Preface: Featuring Nevin Beiler, Esquire this week, a PA-licensed attorney who practices primarily in the areas of estate planning, business law, and nonprofit law. In a three segment series, you have the opportunity to learn how competent legal counsel can lead to more rewarding decision making, e.g. applied to estate planning counsel.
Seven Common Mistakes in Estate Planning—And How You Can Avoid Them (Segment III)
#5. Failing to Properly Fund a Living Trust
Revocable living trusts are a popular estate planning tool that can provide significant benefits for some (but not all) people. Potential benefits include (1) simplifying the probate process, especially for a person who owns real estate in more than one state; (2) possibly saving money on legal fees and probate costs; (3) allowing for easier property management if the grantors of the trust become incapacitated; and (4) avoiding having all the details about the grantors’ estate being filed as a public record (as is done with a will).
Living trusts, while often beneficial, require extra steps to properly document and implement. Something that is commonly missed after an attorney prepares a living trust is the essential step of transferring assets into the living trust (called “funding” the trust). For example, to transfer a home or business property into a trust, a deed must be executed. Failing to fund a living trust means the trust will not function like it was supposed to.
If you have created a living trust in the past, or decide to create one in the future, it is very important that all assets that are supposed to be in the trust are actually transferred into the trust. Some attorneys do a good job of ensuring this is done. Others seem content to collect a fee for drafting the trust without following up to ensure that the trust is properly funded. Make sure you confirm with your attorney that all assets have been appropriately transferred, and if you purchase a major asset (such as real estate) in the future, you should consider putting it directly into the trust.
#6. Not Considering How an Inheritance May Affect Those Who Receive It
Professionals working in the estate planning field generally assume people want to leave all their assets to their children, with perhaps a small amount left to charitable purposes. There is great emphasis given to preserving and passing along family wealth. This might seem like the normal thing to do, but is it the right thing? Obviously, the answer is not going to be the same for everyone. Many people would probably agree that winning millions, or even several hundred thousand, in the lottery can be harmful to a person’s work ethic and spiritual well-being. But those same people may not think twice about leaving a multi-million dollar estate to their adult children who are already financially self-sufficient.
For Christians who seek to follow the teachings of the Bible, failing to give any thought to “how much is too much” when leaving behind a sizable estate to their children can perhaps be the biggest financial mistake of their lives—because it can have eternal significance. The Bible clearly does not encourage heaping up wealth, but instead warns of the dangers of riches (e.g. Matt. 6:19-20; Mark 10:23-25; Luke 16:13; 1 Tim. 6:9-10). While a reasonable amount of inheritance may be a blessing to children, too much can potentially cause serious harm. Take the time for careful thought and prayer about who should receive your assets when you are gone. Consider getting counsel from other people such as trusted friends or church leaders, not just your attorney or financial advisor.
#7. Not Obtaining Good Legal and Tax Counsel
Many of the above mistakes can be avoided by seeking trusted and competent legal and tax counsel to assist in the estate planning process. Unfortunately, with the availability of low cost or free will templates and other legal documents, “doing it myself” becomes a tempting option. Some people with small, simple estates have been able to successfully draft and sign their own wills that ended up working just fine. But many others that tried to do it themselves ended up costing their family much more (in money and headaches) than it would have cost to do it right the first time.
Unfortunately, going to an attorney for assistance does not always mean that everything will be done right. Some attorneys offer estate planning services, but know little more than the basics of estate planning. Others are so busy that they fail to take the time necessary to work with clients before and after the estate plan is signed, which may result in substandard work. When hiring an attorney to assist with estate planning, make sure that at least a significant part of that attorney’s legal practice involves estate planning. This will increase the likelihood that the attorney has more than a basic understanding of the estate planning process.
Also, make sure the attorney takes the time to understand your goals and values, so that the plan drafted by your attorney is consistent with those goals and values, and so that the attorney’s advice does not lead you astray. Finally, consider involving your tax adviser in the estate planning process so that you can avoid unpleasant tax surprises. While the best estate planning attorneys have a strong understanding of relevant tax issues, many attorneys do not. Having your trusted legal and tax advisors work together can add an extra layer of protection and quality for your plan.
The foundation of estate planning is good stewardship and love for people. It is being responsible and caring for those we leave behind. It is also, for many of us, a lifelong process. Take time to plan. Update your plan as your life changes. Communicate. Organize your affairs. Seek counsel. Learn from the mistakes of others. And may God bless you in your journey.
Nevin Beiler is a PA-licensed attorney who practices primarily in the areas of estate planning, business law, and nonprofit law. Nevin is part of the conservative Anabaptist community and is passionate about practicing law in a way that builds the Kingdom of God and is consistent with the Anabaptist faith. He lives and works in Lancaster County, PA, and can be contacted by email at firstname.lastname@example.org or by phone at 717-287-1688.