3 Big Mistakes to Avoid When Making a Will

The loss of a loved one is hard enough, but in many cases, when a loved-one dies without a will the results can be tragic. Worse yet is when a person actually makes a will, but also makes mistakes that are otherwise easily avoidable. Here are three common mistakes when making a will that can add additional burdens to a survivor’s family and complicate an estate.

Not Understanding the Concept of the Probate Estate

How to make a will properly and avoid probate and other costly mistakes.

When we talk about estate planning, there are two kinds of estates – the federal estate tax estate and the probate estate. The estate tax estate is comprised of just about all assets within a person’s control at the time of their death. The probate estate consists of those assets, known as probate assets, that are in the name of a deceased person at the time of their death. Non-probate assets are those assets that transfer automatically, by operation of law, at the time a person dies. Examples of non-probate assets are real estate held in joint tenancy or a bank account with a living person as a pay on death beneficiary. Examples of probate assets are real estate held in a single person’s individual name or a brokerage account in a single name with no feature for payment upon death.

Determining what is in a person’s probate estate is importantwhen planning how to make a will. Why? It is important because a will controls only probate assets and does not control non-probate assets. One of the first jobs an estate planner has is to survey the financial playing field to find out how a person’s assets are titled and whether or not they have any pay on death or transfer upon death features.

When a person does not take non-probate assets into account, the planner’s goals can be thwarted. For instance, someone might desire a plan with a trust feature to prevent a beneficiary from exercising full control over an asset. This is common when there are minor children or perhaps a beneficiary with some kind of problem that causes the planner to want to hold money in trust. In such a case, the person making the plans may assume that there parcel of real estate will pass into a trust to be held on behalf of a beneficiary. Unfortunately, it is quite possible that the planner already deleted the real estate into joint tenancy with someone else years ago. This, unfortunately, happens all the time. In such a case, all of the advanced planning done by the will is the thwarted because the will does not control the disposition of the real estate. Instead, the real estate will pass by operation of law to the joint tenant. Conversely, if a planner is unaware of estate taxable non-probate assets, such as life insurance with a named beneficiary, an opportunity to make plans to possibly save estate taxes could be lost.

Without a full and complete understanding of what assets are and are not governed by the terms of the will, a planner cannot adequately construct a plan for the disposition of their assets.

Not Naming Backups

When a will is drafted, the testator names a number of people in charge of a number of important jobs under the will. The people who stay behind are given various offices to fulfill the testator's wishes.

Typically, a person making a will names an executor to undertake the administration of the will in the probate court. Sometimes a will contains a trust and, therefore, there is also a need to name a trustee who will be responsible to undertake the administration of the trust. Many wills for people with minor children will designate a guardian to be the custodian of minor children or a trustee to control the children’s assets. All of these offices are quite important to the smooth administration of an estate.

When people make a will they need to think through what would happen if they party they have named to act is incapable of acting, dies before or while acting, or declines to act. All of those events, while unforeseen, can occur leaving those important offices empty. A testator should even consider the relationships of their office holders. It is somewhat more risky to name an in-law because of the possibility of divorce. When choosing older persons to hold certain offices, it must be considered that they might predecease the maker of the will or may be too old to effectively act.

A well-thought-out will should to contain the names of backups who can act in the event that the originally named officeholder cannot. Without naming backups, it is possible that interested parties could wind up in court fighting over whom should hold any particular office. It is a terrible shame to have to litigate an issue that could have been planned for in advance.

Not Making a Regular Review

You've answered the question, how do I make a will? Now don't forget to review your will every few years.

One thing is a constant: things change. Families change, circumstances change, goals change and relationships change. When you have an estate plan, external changes may necessitate a plan change. An estate plan is a document for today and for tomorrow, but it is usually not a document for forever. Anyone making a will needs to make sure that the will meets their needs as things change. As a result, an estate plan should be reviewed, at a bare minimum, every five years or whenever the testator experiences a major life-change.

Situations that might necessitate a change are the birth of a child or the death of a parent, getting married or divorced, or acquiring a large sum of money. As children get older it becomes easier for a parent to know whether or not assets need to be protected in trust for a longer or shorter period of time. As children get even older, most people switch their named executor to their children. As relationships change or people move around the country, the person who was appropriate to act as executor yesterday may not be the right person for tomorrow.

Laws also change all the time. In the past thirty five years the estate tax credit has increased and decreased from a low of $600,000 all the way up to $5,400,000. During that time tax rates changed, the estate tax was eliminated for a short time, and the concept of estate and gift tax credit portability established. It is likely that there will be major change to the estate tax system in the future causing planning opportunities to be missed or rendering current plans inappropriate. For these reasons you should regularly review of the provisions in a will.

In Conclusion

When asking the question, “How do I make a will? Understand that a will is a serious legal document. It sets forth rights and responsibilities that impact loved ones long after a person passes away. Careful thought should go into the planning and the upkeep of that document to make sure that a testator’s wishes are carried out.

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