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14 mistakes not to make with your will
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The worst mistake is not having a will. But there are plenty of other ways your well-intended document can make things go horribly awry.
By Liz Pulliam Weston
Wills do more than distribute our stuff after we die. They also give our heirs a final, lasting impression of us and our intentions. That can be a good thing, if we’ve planned carefully and executed our estate plan meticulously. Or it can be a disaster, if we’ve made one of these common blunders:
Not having a will. All of us have something we care about: our spouses, our kids, our pets, the unrestored ’66 Mustang in the back shed. Not having a will means the state decides what happens to them. That can leave survivors vulnerable to contentious lawsuits, confusion and the heartache that we didn’t love them enough to plan for their futures, said attorney Colleen Barney, co-author of “Best Intentions: Ensuring Your Estate Plan Delivers Both Wealth and Wisdom." If you really don’t have much or don’t expect anyone to fight over what you have, will-making software can do the trick. If your estate is larger or your family is contentious, invest in a lawyer’s help. A simple will should cost about $200. A more complicated estate plan, including a living trust, can run $1,500 or more.
Not updating a will. Life is nothing if not change. Your family, possessions and wealth can grow and shrink. The rules can vary as well: Congress is constantly fiddling with estate tax laws, while court and IRS cases can alter how those laws are interpreted. Each state has different laws, as well. Have your will reviewed after every major life change and interstate move. If your estate is large enough to worry about estate taxes ($2 million in 2006), reviews would be appropriate at least every few years and again after major estate tax legislation.
Naming the wrong executor. This job, as I detailed in “Executors can inherit an unholy mess,” is a real pain in the patoot. You need someone who is calm, honest, organized and, most importantly, willing to serve, said Blanche Lark Christerson, a director in the Wealth Planning Strategies Group for Deutsche Bank Private Banking. Make sure you discuss the job requirements with your candidate and get his or her consent first, then include an alternate or two. Also, consider naming someone younger than yourself, particularly if you’re getting up there in years. You want to lessen the odds that your executor dies or becomes incompetent before you do.
Naming couples to serve as guardians. Your sister is great with kids, but what if she divorces or dies in the same accident that claims you and your spouse? Are you comfortable having your children raised by your beer-swilling brother-in-law and whoever he marries next? If the answer is yes, name your sister as your first choice for guardian with your brother-in-law as backup. If not, find another alternate. For more information on how to make this important choice, read “Who will take care of your kids if you die?”
Checks and balances
Naming the same person to serve as guardian and trustee. Skills with children and money aren’t mutually exclusive. But the person you may trust most with your children could be hopeless with managing finances, said attorney and author Jon Gallo. Having separate people as guardian of the kids and trustee of their money can put an important check-and-balance system in place; it will be tougher for your guardian to burn through your child’s money, for example, if he has to justify his bigger expenditures to an outside party.
Leaving too much to a spouse. This is by far the simplest choice, but may not be the best for at least two reasons. First, if you have children, you’ll lose control over what happens to your assets if you bequeath them outright to your spouse, notes attorney Gerald Condon, co-author of "Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (and Others)."
She could very well leave everything to her next spouse, for example, or the televangelist she becomes devoted to after your death. (Remember, just because she’s competent now doesn’t mean she won’t get a little dotty later, and challenging a will can be expensive even if she’s clearly gone off her rocker.)
Secondly, if your estate is large you could be losing a valuable tool for minimizing taxes. Putting at least some of your wealth into a bypass trust will allow the assets to grow, and eventually go to your heirs, without triggering a second round of estate taxes on your spouse’s death.
Not leaving enough to a spouse. If you live in a common-law state -- and 41 states are, as well as the District of Columbia -- you can’t disinherit a spouse. You typically must leave him or her one-quarter to one-half of your estate, depending on the state’s laws. Even if you live in one of the community property states, your spouse may have certain rights to your estate. In California, for example, a surviving spouse can claim all community property, as well as a share of the dead spouse’s separate property, if the will or other estate plan was made before marriage and not updated to include mention of him or her, according to attorney Denis Clifford, author of “Plan Your Estate.”
