What are things that you absolutely want to make sure to avoid like the plague when it comes to estate planning? Absolutely avoid doing nothing. You should have a plan in place.
Today, Toby Mathis of Anderson Business Advisors talks about major mistakes to avoid and choices to make when estate planning and ensuring your legacy. The most important thing is to have the opportunity to put things in place and affect lives for decades, if not centuries, after you’re gone.
Hey, this is Toby Mathis. I’m an attorney with Anderson’s Law Group and Business Advisors. Today we’re going to be talking about major mistakes to avoid when estate planning. Things that you absolutely want to make sure that you avoid like the plague because we’ve seen some pretty nasty situations.
I’m going to say right up there number one is doing nothing, doing the ostrich and sticking your head in the sand. I’m sorry father time wins out on all, and it’s not just passing away. You’re going to leave a mess behind if you pass with nothing, but that’s rarely what happens.
What usually happens is we get sick or we’re not able to care for ourselves and we don’t have somebody designated. The next thing you know, you’re forcing your family to go and deal with state workers, guardianships, conservatories, all that fun stuff that nobody wants to deal with and you just put them into it.
Number two is thinking that you’re going to live forever. It’s not going to happen. Nobody gets to take the U-Haul with them behind the hearst, so we’re going to have to do something.
You really have three choices. You can either do kind of a simple will, in which case you’re going to go through probate and you’re going to go through a court-appointed process and that’s not you. It’s actually going to be your heirs. You could do a living trust where you avoid it entirely. Or you could just say forget it all and you die with nothing. Now, you force your heirs to go through the probate process and you’re falling underneath state law. Now, they have to get someone to figure out exactly what those are and how to divvy things up. It gets really really annoying when you go through that so I’m just going to say please don’t do that.
We have actually seen litigation over items and lowest with values of less than $5. I am not joking. There’s a great case out of Georgia where they fought over a Tweety Bird. I’m talking about not a live Tweety Bird. I’m talking about a plastic I-tawt-I-taw-a-puddy-tat Tweety Bird. A little plastic item. And the attorney even found a duplicate item and said to the kids we’ll toss both items in there, we’ll shake it up, and you each get one. No, they both wanted mom’s Tweety Bird and they were willing to fight for it.
In our offices, the worst case we’ve seen was $5000 of litigation over some plates. It was the Christmas plates and it was one day. It was a motion and they had to sit down with attorneys and divvy these things up. Avoid it like the plague by putting it in writing, please. You could do that.
Realistically, the best way is by doing a living trust. It’s going to encompass everything or at least a will with other ancillary items like a schedule of gifts just making sure that you’re specifying who gets what.
This is very key because if you add grief and money, you’re going to have conflict. When you have your kids left behind, or even if it’s a spouse, and sometimes it’s a second marriage with first kids, it’s just a recipe for disaster. What we’ve seen is that more likely than not, if there’s going to be a fight, it’s going to occur when somebody passes and in the probate setting. We all have our stories and we have tons of them. It’s more likely than not that’s when the conflict is going to happen.
On the flip side, it’s more likely than not that you will not have issues if you simply document it and use a comprehensive estate plan like a living trust. They are also considerably less expensive than that alternative. Last but not least, avoid doing nothing, absolutely. Avoid doing nothing.
The third biggest mistake we see is somebody will document things and not actually update them. They’ll create a will, forget they have it, life moves on, things change, and they accidentally disinherit their kids or some other event where they didn’t foresee that by not changing a document or by not updating things that could have unintended consequences.
I’ll give you an example. This actually happened in my family where an aunt took care of one of our elder relatives. Everybody said great, we’re going to leave everything in the house to that aunt and we’re talking about the house and it’s everything in it because it was all family heirlooms. They were like if something ever happens, we’re going to end up figuring and divvying things out. It was all going to the aunt and then she got married.
