Ten Common Estate Planning Mistakes
Whether it involves a complex trust or a basic Will, the process of deciding on an estate plan is often an emotional one. When we as attorneys assist a client with an estate plan, our goal is to provide the client with not only security and peace of mind, but also a plan that protects his or her interests and assets, as well as the future interests of heirs. Many of the dilemmas that arise when administering a decedent’s estate can be avoided prior to death through an estate plan. With more of a focus on Wills and less so on more intricate estate plans, this article will cover ten of the most common mistakes and how to avoid them.
- Not having a plan. When a person domiciled in Maryland passes away intestate – i.e. without a Last Will and Testament – Maryland intestate succession law dictates who inherits a decedent’s assets. Whether through a complex trust or basic Will, having a plan is vital. Without a Will, state intestate law governs not only who inherits the assets of an estate but who is entitled to serve as a personal representative to administer a decedent’s estate. Not having a Will is easily the most common estate planning mistake that often leads to increased, avoidable and expensive probate litigation.
- Not ensuring the valid execution of Will. In Maryland, for a Will to be deemed valid on its face, it must be in writing, signed by a person 18 years or older making the Will (i.e. a testator or testatrix) and attested and signed by two credible witnesses in the presence of the testator or testatrix. A Will cannot be admitted into probate without following these minimum requirements.
- Not ensuring a testator or testatrix is competent. Ensuring a Will is valid on its face, however, is only the minimum requirement. Lawyers drafting Wills for clients have a duty to substantiate that the testator/testatrix is legally competent at the time of the signing of the Will. During the estate administration process, an interested person in an estate can file a caveat against the Will, arguing the Will, or a portion of it, is not valid. Some of the most common grounds for a caveat proceeding include lack of mental capacity, procurement of a Will through undue influence or fraud, and invalid execution of a Will. A caveat is arguably the most complex and expensive proceeding in probate litigation. A client is well served by an attorney that ensures a Will is validly executed and safe from attack.
- Not depositing a Will in safekeeping. For a one-time statutory fee of $5.00, a testator or testatrix may file his or her original Will for safekeeping with the Register of Wills in the County in which they are domiciled. This is easily the best investment one can make to ensure a Will remains protected. Too many times an original Will not deposited in safekeeping is not located, lost, or worse – an heir-at-law that does not like the terms of the Will ensures it goes “missing.” For a minimal fee of $5.00, one can safeguard an original Will and guarantee an estate cannot be opened without the Register of Wills knowing a Will is on file. This is a step I urge all practitioners to mandate when drafting a Will for a client. Of note, a Will placed in safekeeping should be sealed in an envelope, with the name, address and the last four digits of the social security number of the testator or testatrix clearly legible on the cover.
- Putting funeral/burial wishes in Will. In my experience administering estates, I have reviewed numerous Wills that include wishes for funeral arrangements and even wishes for life sustaining treatments. The Will is not the appropriate location for these requests for the straightforward reason that the terms of the Will are often not even reviewed by family members until after death and after the funeral. Instead, these wishes should be in a living will and advance directive.
- Outdated estate plan. A Will is one of the most important legal documents many individuals sign and ensures a person’s intentions and desires are carried out after his or her death. However, for most people, entering into a Will is not a once in a lifetime event. No matter how complex or basic, an estate plan must evolve as realities change. After all, an estate plan drafted after the birth of your first child will look drastically different than when you are a grandparent. Major life events, as well as a shift in goals throughout an individual’s life, dictate when an update is needed.
- Not accounting for inheritance tax. In Maryland, certain close relatives such as a spouse, children, grandchildren, siblings, parents, grandparents, and stepchildren are exempt from inheritance tax. However, if a client wishes to name a niece, nephew, cousin, or friend as a beneficiary in the Will, it is vital that they are warned that all probate and non-probate assets left to these individuals are subject to a 10% inheritance tax based on current Maryland law. Of note, a testator/testatrix can decide whether any inheritance tax be paid by the distributee (the amount of the distribution is reduced by the tax – this is the default) or by the residuary estate (the legatee receives the full value of the distribution and the residuary estate pays the inheritance tax).
- Missing simple ways to keep assets out of probate. There are a few easy ways to keep assets out of probate. These include naming pay-on-death (P.O.D.) beneficiaries on bank accounts, retirement accounts, and life insurance policies. Other options include, when appropriate, adding a joint owner to an asset or creating a revocable trust. One important note: certain non-probate assets with a beneficiary that is not exempt from the inheritance tax must be reported on the information report and they are still subject to inheritance tax. Additionally, when done right, the creation of a revocable trust can help avoid probate altogether. The creation of the trust is only step one. Step two is funding it.
- No power of attorney. A power of attorney is a document in which a “principal” gives legal authority to a designated “agent” or “attorney-in-fact.” The principal assigns to the agent the power to manage the affairs of the principal if he or she is unable. A valid power of attorney is the most effective way to avoid the possibility of an expensive and oftentimes burdensome court-appointed guardianship proceeding. The Maryland General and Limited Power of Attorney Act, passed by the Maryland Legislature in 2010 Title 17 of the Estates & Trusts Code, provides the appropriate statutory forms.
- Adding a joint owner for convenience without understanding the implications. It is common for an individual to add a joint owner on a bank account for convenience purposes. Often unbeknownst to the primary account holder of the bank account, the unintended consequence is upon his or her death, the account becomes the sole asset of the added joint owner and not an estate asset. This may result in the unintentional disinheritance of heirs – at least when it comes to the account in question.
No matter the intricacy of the plan or level of sophistication of the client, helping clients avoid these common estate planning mistakes will provide a lasting benefit not only to the client but for his or her heirs in the future.
Zachary W. Worshtil is an attorney at Ralph W. Powers, Jr., P.C. He is also a member of the PGCBA Board of Directors and co-chair of the Probate, Estates, Trusts & Elder Law Section. He concentrates his practice primarily in estate administration and probate litigation.