FATAL ESTATE PLANNING MISTAKES

Trusts Without Pour-Over Wills

            This is the first article in a new series, Fatal Estate Planning Mistakes, which will focus on “war stories” regarding common estate planning mistakes, as seen by a probate and trust litigator.  These stories are meant to serve as lessons for the average reader.  If the reader sees the mistake below in his/her estate plan, please contact Robert Sewell, Esq., to discuss how to remedy the problem. 

THE FATAL FLAW:  Frank creates a trust.  He titles no assets in the name of trust.  He fails to create a pour-over will believing the trust was enough.  Frank disinherits three of his six children from the trust because he supported these three disproportionately to the other children during his lifetime.  Frank dies believing all his property was in the trust.  The result is that the disinherited children inherit equally to the other children as Frank is “intestate,” meaning he has no estate plan.  This situation is not unique.

THE REMEDY: Individuals who wish to create a trust should also create a pour-over will.  A trust is a device that presently allocates property, as identified by the trust maker (“trustor”), to be placed into the trust.  If the trustor does not title his/her property in the name of the trust, the property is not in the trust.  Rather, upon the testator's death, the property is in the “estate.”  A pour-over will directs property left outside the trust on the trustor's death to be poured into the trust after death.    One might argue that another solution is to title everything in the name of the trust before death; however, whether intentionally or unintentionally, most individuals leave property out of the trust.  If you have a trust, but do not have a pour-over will, your estate plan is incomplete. 

(Please note:  I see this estate planning mistake often when individuals purchase trusts from the internet or from a certified document preparer.  If this is your situation, please have your estate plan reviewed.)

FIVE SIGNS YOU NEED A PROBATE AND TRUST ADMINISTRATION ATTORNEY

A self-represented successor trustee or personal representative (the “Estate Manager”) often ignores warning signs that problems are ahead.  There are a number of signs a Estate Manager is will experience problems and possibly litigation.  Here are five signs the Estate Manager is in trouble and an attorney should be hired:

1.   THE ESTATE MANAGER THINKS THE TRUST AND/OR WILL ARE A SECRET.  The Trust and Will are not a secret held only by the Estate Manager.   Beneficiaries requesting a copy of the Trust or Will, unless the document says otherwise, should receive the ENTIRE document.  If the Estate Manager makes the decision to withhold the document, it makes the Estate Manager appear furtive and beneficiaries lose trust.  When that happens, litigation may be forthcoming.     

2.  THE ESTATE MANAGER IS ACCUSED OF WRONGDOING. A sign of possible litigation ahead is a beneficiary accusing an Estate Manager of wrong doing. This can happen even when the Estate Manager has committed no technical wrong (e.g. he has not stolen the money).  At key moments in the administration of a probate or trust certain things must happen.  An Estate Manager who meets deadlines, provides notice of key events, and provides proper accounting of the estate/trust, engenders trust, can quiet distractors, and in many cases, can stop litigation before it happens.   

3.  THE ESTATE MANAGER THINKS TAXES ARE A PROBLEM ONLY FOR THOSE “RICH GUYS.”  Every estate and trust, large or small, must consider tax issues.  For estates and trusts over 5 million dollars, estate taxes (aka “death taxes”) may be owed.  However, there are other taxable events.  For example, negotiating debts lower than the face amount owed may cause a taxable event.  Significant gifting before the death may cause a taxable event or, at minimum, reporting of the gifts.  The estate/trust making money after the death may cause a taxable event. The decedent’s last income tax return may need to be filed.  As the saying goes, the only thing certain is “death and taxes.”       

4. THE ESTATE MANAGER PAYS BENEFICIARIES BEFORE PAYING ALL THE DEBTS. Debts are paid before beneficiaries.  This sounds simple, but frequently it happens in reverse. An Estate Manager must keep enough money to pay debts and taxes or a lawsuit against the Estate Manager may be forthcoming. 

5.  THE ESTATE MANAGER GUESSES AT THE MEANING OF THE ESTATE DOCUMENTS.  Frequently, an Estate Manager does not understand the estate documents so he/she guesses at the meaning.  If the documents are unclear, an Estate Manager cannot guess at the meaning.  He/She must ask the court for instructions. 

These are just 5 warnings signs that the probate or trust administration is heading for trouble.  If you see any of these signs, either as a beneficiary or Estate Manager, you should immediately contact an attorney.