When Estate Planning, Don’t Let Mistakes Thwart Your Wishes

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When someone has trained and worked in a profession for many years, it becomes too easy for them to assume that everyone else also understands the fundamentals of their field. An auto mechanic may think it’s common knowledge that a car’s oil should be changed regularly and what will happen if it’s not. An electrician may assume that everyone knows the necessity of having a proper ground connection when replacing an outlet or fixture. Estate planning attorneys and financial planning professionals are often, sadly, no different.

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It is all too easy to assume that our clients know what we consider to be basic knowledge about wills — such as what a will is and why one is needed; what happens to your property after you die if you don’t have a will; if a will can help you if you lose your mental capacity; if you can or should write your own will; and why many people create a revocable living trust in addition to a will.

I’ve written this article to help readers answer these basic questions, organize their thoughts before choosing whether to visit with an attorney and how to avoid estate planning mistakes and mistaken assumptions.

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What Is a Will, and Why Is One Needed?

A will is a legal document setting out a plan for how individually owned assets will pass at a person’s death. A will has no effect on any assets you own jointly with another person or are held in a trust that you have created. Unless a beneficiary that you have named for an insurance policy, 401(k), IRA or similar assets is also deceased, a will has no effect on named beneficiaries. So, if your will says, “I leave everything to my spouse,” but you completed a 401(k) beneficiary designation at work many years ago leaving your retirement account to your daughter, then she, not your spouse, will receive these benefits.

So, it is important to periodically review all your beneficiary designations to be sure that your plans are carried out as you wish. Furthermore, a will has no effect on any accounts or property that are designated as pay-on-death or transfer-on-death according to the laws of your state.

Your assets won’t be legally transferred until your executor, with the assistance of an attorney, properly brings your will before a state court probate judge after your death. By presenting your will for probate, your executor is effectively asking a judge to agree that he or she is responsible and qualified to distribute your assets under its terms and that your will is valid under the laws of your state.

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If your will is determined to be invalid because it did not follow the law or was the product of undue influence, it can be treated as if you had no will at all. If you die without a will, a court requires that your property transfers to your heirs under your state’s laws of intestate succession, or intestate.

Most people may assume that your spouse will receive your property if you die intestate, but some states require that your children are given a portion of your estate. The terms of a properly drafted and executed will trump the laws of intestacy, provided that the will was admitted to probate in a timely manner. Some states require that a will must be admitted to probate within as little as six months following a person’s death, while others impose no time limitation.

Since your will doesn’t take effect until after you die and after it is admitted to probate, that will is ineffective when planning for incapacity. Many clients who don’t have a will utilize a durable power of attorney (DPOA) giving a family member, as an agent, the legal authority to act in the client’s place if he or she is unable to act independently.

After presenting a DPOA to your bank or other company having custody or control of your funds, your agent has the authority to write checks, withdraw funds and enter into certain account agreements in the same way that you now do. A DPOA is revocable, but it is presumed to be in effect until you give notice that it has been revoked. Other clients utilize a revocable living trust when planning for potential incapacity.

Should I Write My Own Will?

Wills are best prepared by attorneys, but they don’t have to be. The requirements for making a valid will vary by state. Most states permit you to write your own will. However, it is very important to understand all the legal requirements in your state. Courts will strictly apply the law after you die. So, when your will is probated, it is too late to repair any technical errors or clarify your intentions.

If you are trying to prepare your will yourself, you must carefully research and understand the legal rules for a will’s form and execution under the laws of your state, since every state has different rules.

For example, in Louisiana, a notary public can prepare a will, or you can write your own will if you strictly follow the requirements for an olographic testament. A court will not validate an olographic testament unless it is entirely written in your own handwriting, dated and signed at the end. There have been numerous reported cases where a disgruntled heir brought a handwriting expert to testify that the purported testament was not entirely written nor properly signed.

Typically, errors to the testament’s form are not discovered until after death, when it is too late to correct any mistakes, and the court will likely determine that you have died intestate.

An olographic testament that was validly created in Louisiana may be valid in another state even if that state has no similar provisions for handwritten wills, but validating the testament requires a probate judge in another state to apply Louisiana law. Application of unfamiliar statutes often results in inconsistent outcomes.

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Many people move to a warmer climate when they retire or move closer to their children or family as they age. If you have a valid will under the laws of one state, you should review any estate planning documents, carefully checking that your will conforms to the laws of the state where you ultimately reside to avoid potential difficulties and legal expenses for your heirs.

For example, all states have strict rules about how a will must be witnessed. Some states allow a will when properly notarized to be “self-proving,” which means that the will can be probated at death without having to locate the witnesses. If your will is not properly self-proving, your executor may have to locate the witnesses at that time. Also, if your will is not properly witnessed, it may be invalid, and you can be determined to have died intestate.

Why Do Many People Create a Revocable Living Trust in Addition to a Will?

A revocable living trust is a common estate planning tool that avoids probate and helps plan for potential incapacity. When you create a revocable trust and properly retitle your property so it becomes an asset of the trust, you avoid probate since the property is no longer individually owned. Your successor trustee simply distributes the trust property at death to the trust’s ultimate beneficiaries either outright or in further trust, according to the terms of a trust agreement.

Clients usually serve as their own trustee and hold the trust property for their own benefit when the trust is created and funded, so the practical relationship to their property does not change. Upon a time of incapacity, provisions are made for a successor trustee to care for the trust property that is still held for the client’s benefit.

Using a revocable living trust does not completely negate the need for a simple will. If all your assets are properly titled in your trust or in a non-probate manner, and all the beneficiaries of your insurance policies, retirement plans and similar assets are living, there should be no need for probate.

Nonetheless, a simple will, often called a “pour-over” will, is recommended. A pour-over will provides that, upon completion of probate, any property that is individually owned (because it failed to be deposited into the trust or the conditions of a beneficiary designation or joint ownership can’t be fulfilled) transfers to your trust and not by intestacy.

There are many reasons that you may be avoiding or postponing your estate planning. I named a few in a previous column, Don’t Let These Too Common Estate Planning Excuses Stand in Your Way. Consider this article a sequel.

Need an Estate Planning Checkup? Now Is the Perfect Time

Don’t let a basic understanding of estate planning and mistaken assumptions be another excuse. You can create your own will and use beneficiary designations, joint tenancies and pay-on-death forms of ownership for “do-it-yourself” estate planning. But, if you have the time to carefully plan and decide how you want your assets to pass, it makes better sense to hire an attorney who understands the laws of your state, is trained to spot potential problems and can advise you of different rules regarding how assets are left at your death.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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James Ferraro is a vice president and trust counsel in the Shreveport, La., and Kansas City, Mo., offices of Argent Trust Company. Ferraro is a 2003 graduate of the University of Missouri at Kansas City School of Law, past president of the family and the law section of the Kansas City Metropolitan Bar Association, is a member of the Tax and Estate Planning Council of Shreveport and a Regional Ambassador for the Kansas City Estate Planning Symposium.