choosing a method for dividing the property that works best for your heirs.
Choose the wrong method, and you’ll divide the loved ones along with your property.
Your estate planner needs to know of any changes in your family and your wealth. You need to meet with your estate planner when a child or grandchild is born, when there is a marriage or divorce, and when someone dies.
Changes might need to be made if you move to another state. Also check with your estate planner when the amount of your wealth changes or when you sell a significant asset.
A state that has death taxes will tax the estate of anyone who was “domiciled” there at the time of death. Domicile is a technical legal term. In most states it means the place in which you intended to live indefinitely. The state of residence is where you actually lived.
That creates problems for those who split the year between two or more states and also for people who largely moved to a new state but did not sever all their ties with the original state of domicile.
In some cases, two (or more) states each will claim the deceased was domiciled within its borders, and each will assess full taxes on the estate.
Don’t leave your heirs in this position. Decide which state you want to be your domicile and find out how to legally establish that domicile. Then document those steps.
States generally look at voter registration, vehicle registration, and driver’s license addresses.
They also will look at where you spend over half the year and a host of over factors. (There’s a checklist on the members’ section of the Retirement Watch web site. Sign up here.)
Unfortunately, a few states essentially require you to sever all ties. Some will claim you were domiciled there if you retain a property such as your old residence, even if you rent it to others or rarely visit.
If you split time between two or more states and at least one has a death tax, be sure to establish a domicile and document it.
When you take the time to craft the perfect will, the administration of your estate will go smoothly and won’t affect how loved ones remember you.
But a mistake or poor planning could result in bad blood among your survivors and bad memories of you.
The best way to avoid the latter outcome is to secure your copy of my step-by-step workbook, To My Heirs: A Book of Final Wishes and Instructions. Claim your copy here.
P.S. The COVID-19 stock sell-off has hit pensions and retirement accounts hard, but it’s nothing compared to what’s coming: A new U.S. law that gives the government the green light to “confiscate” a full 30% of your retirement savings. Find out what you can still do about it here.