The Three Biggest Estate Planning Mistakes (Part 2)
It is perfectly natural for people to want to control what they spend on any product or service. Most of the time we can. We can buy store brand products in place of the more expensive name brands. We can forego that international vacation and stay home instead, renting a condo on the beach or the mountains.
In other settings, we can’t control the cost. One injection, an infusion of a cancer drug can be $30,000.
Estate planning is one of those services that affords opportunities to control cost. How you control your spending on estate planning documents can either be productive or it can prove to be catastrophic. The damage often does not become apparent until it is too late to fix the problem. If so, that sort of mistake can lead to heartbreak and an additional financial burden on your family in the tens of thousands of dollars.
The purpose of this three-part article is to help you avoid these mistakes in your own planning. We want you to be the hero of your family’s story, a blessing to your family, not a burden.
Failing to Coordinate Ownership of Your Assets with the Overall Objective of Your Plan
It is normal to think that estate planning revolves around the documents you choose. Your Will, or your Trust, and the documents that support them. But that assumption is wrong. Estate planning actually revolves around something else entirely:
How you own your assets.
No matter what form your estate plan takes otherwise, your entire plan can be ruined, if the way you hold your assets is inconsistent with the objectives outlined in your will or trust. Brenda’s story is one illustration of how important ownership of your assets can be.
Brenda’s Story
Brenda came into my office a number of years ago, to probate what she thought was her mother’s handwritten Will. Although she had two siblings, Brenda had served as her mother’s primary caregiver for the past three years, as her mother’s health slowly declined. In fact, Brenda put her career on hold to devote herself full time to her mother. Brenda’s sister lived in Florida and was well off, having married a successful doctor. Their brother, who lived in the Fort Worth area, also had money. He was the owner of several businesses and had all the trappings to show for it. A big house in the area, a vacation home in a resort community, fancy cars, and an airplane he flew himself. Brenda’s brother had one other thing; a tempestuous relationship with their mother. They were at odds over any number of issues for months on end, which were interrupted by brief periods of reconciliation.
By comparison to her siblings, Brenda had virtually no worldly goods of her own. Nevertheless, she gladly put her priorities on hold to care for her mother, who we will call Mary.
Mary had executed a Will about five years before she died. The will was prepared by an attorney and left all of Mary’s property to her three children in equal shares.
Then one day, about a year before she passed, Mary had yet another in her seemingly endless series of arguments with her son. In her rage, Mary grabbed the nearest paper and pen she could put her hands on and wrote these words on top of a pad that was labeled “To Do List” at the top. She wrote, “Give it all to Brenda! She deserves it, so don’t argue about it.”
Now I had the unpleasant task of explaining to Brenda that her mother’s statement on the to-do list pad did not qualify as a valid Will. Not because it was written on a to-do list, but first because it did not claim to be Mary’s Will. She didn’t say, “This is my Will. Give everything to Brenda, she deserves it.” She didn’t say this is how I want my property divided at my death. I want it all given to Brenda. She deserves it..
Secondly, Mary did not define what “it” was. Did she mean all of her property? Perhaps. But she could just as easily have meant give Brenda all the credit for my well-being. She deserves it. Or give all of my to-do lists. We simply don’t have an indication, since it did not state explicitly that it was intended to be a Will, of what “it” was.
Finally, Mary didn’t put anyone in charge of given all of “it” to Brenda. She didn’t say, Brenda will be my executor. Or even that Brenda will be in charge of “it” at my death. No one was put in charge of carrying out her vague instructions.
To her credit, Brenda quickly adjusted to the realization that she was not going to get everything. We were going to have to probate her mother’s typewritten will from five years ago, and Brenda was going to get an equal share of everything. Or so we thought. As we investigated her mother’s assets in greater detail, we discovered to Brenda’s horror that:
Her mother had taken out a reverse mortgage on her home, so her house had no equity in it and was going to go to the mortgage company.
Her brother had taken her mom’s safe from the house, which was supposed to have come cash in it, as well as a little jewelry that had minimal value. And he was reporting the safe was empty.
At the end of the day, her mother had only one asset of any real value. It was an annuity that still had a death benefit of about $165,000. That annuity also had a beneficiary designation, and the sole designated beneficiary of the annuity was Brenda’s sister in Florida. The doctor’s wife. By all accounts a good person and someone Brenda loved; but also someone who had contributed nothing to their mother’s care over the past three years.
Brenda was crushed. She was not entitled to “it all”. She wasn’t even going to get one-third, even though that’s what her mother’s Will said she intended. Brenda was entitled to nothing, because her mother failed to coordinate her beneficiary designation on that annuity in a way that was consistent with the terms of her only valid Will.
Mary’s Will specified clearly that each child was to receive one-third of her estate. Instead, one child received 100% of their mother’s estate. Because when her son’s business lawyer prepared the Will he and Mary wanted at the time, no one explained to Mary that beneficiary designations were a contract between Mary and her insurance company. It is more likely than not that no one encouraged Mary to change her beneficiary designation to “my children equally”, from “my daughter in Florida”.
“It is a mistake to think of estate planning as a purchase of documents, rather than planning services. We see far too many people who value DOCUMENTS over PLANNING. Their focus is on buying a commodity (a document), and that can lead to disastrous outcomes. Every person’s attention should first be directed (preferably by the lawyer they have chosen) to analyzing the needs, goals, and values that are most important to them. In other words, what they want their plan to accomplish.
Who should be in charge? Who do they want to benefit? When and how should they benefit?
When planning services are the focus, as they should be, then the instruments take their proper place as the tools designed to meet the needs, achieve the goals, and pass on the values that motivate you to plan in the first place.
Breshears Law does not exist to sell documents. We provide planning services that take into account everything our clients share with us about how they want to protect themselves, provide for others, and leave a lasting legacy to generations that follow them. Once our clients’ vision is clear, it becomes easy to choose which tools we will need to use.
Planning is our priority. Until that service is complete and our client’s plans are clear, not a single word appears in print.”
