Monday, July 18, 2011
Five Estate Planning Red Flags
Five Estate Planning Problems That Could Lead To Litigation
Our goal in designing estate plans is to avoid any litigation from ever happening regarding your plan. Here are some of the pitfalls we’ve seen time and time again that are often the source of litigation.
Co-Executors can’t agree on sale price of home or something else
Naming Co-Executors may appear to be a good idea, but two people who get along today may not get along 10 or 20 years from now. Unnecessary or petty conflicts can hold up inheritances for years. For instance, the two Co-Executors may not agree on what a home should be sold for. One may want to buy it himself at a discount. That could wind up in court. That’s a legacy that no one wants.
Abuse of power of attorney—gifting and changing IRA beneficiaries
Durable Powers of Attorney are possibly subject to the most abuse by the person in that role if the document isn’t written carefully. Make sure that you have a qualified attorney draw up these documents, even though they may appear straightforward. Powers such as gifting and beneficiary changes need to be limited and carefully worded. If you gave your agent unlimited gifting power, he or she could spend down your assets on you-know-who.
Didn’t disinherit a child properly
If you are disinheriting a child, it must be done in a very specific way in your will. You also must make sure you write that will when you’re competent, of sound mind, and not under the influence of someone else’s wishes.
Contradictory language in an estate plan
This is another reason why an attorney should be drafting your estate plan, not you. Many people have several parts to their estate plan—wills, trusts, powers of attorney. They have to be written in a way that is not contradictory. For instance, some people have poorly written trusts that are linked up to their will, and they both say opposite things. Not good!
Trusts setup in a way that are vague, potentially unfair to a beneficiary (common trusts)
This is a tricky issue here, but when you design a trust, you are usually designing it for several beneficiaries of multiple generations (spouse, kids, grandkids). If the trust is written in a vague manner, or contradictory in any way, a beneficiary may challenge the trustee. Therefore, when writing a trust, an attorney should write it so that the terms of the trust and your intentions are crystal clear. If not, a beneficiary may find that he or she is being treated unfairly, while another makes out like a bandit.