How much time, effort, and expense should be dedicated to your estate plan? The answer to this question can really run the gamut from no consideration at all to a meticulously laid out plan that touches on every possible contingency. There really isn’t a wrong answer as to how much time and expense you should dedicate to your plan, so long as you fully understand and accept the end results.
The sad truth is most estate plans fail. Yes, I know that is a very bold statement, but you have to understand that most estate plans don’t involve a professional advisor’s direction and end up being executed incorrectly or drafted incorrectly. In most cases the perceived outcome of an estate plan is very different than the actual outcome, unless professional assistance is sought out. Please follow me through a few real examples where the best intentions did not end with the best results.
You Donated $50 to Your Local Public Television Station
I have lost track of the number of estate plans I have reviewed that are overly vague, fail to address necessary state laws or regulations, and are just plain junk. What does stand out in my memory is most of these plans fail on almost every basic level and no self-respecting attorney would be willing to put their name on the plan. Interestingly enough, this is because most of these plans don’t actually come from attorneys. These plans often come as a free download off the internet or as a complimentary gift in exchange for your generous donation to your local public television station during a fundraiser. In many instances these plans have the name of a semi-famous financial consultant (who ironically is almost always not a licensed financial advisor) or even some quasi-celebrity. When you step back and look at this scenario, you really have to ask yourself, how good can this plan be if they are willing to give it to me for my $50 donation? I can answer that question; in most cases they are not good plans.
I was engaged to administer an estate for a gentleman who used one of these “free” plans he acquired by donating to his local public television station. The plan came as a fill-in-the-blank revocable living trust plan accompanied with a pour over will. From talking to the gentleman’s children, their father apparently didn’t feel his situation warranted the use of a trust, so he decided to just use the pour over will part of the plan. To understand the folly of this decision, you have to understand that a pour over will is really an emergency backup plan that accompanies a trust plan. It is never intended to be used if the trust is fully funded and executed. When you have a Revocable Living Trust (RLT), your assets need to be retitled either in the name of the trust or directed through beneficiary designations into the trust at your death. If you fail to transfer something into the trust, the pour over will can transfer an asset into the trust, but not until your executor has gone through the expensive and arduous process of probate.
With that now understood, the pour over will in question did not leave assets to the client’s four children. Instead, it left all assets to a non-existent trust. (Remember, they didn’t think they needed to use the trust part of the plan.) I ended up petitioning the court to have the intent of the deceased individual interpreted, and the estate assets were eventually distributed equally to his children pursuant to the court’s direction. This distribution came after there were significant court and probate administration costs. Unfortunately, the “free” estate plan ended up costing much more time, money, hassle and stress than a properly executed plan.
Trust Funding
If we slightly change the facts, we can also illustrate the most common mistake made with trust plans. If the gentleman created a trust, it should be funded with all of his assets. In making sure his assets all pass to his trust directly, we can avoid the hassles and cost of probate. As we previously addressed, if nothing is done to fund a trust during one’s lifetime, a pour over will likely transfers assets into the trust at death, but through probate.
Most experienced estate attorneys give their clients specific instructions on how to coordinate every asset with the plan. If the trust is adequately funded, it works flawlessly and avoids probate. Unfortunately, many people fail to fund their trust as a result of not receiving trust funding instructions (common with free plans), ineffective directions by their attorney, or they simply fail to complete the instructions their attorney gave them. When a trust goes unfunded, it ends up being a waste of time and money because the plan is often less efficient and less protective.
You Wrote Your Own Estate Plan
I have worked with a number of clients over the years who felt they could adequately draft their own estate plan. I am sure these days you can watch a five-minute video on the internet or listen to a blog proclaiming to tell you everything you need to know to write your own estate plan. Legally you can draft your own estate plan, and this is most commonly referred to as a “Holographic Will.” There are specific requirements that must be met, and most of these basics can easily be found under the Code of Virginia. The real question isn’t so much can you write your own estate plan, but rather should you?
