When Old School Estate Planning Does Not Work, What Would I Do?

The drawer containing your will and other legal documents is often called a “love drawer”. It contains the documents that help them deal with the aftermath of your death and ensure that everyone is taken care of. That assumes that your old school estate planning works, though it doesn’t always. What would they do if problems arose? More importantly, what can you do to prevent those problems so that your family can focus on moving forward?

Family Discord

One study found that more than two thirds of estates either lost value or created conflict among the heirs; these two issues were not unrelated, since fighting over the money will generate legal bills that eat into the value of the estate. There are several ways to prevent this. You should discuss what you’re going to give each person (or not) before you die. Don’t let the will’s reading be a surprise. Explain that you’re not going to give someone money because of their history of financial mismanagement or all the financial “gifts” they’ve received over a lifetime. Tell your family in one relative will receive a disproportionate share due to perceived need or in exchange for their care.

Don’t make the mistake of failing to tell the family where your latest and greatest estate documents are. You don’t want the will to be contested because the last one someone could find is 20 years old.

A Failure to Update Documents as Time Passes

There are a surprising number of cases where conflict over the estate arises because someone didn’t update their will and other documents as life went on. They listed a first wife and their children together in the will but failed to update it after getting remarried. The second wife will generally be able to sue for a portion of the estate, but this makes everyone poorer. Setting up college funds for your first grandchildren, but failing to update documents as your family grows will leave the younger members short-changed, and it could cost your estate money in the form of a high tax bill. If only you’d put more money in their 529s while alive … Creating a will but not updating it when you move to another state may result in the will being discarded as invalid. Always update your will when you move across state lines. A failure to create a valid medical power of attorney simply means your assets are consumed by medical bills at end of life instead of going to your heirs. Draft these documents, and ensure that your family knows where they are and what your wishes are. Another mistake is not keeping up with legal changes. For example, drafting wills and setting up trusts with out-of-date legal forms guarantees they are either invalid or could be challenged. Kim Mayberry from BeyondCounsel.io explains that when dealing with a large estate, using estate planning software will make it easy to create and keep track of separate trusts, as well as giving clients easy access to view the documents online. Furthermore, your existing estate planning documents need to cross-reference each other. Your will should complement your trust, and these documents, plus the beneficiaries of assets like life insurance policies and retirement plans should come together to reflect your overall vision.

Failure to Keep What They Receive

One way estate plans get derailed is by failing to prepare your heirs for a windfall. They act as if they’ve won the lottery and blow the money on luxuries. In these cases, they may have nothing left. You can prevent this by setting up educational trusts for grandchildren, so that money intended for a family legacy can’t be blown by the adults. You could earmark money for specific purposes like paying off student loans or providing a down payment on a house instead of simply giving them cash. For the irresponsible, you could require them to take financial literacy classes before they receive money or set up a trust to dole out money in manageable chunks. This helps them avoid bad investments or fraud that can cost them everything. You could set up a trustee to vet potential investments for your heirs so they don’t decide to take money invested in mutual funds and pour it into a family business.

Another variation of this mistake is drafting legal documents but failing to follow through. It doesn’t matter if you set up a legal trust, but don’t take the next step of funding it. The estate then goes through probate and be open to costly disputes or a full tax bill. If you go to the effort of creating an estate plan, follow through.

We should plan for the future, including our deaths, so that our families have the best possible future ahead of them. Estate planning is not a once and done deal. Instead, you need to continually revise your estate plan as circumstances change so that it is as effective at helping your family as you intended it to be.

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