Improperly disinheriting a child. In only one state -- Louisiana -- does a child have a right to inherit by law. In the other states, though, a child has a good chance of getting a share of the inheritance if she isn’t mentioned in the will at all, Clifford said. If you really want to disinherit a child, mention her by name in the document. Try to resist the urge to add snotty comments, however, since that will create even more bad feelings and raise the possibility of a will-challenging lawsuit. Another approach: Leave the child something of value, with a “no-contest” clause that revokes the bequest if she challenges the will.
Covering all the bases
Not contemplating worst-case scenarios. It’s awful to consider, but what if the people you want to receive your estate -- your spouse, your child -- die when, or shortly after, you do? If you haven’t named alternate beneficiaries, your assets will be distributed according to state law -- which often means your estate winds up with people you didn’t anticipate, like your in-laws or your child’s other parent, even if you’ve long since been divorced.
Tying up too much money in trusts. The bypass trusts mentioned above can be a valuable tool for reducing your eventual estate-tax bill. But they also put your heirs in contention with each other; your kids can’t inherit the trust money until your spouse dies. That can create enormous family tensions, particularly if your spouse is not your children’s parent but a step-parent. Worse yet is if your spouse is as young as, or younger than, your kids so that they might never inherit. If your surviving spouse can get by without it, consider bequeathing at least some of your estate directly to your kids or other heirs rather than making them wait.
Being too specific. If you’ve ever watched a family fight over who gets the blender or the cuckoo clock, you may be tempted to use your will to list every item you own and who gets it. That level of detail can create unnecessary hassle and cost -- do you really want to redraft your will every time you break one of your Precious Moments figurines? You’re usually better off bequeathing more valuable collections or groups of items in your will -- “I leave my jewelry to my son, Edwin, and my woodworking tools to my daughter, Edwina” -- while leaving the less valuable stuff to your heirs in a side letter. Other options: give it away while you’re alive or ask your executor to have your family draw straws or pick items they want in a “round robin” fashion.
Ruling from the grave?
Trying to be the puppet master. In some affluent circles, “family incentive trusts” are all the rage. They’re designed to motivate children to achieve, says Georgia attorney and trust enthusiast John J. Scroggin, instead of spoiling them with an early inheritance. The kids might get a dollop of their trust fund if they graduate college with a certain grade point average, for example, or receive matching funds based on their annual earnings from a job.
Unfortunately, some parents go overboard, trying to control children already in their 30s, 40s or 50s. Others fail to make the trust language flexible enough to accommodate emergencies or changes in circumstances. Do you really want a child shut out of an inheritance if, for example, she suffers a brain injury and can’t attend college or hold a job?
The whole idea of ruling from beyond the grave is a little creepy anyway, so try to curb your enthusiasm for “dead hand” tactics, particularly if your kids are already grown.
Not coordinating with other documents. Some of your assets, particularly life insurance proceeds and retirement accounts, will go to the beneficiaries you named either when you established the accounts or when you last updated their paperwork. Property held in joint tenancy will automatically go to the other person. If you try to give those assets to someone else in your will, you could be setting off a legal battle. You should also check with your bank and brokerage to see if any beneficiaries are named for your accounts, since those may be passed directly to heirs as well.
Not telling your heirs where to find it. You may not want your family to know in advance what’s in your will, but they should at least know how to find it. Don’t just entrust the information to your executor, since she might not be available when the time comes. (Also, don’t leave the original in a safe deposit box, which might be sealed and therefore inaccessible upon your death.)
A California woman who had lost her father e-mailed me some time ago in a panic because she knew her late father had estate planning documents, but she couldn’t find them. She worried that her father’s estate would wind up going through probate, which in California is an expensive and time-consuming court process that her father had sought to avoid by having the documents drafted.
Fortunately, she was able to track down a copy that had been filed with an accountant at one of the banks her father used. Your heirs might not be so lucky, though, and you don’t want to spend money on an estate plan that no one will see or use.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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