How to Avoid Bad Estate Planning Ideas that Cost the Family Money! 

Dear Mr. Miller:

Last month you mentioned some problems that one can run into when creating a Living Trust or Will online or without an experienced attorney actually working with you.  Can you elaborate upon the examples that you gave?

Interested Reader

Bad Ideas Lead to Difficult and Expensive Post Death Settlements
The Co-trustee Problem
Separating the Money from the Real Estate
Too Many Small Gift Beneficiaries
Value of an Attorney

Dear Interested:

Bad Ideas Lead to Difficult and Expensive Post Death Settlements:  As you might expect, I have had a lot of clients who have consulted with me over the years about Wills and Trusts.  And at least some of them have had some really, really bad ideas about how to do things.  But that’s ok; the whole purpose of the in depth interview that we do before we ever draft the document is to find out what the client wants and when the approach is really bad, to suggest alternatives.  Many times those alternatives get the result that the client wants without the headaches, costs, or disasters.  And when they can’t, we suggest completely different ways of doing things.

The Co-trustee Problem:  Many clients want their two kids (or sometimes three) to be equally in charge of settling the estate.  The thought is that each one will keep the other “honest” or that each one has unique strengths.  The problem is that the co-trustee approach often creates a logistical nightmare.  Think about getting one child and the attorney to find available dates and times to get together.  Now add a second child and the problem grows exponentially.  And this isn’t just for getting together to discuss the case at the outset but to sign papers, and to get together and discuss issues and problems as the case moves along.  Sometimes, one child is a procrastinator which makes it even harder.  But it all tends to really hit the fan in situations where the two (or three) don’t get along. And what happens if they get along but just don’t agree on some things i.e. sell the securities, etc?

For example, my mother insisted that I draft her Trust with both my brother and I serving as co-trustees.  I told (begged) her not to but mothers sometimes just ignore their son’s advice.  Fortunately, my brother and I have always gotten along well and he, not being a lawyer, deferred to me on all legal matters.  But still, it was a pain in the you no what to get signatures on documents as most documents required both signatures.  That delayed things substantially.

The solution is simple, just pick the one who is going to be best at this or if you are worried about the kids getting into a battle, have a Trust company handle it.  Trust companies are not that expensive; it typically runs a little more than 1% per year and the estate is generally settled within the year.   Of course, how much it will cost depends on the type of assets held, how valuable, how specialized, etc.  But the job will probably be done quicker and better with a Trust company.  And it will almost certainly be done without the kids ending up being at each other’s throats.

Separating the Money from the Real Estate:  This can be the type of problem that can wind up wiping out most of the estate so it is a really serious problem and one to be avoided at all costs.  I wrote an article about this last year.  The typical solution is so surprisingly basic that it just boggles the mind that anyone would do this.  I suspect it happens mostly by negligence rather than intentionally trying to accomplish this disaster.  Just don’t.   If you already have a Trust with the real estate titled in that entity, just have the life insurance or other money stay with the Trust–no joint tenancy or pay on death on the bank accounts and no other beneficiary on the insurance .  The bank accounts typically should be titled in the name of the Trust and the life insurance typically should be payable to the Trust.

Too Many Small Gift Beneficiaries:  Leaving small amounts to all the grandchildren may make you feel good when you sign the Trust but it can create tons of problems after you are gone.  Now, don’t get me wrong, a few small gifts are not typically a big problem.  But trying to say “I Love You” to everyone in the family can create another nightmare after you are gone.  Finding each of these people takes time, if any have been in jail/prison can create further complexities, not only in how to get them the money but whether the state is owed any reimbursement for their crime which will be taken out of the inheritance.  And in many cases it will be necessary to provide them a financial report of the estate.  Just think, if there are 10 grandkids, all married, any one of them plus any of the 10 spouses whispering in their ear, each of them is capable of blowing everything into a protracted argument about one or more of the transactions disclosed in the report.  And any such argument often requires tons of more time to clarify the situation and calm everyone down.  And that extra time translates into increased attorney fees and delays in the settlement of the estate.

The solution is often to just create a bank account with enough money to cover the gifts and label it pay on death with the grandkids named as the beneficiaries.

Value of an Attorney:  But in all cases, consult with a qualified attorney before doing any of this.  The value of an attorney is not in who can provide the prettiest documents or leather binder but rather, who can provide great advice and recommendations so that your wishes can be carried out in an effective and efficient manner.

Give us a call at 760-436-8832 so we can discuss these and more issues.