Common Mistakes Made in Creating an Estate Plan

Many Americans underestimate the importance of estate planning. Roughly 40% of people who don’t have a will say it’s because they don’t have enough assets to leave anyone, according to Caring.com’s 2024 Wills and Estate Planning Study. 

However, having a proper estate plan in place is essential, regardless of how much money you have, as it does more than distribute your assets; it outlines how your personal affairs will be managed after you’re gone.  

A good place to start is by creating a Will, rather than allowing the state in which your are domiciled at your death to distribute your property after you pass. However, not everything should be included in your will. Several key items should be left out of your Will. Here are some common examples of things to exclude from your Will in order to prevent costly pitfalls.

Gifts to a Child or Other Individual with Special Needs

You must exercise caution when arranging the distribution of assets for an individual with special needs. It is crucial to consider that this person likely depends on means-tested government benefits like Medicaid and SSI. Directly transferring assets to them could jeopardize their eligibility for these benefits or potentially impact their inheritance. Ensure that any assets designated for a person with special needs in your Will or Revocable Living Trust are allocated to a Supplemental Needs Trust.

Non-Probate Assets

Your Will only controls the transfer of probate assets. Non-probate assets are any assets that have a designated beneficiary, such as life insurance, 401(k), brokerage accounts, IRAs, even bank accounts (with a payment on death designation) can name a beneficiary and pass outside of probate. If you name someone to take a non-probate asset in your Will the problem exists that the beneficiary designation of the non-probate asset will supersede your Will. If you have the same named beneficiary on the account and in the Will, there will not be a problem. If the beneficiaries are different for any number of reasons such as a failure to update accounts or even a premature death, this cause contention and invite challenge to your estate plan.

Our Furry Friends, and Money for Their Care

We have a deep affection for our beloved four-legged family members and frequently desire to guarantee their continued care in the event of our passing before them. However, it is important to note that pets are legally considered property and thus cannot be designated as beneficiaries or recipients of inheritance in a Will. While one could allocate a specific sum of money and designate a family member to care for the pet, it is crucial to understand that once the funds are transferred, there exists no enforceable obligation to adhere to your precise instructions. Consequently, opting to exclude pets from the Will and instead establishing a Pet Trust is the most reliable method to safeguard the welfare of your cherished animal companion.

Terms that Leave Fixed, High or Unrealistic Dollar Amounts to Individuals

If your estate doesn’t have as much money in it someday as you assume it might when you originally create it, you could be draining funds away from your primary beneficiaries, because your Will is stuck with a large, fixed sum of money that is required to pay out. For example, if your Will said “I leave $250,00.00 to my friend, Samantha, and the rest in equal shares to my children,” and you wind up only having $150,000.00 in your estate when you pass away, your children likely won’t receive anything because they are stuck with Samantha’s large bequest ahead of their residuary distribution. It is much better to leave property in shares or percentages to your beneficiaries, which allows your estate to flexibly adapt to any size of a portfolio. This approach ensures that your assets are distributed more equitably based on the actual value of your estate at the time of your passing.

Conditional gifts 

This also applies to the recommendation of not including any conditional gifts in your estate plan. Conditional gifts, such as the example of "If Eric completes law school, then Stephanie shall receive $50,000 from my assets," should be avoided. Excluding conditional gifts can help prevent complications, legal challenges, and ultimately make the estate settlement process smoother.

Secure information

I often emphasize to clients the importance of avoiding including sensitive information like social security numbers, financial account details, and account passwords directly in their Wills. This precaution is crucial because after a person passes away, their Will becomes a public document filed with the local court. This public accessibility may expose confidential details to unintended parties, potentially leading to unauthorized access to and depletion of these accounts. To facilitate the task for your executor in identifying your financial information and accounts, it is advisable to create a supplementary document expressly for this purpose. We always include documents like this as well as asset location lists as well as important contacts in our Estate Planning Portfolios. This allows our clients to safely store these document alongside their Will and other essential papers which can significantly assist your Personal Representative without the need for public disclosure.

Funeral instructions

We recommend that you do not specify funeral arrangements in your Will; they may not even be reviewed until after the funeral. Instead, communicate your wishes directly with your loved ones or include them in a separate document. That document should be included in your Estate Planning Portfolio so that your Personal Representative knows exactly how you would like your remains to be disposed of.

Please give us a call at Rankin Law Firm, LLC at (843) 279-3052 if you have any questions or if there is any way we can be of service to you or your family. We look forward to hearing from you soon.