Submitted by Christopher S. Nudo on
Errors people make—often with potentially serious consequences.
Not Making a Will is Number 1, but just having a will isn’t enough.
Common mistakes like leaving decisions to the last minute, failing to update documents, and mismatching beneficiary designations often lead to costly consequences for your heirs.
What follows are some of the biggest mistakes people make when doing their wills and we have seen these missteps far too often.
Procrastinating
Of course, thinking about death is uncomfortable, and planning for it can be costly. But to have a say in the distribution of your assets after you die—what each heir will receive, what charities to support and other matters—timely planning is critical. Yet many people either don’t create the proper documents, or they attempt to cobble something together on their deathbed. These last-minute efforts can lead to a host of problems for the simple reason that decisions made in haste leave less time to think through the multiple what-ifs.
Last-minute preparation could result in a claim the will was made under duress or in a diminished capacity.
Another reason not to procrastinate: A document known as a revocable trust, or living trust, can make it possible to distribute assets while you are still living and can be useful if you become incapacitated. Living trusts have other uses as well, such as keeping things out of the public record since trusts are private documents, this means that a family’s affairs can be kept private, including the value of the estate and to whom assets have been given.
Dropping large inheritances in heirs’ laps
When leaving significant money to heirs, people sometimes choose to bequeath it outright, all at once. Children in their early 20s or 30s, or even later in life, may not be able to handle such windfalls. Often windfalls are squandered since the recipients are ill-equipped to successfully manage their good fortune.
A better option is to leave the assets to a trust to manage the assets after death. Such trusts also can offer tax and asset-protection advantages to the beneficiaries, he says. For example, they can be designed so that a divorcing spouse or creditor from a lawsuit cannot reach the trust assets. A trust also can be structured to avoid additional estate tax when the assets pass to siblings or children upon the beneficiary’s death, regardless of the trust’s value or the beneficiary’s net worth.
Forgetting digital assets
As more people invest in cryptocurrency and NFTs, it becomes critical to ensure someone will have the ability to navigate their digital wallets once they pass away, be sure to keep good records of your cryptocurrency and leave heirs instructions about how to access this information. Don’t store private keys—strings of letters and numbers that allow access to digital assets—on an old, offline computer, for instance, because the hardware could be inadvertently thrown out and the assets lost. Instead, consider using a special device known as a hardware wallet to manage your crypto assets, and make sure heirs know how to find and access the device.
Additionally, people should not include their passwords or private keys in a will itself, which becomes public through the probate process.
Not making regular updates
Write it and forget it is a common theme for wills. But the documents should be updated every five to 10 years because intentions and circumstances can change over time. People who have made out their wills years earlier can change their minds about who should get what and which charities to support. Appropriate guardians for children, too, can change over time, which is why periodic reviews are critical. For instance 20 years after a will is drawn up, a sibling who was named as executor could be dead or estranged, in a nursing home or otherwise incapacitated.
Mismatching beneficiaries
Over time and changes many people forget to update their beneficiary designations on other things—such as pension accounts, individual retirement accounts and other investments, and life-insurance policies. Because a beneficiary designation generally supersedes the terms of a will, there can be unintended consequences. These can include leaving substantial sums of money to an ex-spouse or failing to leave specific assets to a child or grandchild since an original designation may have been made before they were born. As your life and your relationships change doing a periodic beneficiary assignment review is important.
Not allowing for flexibility
Sometimes wills or living trusts are worded in ways that cause unintended consequences, such as leaving more or less money than desired to an individual or charity.
For example, imagine a man with an estate worth $10 million whose will says to leave $1 million to charity and the rest to his children. Under that scenario, the children would get $9 million. But if the estate’s value drops and is now worth only $4 million, the charity would still receive $1 million and the children only $3 million.
People also have to be careful when leaving a particular stock or bank account to a particular child. When the person dies, if the asset is no longer owned or has dropped precipitously in value, that child could unintentionally be left with nothing or significantly less than their siblings.
Not heading off conflicts
Conflicts between heirs tend to happen more often when they are surprised by the contents of wills or trusts, we recommend clients be upfront with beneficiaries about their intentions. While these conversations can be hard, having them in advance mitigates the risk of resentment, and possibly litigation, among heirs after a loved one dies.
For Additional Advice
Having a sound and comprehensive estate plan with a well-constructed will ensure that your legacy is maintained and your wishes carried out. Call us for a confidential consultation to discuss your estate plan and strategies that will help you achieve your goals.
