Among the myriad ways Covid-19 has affected lives, it has compelled many people to take stock of what they value and evaluate their long-terms plans. Extra time together with family has also provided an opportunity to have long-delayed conversations that previously prevented others from finishing their estate plans. On top of that, Austin continues to grow by leaps and bounds, and people move here every day with estate plans written in other states.
Whether you are starting your estate plan or already have a plan in place, avoid the five common estate planning mistakes below.
Not writing a will
Whether you know it or not, you have an estate plan. If you did not write one yourself, the state of Texas has kindly written one for you, and you might not like it. For example, Texas law does not automatically give all of your property to your spouse when you die.
If you are married without children, your parents will end up co-owning the house you bought before marriage with your widow. If you have children from outside your marriage, those children will inherit much of what you own instead of your spouse. One of my clients was left co-owning all of her husband’s assets with her minor step-children after her husband died unexpectedly without a will, leading to costly litigation to sort out the assets with the children’s mother.
If you have no surviving immediate family, the state of Texas will determine who your “heirs at law” are, and won’t know that you only spoke to one cousin. Instead, your estate will spend thousands of dollars locating your nearest relatives according to Texas law. I represent the cousin in this scenario, and instead of inheriting her beloved family member’s assets, we have been working for a year and half to locate relatives across the country who did not know this woman.
Using a do-it-yourself will program
It is tempting when that Facebook ad pops up offering a customized will for $69, including all the state-specific language you could ever need. Why talk to a lawyer when you can do it yourself?
The answer is that these programs will cost your family far more in stress and legal fees after you are gone than you will save by avoiding a conversation with a lawyer in the first place. These DIY will programs are general by necessity, and even when they claim to incorporate state-specific language, in my and my colleagues’ experiences, they almost never get it all right. This results in a more burdensome and expensive process for your loved ones, who are left to clean up the resulting mess. Planning with a lawyer will give you peace of mind that you have done it correctly.
I am currently a year into an estate administration where we are struggling to locate more than 40 family members who will inherit from the decedent because one important sentence was left out of her DIY will, when she intended for everything to go to one relative.
Lack of coordination in your plan
When you spend the money and time to get an estate plan you choose in place, it is important to make sure all aspects of your plan are coordinated so your effort is not rendered ineffective. This means double-checking beneficiary designations, account titling and any required trust funding.
In one recent example, the wife passed away with an estate plan that left large cash gifts to her children from her first marriage, with all of the remaining property going to her second husband. Unfortunately, all of the husband and wife’s bank accounts had a right of survivorship designation, meaning all of the cash went to her husband outside of probate, and there was insufficient cash to fund the intended gifts to her children.
Failing to update your plan
Our lives are not stagnant, but many people who finish their estate plan proudly stick it in a drawer and never look at it again. Meanwhile, they may move, get married, have children, develop special needs, experience the death of family members, end relationships and gain (or lose) wealth. All of these events can have serious implications for your estate plan, and failing to update accordingly could be disastrous for you and your loved ones.
In one particularly extreme example, I worked on an estate where a grandfather’s plan, prepared many years ago, would have left a sizeable portion of his estate to a grandchild who was convicted of murdering one of the grandfather’s children. Thankfully, the family realized the estate plan needed to be updated before it was too late, and we were able to revise the plan to exclude that grandchild as a beneficiary of the estate, as was the grandfather’s intent.
Failing to account for changing laws
The laws that apply to your estate change frequently, particularly when it comes to tax laws. There are many estate plans from 15 or 20 years ago sitting in drawers right now that include instructions for dividing money between two trusts based on the estate tax exemption amount. However, the estate tax exemption was $1 million in 2003, and the estate tax exemption this year is $11.58 million. If those stale estate plans “mature” this year, many of the instructions will result in someone who was intended to receive money getting nothing because the exemption has changed so dramatically.
Additionally, it is always important to update your documents when you move to a new state. Texas has very strong homestead protections, but a living trust drafted elsewhere does not always include the language necessary to keep that homestead exemption for property owned in the trust. Each state also has its own recommended forms for powers of attorney and medical directives, and using a form that your bank or hospital is familiar with can be essential when your agent is called into action in a time-sensitive situation.
Source: Emily Franco, McGinnis Lochridge, LLP