TEN COMMON MISTAKES IN ESTATE PLANNING

by Thomas D. Begley, Jr., Esquire, CELA, and

Joellen C. Meckley, Esquire

Clients often come to lawyers for Estate Planning without really thinking of all of the important issues that need to be addressed.  Lawyers can be very helpful to clients by helping them address these issues.  Here are ten common mistakes in Estate Planning.

1. Failing to Ask the Right Questions.  The single biggest mistake that the authors’ office sees in Estate Planning is that the lawyer who prepared the previous documents failed to ask the right questions.  Clients work hard for their whole lives, they live sensibly, and the estate plan should be done thoroughly to help the clients achieve their goals.
2. Failing to Consider the Elective Share.  In New Jersey the spouse of a deceased individual is entitled to an elective share, which is typically about one-third of the estate.  If the client fails to leave the spouse the elective share, the spouse can bring a lawsuit against the estate to obtain it.  The situation should be carefully analyzed.
3. Failing to Disinherit Family Members.  On occasion a client wants to disinherit a child or grandchild.  While this is heartbreaking, it should be done carefully.  The person or persons to be disinherited should be named and the reason given for the disinheritance.  The reason may simply be that the client is estranged from the person, or there may be other reasons.  If the disinherited person is not specifically named, they may bring a lawsuit claiming that they were left out of the Will or Living Trust inadvertently.
4. Leaving Money to Individuals with Disabilities.  If money is left outright or in a Support Trust to a children, grandchildren, or other beneficiaries with disabilities, they may lose their benefits.  A Third Party Special Needs Trust must be considered, but is frequently overlooked.  Usually this is because the attorney didn’t ask the right questions.
5. Second Spouse Situations.  Frequently money is left outright to a second or subsequent spouse when there are children from a previous marriage.  The client trusts the second spouse to take care of the client’s children, but frequently the second spouse immediately changes his or her Will to disinherit the children of the deceased spouse.
6. Failing to Consider Long-Term Care.  There is a 70% chance that an individual will require long-term care.  This could be home care, assisted living, or a nursing home.  Most clients put their heads in the sand and declare, “I am never going to a nursing home.”  Everyone in a nursing home made a similar declaration.  There is a 70% those individuals will be wrong.  All of the hard-earned money that is saved can be used for long-term care with nothing left for spouses and children.  Careful planning should be considered.
7. Failing to Rebalance Assets When Doing Tax Planning.  It is good practice to try to roughly balance the estates of husband and wife, especially if New Jersey estate tax is a consideration.  This is frequently overlooked.
8. Beneficiary Designations.  Beneficiary designations on life insurance, retirement accounts, annuities, POD accounts, and TOD accounts must be carefully coordinated with Wills and Trusts.  This is frequently overlooked.
9. Out-of-state Real Estate.  Out-of-state real estate should be transferred to a Living Trust.  If the out-of-state real estate remains in the name of the client, the client’s Will must be probated in New Jersey and then again in the state in which the real estate is located.  By transferring the out-of-state real estate to a Living Trust, the ancillary probate in the second state can be avoided.
10. Eight Ancillary Considerations on Planning an Estate.

• List of Tangible Personal Property. Make a list of tangible personal property.  One column should include the item, and an opposite column should include the name of the recipient.  The list must be signed and dated.  The Will will incorporate the list by reference.
• Memo to Fiduciary. Provide an informational memo to the fiduciary indicating the location of all important documents, list of persons to notify upon death, list of telephone numbers, security system companies, security codes, etc. in connection with real estate, information pertaining to life insurance and annuities, information pertaining to property insurance, medical insurance, retirement accounts, business interests, inventory of safe deposit box, personal property, outstanding loans or debts, pets, and a list of all passwords for digital assets.
• Safeguard Your Documents. Be sure to put your Will and/or Living Trust in a safe place.  This could be a safe deposit box, a fireproof box at your home, or a vault in your attorney’s office.
• Financial Advisor. Consider retaining the services of a financial advisor to manage your investments.  Yes they charge a fee, but they usually obtain far superior investment results and payment of the fee is worthwhile.
• Life Insurance. Make an analysis of life insurance.  This could be done with your financial advisor, life insurance agent, or attorney.  Is your life insurance term insurance or whole life insurance?  Term insurance makes sense for younger clients, because the premiums are cheaper.  However, only a small percentage of beneficiaries ever collect on term insurance.  Whole life insurance may be important as the client gets older.  Whole life insurance is particularly important, if business assets are involved or if the client has a beneficiary with disabilities.  Life insurance is a wonderful asset to fund a Special Needs Trust.
• Umbrella Liability Policy. If a client has significant assets, he or she should consider protecting them with an umbrella liability policy.
• Disability Insurance. If a client is still working, disability insurance should be considered.
• Long-Term Care Insurance. Traditional long-term care insurance policies are much less attractive than they were originally thought to be many years ago.  However, there are hybrid policies that are sold in connection with life insurance policies or annuities that may be worth exploring with a financial advisor or insurance agent.