A couple of years ago I was involved in an estate administration where a woman drafted her own will. The will upon first review met all the legal requirements for a Holographic Will (in her own handwriting). In her will she listed her reasons for allocating more assets to one child versus the other child. In what appeared to be the original version of the will, she left 25% to her daughter and 75% to her son. It appears the woman had a change of heart because a different color pen was used to change the percentages to a 50/50 split. What can only be speculated was an even later change where her son’s name was completely crossed out and she initialed next to the edit. Now the question is: Who is the beneficiary? Her son argued that his mother wanted to make the distribution 50/50. Her daughter argued that her brother was in fact disinherited and she should now receive the entire estate. The problem is the documents were not clear to anyone except the person who originally wrote it, who was now deceased and unable to express their true intent. To seek resolution, I had to petition the court for aid and direction as to who was the estate beneficiary and what percentage they should receive. This evolved into a full-blown courtroom hearing where each child had their own attorney and the opposing parties presented their arguments and evidence as to why their position was the superior position. Keep in mind, the named executor in the will was terrified of making any mistake with the administration and had hired my firm to give them direction and keep them out of trouble. With multiple attorneys involved in the process, the attorney fees exceeded $50,000. In the end, the court ended up finding the distribution among the children to be equal. A very high emotional and financial cost was paid by this family which clearly was never the intent of the children’s mother but was the end result nonetheless.
All of this could have been avoided if the will was written in such a way that clearly conveyed the decedent’s intent. I am sure the will made perfect sense to the woman who drafted it, but it’s not surprising that her will failed because she was probably drafting a will for the first time. We all know with any task that practice and experience enables us to become more proficient. This is no different for someone drafting an estate plan. Simply put, the process of drafting an estate plan should be left to those practitioners who specialize in this field and do it every day. An estate plan is only tested when the creator dies. Without experience and the knowledge gained through practicing in this area, someone drafting their own estate plan is just guessing at the end result. The creation of will plans can cost a couple thousand dollars. Trust plans cost a few thousand more. But as long as your estate plans are drafted and implemented by experienced estate planning attorneys, your wishes and the outcome will be the same.
What Is the Solution?
The first step to ensuring your plan will work is to hire an attorney who is an estate planning attorney. If that attorney helped get you out of your traffic ticket or they conducted the closing when you purchased your house, odds are they don’t have the experience and knowledge to guide you to an efficient estate plan. The attorneys at Johnson, Gasink, & Baxter, LLP (JGB) have over 50 years of combined experience helping clients implement their estate plan and later helping those clients’ families administer the estate.
At JGB we keep in touch with our clients through our monthly newsletters and invite our clients to review their estate plans with us every five years. In many of these five-year reviews, we find that clients have been complacent with funding their trust assets. Even more frequently, clients have acquired new accounts or property and simply failed to coordinate the assets with their trust. Often beneficiaries change, trustees/executors die, and laws change that necessitate changes to the plan. Simple routine upkeep of an estate plan ensures an efficient and less costly administration at death.
In some instances, five years is too long to go between review sessions. Many clients of JGB want to have an ongoing relationship with their attorney to ensure to their plan is functioning at the highest level and is completely up-to-date. For those trust clients, we have the TrustGuard™ program. Clients who participate in TrustGuard™ come in annually to meet with their attorney. In the meetings the estate planning documents are reviewed for changes in the law and changes in family dynamics, and the attorney checks to ensure all assets have been appropriately funded and coordinated with the trust. Comprehensive annual reviews ensure maximum effect and efficiency of the trust. Often family meetings are scheduled to ensure all generations of the family are aware of the estate plan and the plan can work at its peak efficiency.
If you have questions or concerns regarding your current plan with JGB, or you have a non-JGB estate plan you would like reviewed, please contact our offices and we can provide you with guidance and ensure your estate plan will follow your wishes.
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About the Author:
Spencer Baxter is an experienced problem solver who helps individuals and businesses achieve and protect their goals of prosperity, stability, and growth through appropriate planning. Spencer takes great pride in making sure that his work for clients is always reliable, correct, and on time.