Ten Common Estate Settlement Mistakes

Don’t let these pitfalls prevent your assets from going where you intended

Here at Baird Trust, we see many potential clients come in with pieces of their estate plan that don’t quite add up. If attention isn’t paid to certain specifics of an estate plan, it can result in the estate not being distributed the way the client wanted, or cause extra headaches and heartaches for the client’s family. Here are some of the most common issues we see – and how you can avoid them.

1. Dividing Personal Property

When settling an estate, the process of dividing the personal property among heirs is an area where issues and disagreements can arise. Many people don’t specifically account for personal items like jewelry or artwork in their will, assuming the children will sort things out among themselves. But they don’t. Language in a will such as “to be distributed among my children, as they may agree” is unlikely to solve the problem.

If there are items of tangible personal property that you want to make sure end up with certain people, specify that in your will. Or even better, meet with family members ahead of time and figure out which items everyone wants. Another option: Make them choose amongst themselves. As an example, include a clause in your will or trust that says the oldest can select one item from your personal property first and the youngest the last, and in the next round you reverse the order of choices.

2. Outdated Information

Another very common issue is estate planning documents that are not current and up to date as a result of either changes in federal or state law or changes in a client’s circumstances. This applies not just to a will and trust but life insurance policies and IRAs as well, which you should revisit every three or four years. Your Baird Financial Advisor can help you make sure that all your beneficiary designations match the rest of your plan, and that the assets are titled correctly.

3. Make Sure Your Will References Your Current Trust and Other Arrangements

Your pour-over will should reference whatever your current trusts are, as well as any other significant legal documents. If you have assets being held in an LLC or if you have a prenuptial agreement, these are separate legal arrangements that need to be referenced so that one is not acting independent of the other or even contradicting each other. The risk is that one or more of these documents could get lost in the proceedings and your wishes may not be fully executed.

This is especially important if you end up with a successor fiduciary who may not know your personal dealings very well. By referencing these arrangements in your foundational documents, you’re giving that fiduciary a road map.

4. Justify Any Unequal Division of Assets

“Fair does not always mean equal.” There may be a reason why one child is due to receive more assets than the others; maybe he or she has helped you run the family business, while the other heirs pursued different opportunities, or perhaps one child suffers from health issues that require costly care. To ensure there’s no squabbling or legal disputes, it’s very helpful to document the reason why one person is getting more than an equal share of your estate.

5. Hire a Corporate Fiduciary

When you’re naming a personal representative or trustee, it’s tempting to assign those duties to a responsible child who may have the ability to handle all the duties of a fiduciary. However, your child has his or her own family, job and other personal responsibilities. Adding the complexities of administering a parent’s estate or trust can be overwhelming.

It’s important to have someone with enough time to deal with all the complexities of an estate. And you have to project that this person will still fit those requirements years into the future. Hiring a corporate fiduciary means you don’t have to worry about all these potential problems.

There’s an emotional reason to hire an outside trustee as well. It removes all the difficult decisions from the family and places those decisions on said trustee. When conflict erupts, the outside trustee is equipped to address disputes, and can approach them from a neutral, unbiased perspective. When Baird Trust serves as executor or trustee, we follow exactly what the will and trust says. If a father told one daughter that she can have the antique car after he passes away but that’s not what the will says, it’s hard on a child to get stuck in the middle of that dispute. Better to have an outsider settling such issues.

6. Know Your Primary Goals

Many people, when they’re establishing their legacy, think of trying to make their assets last for as many generations as possible. But that may not necessarily be your goal. Are the needs of your children more important than the needs of other descendants? Are the needs of your living descendants more important than the needs of descendants you will never meet? Is the trust for asset protection or to avoid estate taxes?

On top of that, you don’t know what difficulties your heirs will confront down the line; maybe one of your grandchildren develops serious medical issues that entails serious financial outlays. Addressing those concerns is more important than making the money last forever. Be sure to give your trustee direction as to what you consider most important and the flexibility to accomplish those goals.

7. Make It Clear Where Your Assets Are

Don’t assume that even a corporate trustee or executor will be able to find and gather all of your assets. Put together a ledger or computer file that lists where each of your assets is held, and keep this with your important papers including your estate planning documents. Trust officers often have to do things like review income tax returns to make sure all the accounts have been accounted for. If there’s any chance that something might be missed – and that your heirs don’t receive what they were expecting – keep a clean record of all your accounts. Remember especially that safety deposit boxes can be hard to find, since they don’t show up on tax returns. 

8. Make It Legal and Above Board

Sometimes, when people feel the need to amend a trust document or will, they try to save time and money by writing a note themselves instead of having an attorney draft the amended document. There is a very good chance that such an amendment won’t be recognized after you pass away. If there is an addition or modification to your estate plan that you want to be carried out, take the time to ensure it is drafted and executed properly.

9. Stay in Touch With Your Financial Advisor and Estate Planner

Regular communication with your financial and legal professionals reduces the possibility of mistakes and items omitted from your estate plan. If you have any questions about how changes in your family life or in your assets may impact your established financial or estate plan, don’t be afraid to reach out for help. If your Financial Advisor or attorney reaches out to you to advise that you haven’t revisited your plan for two or three years, take the time to discuss it with them.

10. Start the Estate Settlement Process Right Away

After someone has passed away, it’s a very emotional and difficult time, but it is important that you start the estate settlement process as quickly as possible. Without an estate settlement process, there’s no one managing the assets or controlling access to the house or other property, and no final tax returns can be filed on behalf of the decedent.

In fact, no one has the actual legal authority to do anything until an executor is appointed. That’s one more reason why a professional fiduciary can be far more efficient than asking a family member to handle those duties. Don’t make the mistake of establishing a complex estate plan, then letting one of these issues nullify your wishes. The best thing about each of those mistakes is that they are all easily avoided. Talk to your Baird Financial Advisor about how you can make sure all your estate plans are followed – without mistakes.

 

Baird Trust does not provide individualized tax or legal advice. Please consult your attorney or accountant for individualized legal and/or tax advice, including how these common pitfalls may apply to your personal situation.