Over many years of serving investors as both a registered investment advisor and a Certified Public Accountant, I’ve seen some major estate planning mistakes, with terrible consequences.
Here are some of the biggest ones.
- No will
John Maynard Keynes famously stated: “In the long run, we are all dead.”
Yet, many are in denial and fail to plan for what happens after their inevitable death.
By some estimates, a shocking 68% of Americans don’t have a will. Some believe they don’t have sufficient assets to warrant the cost of preparing a will. Others just can’t find the time to get it done.
Dying without a will is called dying “intestate.” If you die intestate, your assets will be distributed according to the laws of the state where you resided at death, which generally gives precedence to a surviving spouse and descendants. If you are an unmarried couple or a non-traditional family, the intestate laws may require distribution of your property in a way that’s inconsistent with your wishes.
Dying intestate may require a longer, more complicated and more expensive administration process.
Finally, dying intestate can take an emotional toll on your loved ones. They are left to organize your assets and struggle with unfamiliar laws of intestate distribution – at a time when they are grieving and ill-equipped to deal with added stress.
- No access to digital accounts
We live in a digital world. We may access our investments online, along with our checking accounts. We may use passwords to protect other aspects of our personal and financial life, often using complex ones to avoid hacking.
If you hold cryptocurrency, you likely have a password to the “cold storage” where you have removed cryptocurrency keys from your wallet and stored them somewhere that isn’t connected to the network or internet. Without the password, it’s impossible to access your account.
Your smartphone and computer are probably also password protected.
These passwords need to be available to the executor of your estate and your loved ones.
Kiplinger’s suggests providing them to a trusted family member or writing them down and putting them in a safe deposit box.
If you use a password program that keeps track of your passwords (like Dashlane or Last Pass), your password issues can be resolved by simply sharing the master password with those who will need access to your account.
- Multiple trustees
If you have multiple beneficiaries, especially if children are involved, there’s an understandable tendency to want to treat them equally. This can become an issue if your assets are held in a trust, and you have named more than one trustee to administer the trust.
The job of a trustee is to manage and distribute trust assets. When there is more than one trustee, they all need to agree on the proposed activity, and the signature of each one may be required on matters involving the sale or other disposition of assets.
The more trustees involved in important decisions, the greater the possibility of conflict. Resolving these conflicts can be difficult, expensive and emotionally draining.
The need to solicit the views of multiple trustees and obtain their signatures can be time-consuming administrative burdens.
Given these potential issues, consider appointing only one trustee. If you can’t make a choice among your heirs, it might be prudent to appoint a professional trustee. These are people or institutions who are not beneficiaries of the trust and who oversee the management of the trust.
Professional trustees are objective. They are familiar with tax issues and other laws governing the administration of a trust. They also should have the knowledge and experience to perform these duties in a highly-skilled manner.
- Forgetting the “no-contest” clause
A “no-contest” clause in a will provides that if someone challenges the will or trust and is unsuccessful, that person will not receive anything from the estate.
If you are concerned that a beneficiary may be upset by the proposed distribution of your assets, inserting a “no-contest” clause may be advisable.
In order for the no-contest clause to serve its intended purpose, you need to leave something of sufficient value to the person who might contest your will so that the prospect of losing it will be a deterrent.
Laws concerning no-contest clauses vary by state. While most states will enforce them, some do not. If you create a will with a no-contest clause in a state that enforces them, and then move to a state that doesn’t, the no-contest clause won’t be enforceable.
Other states place restrictions on the enforceability of no-contest clauses.
It’s important to check with your estate planning lawyer to be sure you are aware of all the issues relating to no-contest clauses in the state where you currently reside, and any state where you might relocate in the future.