Being what a lot of us do, we just simply do a will. We don’t think about the fact that we might be cutting off a section of our family. What happened there was that she predeceased her husband. Her husband was not a member of our family, by marriage only. He had his own kids, he had his own family, everything transferred to him, when he passed, everything went to his kids. The entire side of the family was cut off.
We see this happening over and over again because well-intentioned people don’t realize that simply distributing items may not be sufficient. I might want to hold items and allow someone to get the benefit of it, that’s called trust, and then goes to my heirs. Especially in this day and age, where we see Brady bunches or people getting married again later on in life where they already have kids and family.
Unfortunately, the cookie-cutter approach of doing a will or if you’re doing nothing and you let yourself fall under the laws of the state in which you’re residing, more often than not, you’re disinheriting a section of your family and it’s going to go someplace that you never intended. That’s why it’s so important to make sure that you actually document these things out and you work with somebody who understands what your options are in how to avoid those common pitfalls.
The last thing I’ll get and I’ll say is another huge mistake is we are focused like a laser beam solely on our own mortality and not on everything else that we have to offer. In other words, we look at ourselves and we think when I pass, I’m just going to distribute things out, and you’re not thinking of the long picture.
Here’s a stat to wake you up. If you give somebody a windfall, if you give them assets that they didn’t work for, statistically speaking—this is according to studies done by Duke and Ohio State—they all have approximately 16% of that asset after five years.
If you are of means and you leave assets to somebody who’s not prepared to handle it, you may have just cursed them. The stats also show that for folks that get windfalls, especially lottery winners, the bankruptcy rate escalates exponentially. It literally goes up from (I think) less than 1% in the regular population to over 30%, with some estimates being as high as 70%, although I’ve never seen that backup number.
I think the real number is probably less than a third but significantly higher than their non-windfall counterparts. So we don’t want to curse our family members that we’re leaving behind or anybody, even organizations. We don’t want to curse them if they’re not prepared to handle that asset.
When you look at yourself, look at yourself as a continuation. I tell people to do a 200–300 year plan. Put something in place that benefits. For example, if you care about education, don’t give the money to your kids, put it in trust, and make it an Education Trust that’s for your descendants so your kid’s kids, your grandkids, your great, great-grandkids, your great, great, great, great-grandkids, it just keeps going on, and it’s there with specific rules for how those monies are allocated, but it’s done for education if that’s what you think is important.
You could just plug in the blank. I think that blank is really important and therefore I’m going to create something to foster that amongst my descendants or it could be organizations that you care about.
I use a great example quite often, in philanthropy, you’ve probably never heard of it. The Hershey Foundation still educates over 2000 kids a year. It has a funeral home, a cemetery, a hospital, a museum, and all these things in Lancaster County that started in 1905. Milton Hershey and his wife had no children. These things continue on after you if you decide to put them in motion.
I think that the most important thing is to look at and say you have the opportunity to affect lives for decades, if not centuries after you’re gone if you put things in place. Before you say—I always get this—I am not a rich person, it doesn’t matter. You can put things in place.
For example, we all have a body. I can ensure this thing. I can turn it into money if I pass away. If you have insurance or other things, it can fund your plan. Don’t let anybody tell you that you don’t have enough money to put together a plan because you absolutely do. What you shouldn’t do is not have a plan.
We’ve seen examples of this in the papers over and over again where you have these highfalutin stars who have the best lawyers on the planet and they still manage to do nothing because they think they’re going to live forever, or that it’s not a problem, or they listen to some lawyer who says all you need is a simple will and don’t worry, the probates aren’t that bad. For whom? Maybe for them, but for your family pretty much tells you, it’s highly likely that it’s going to suck really bad.
Avoid it, if you can possibly do it and it’s very easy to do it. In fact, it’ll put a lot more money into your family or whatever organization you care about into their pockets in the long run because you’re going to avoid a lot of legal fees and a lot of needless expenses by doing one simple thing and that’s putting a plan in place.
I hope this is helpful and that you’ve learned a little bit about what type of planning mistakes to avoid.