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Common Estate Planning Mistakes to Avoid

1. Failure to plan when the client has children by more than one spouse:

Since the divorce statistics are so high in our country, it is very common for families, who are planning to update their estate plans, to include special provisions for children by prior marriages, as well as the children from subsequent marriages. Life insurance policies are often used to fund college educations for children in case of emergencies (death of the working parent). Often the life insurance policy proceeds can be left to a trust. The Trustee then manages the investments, and sends money for clothes, food, etc. monthly to the children's guardian. The parent usually won't want to leave life insurance directly to their previously divorced spouse; therefore, the use of an educational and support trust, where the policy owner could direct the Trustee how to spend money (college, tuition, clothes, room and board, etc.), would save him many sleepless nights!

The worst situation is where the deceased parents former spouse is still listed as the beneficiary on the insurance policy and receives the children's money outright and out of any trust control. Many times, the insurance proceeds are then invested unwisely or given to a family member instead of being saved for the child.

2. Failure to plan for the transfer, closing or sale of a family-owned business:

If you own your own family business, whether it is organized as a corporation, partnership, or sole proprietorship, it is a crucial part of the estate planning to arrange now, what you want to happen to the business after your death. If there is time to plan, you may want to consider gifting shares of the company, or partnership, to a family member each year to take advantage of the Annual Gift Exclusion permitted by the IRS. This would allow you to reduce the total value of your taxable estate assets at death, while also keeping the shares in the family.

Statistics reflect that over 55% of business owners die without a will, and that only 15% of family owned businesses make it to the second generation. If you want to make sure that your business will succeed you to the next generation, it is necessary to establish an estate plan to facilitate that process.

3. First trustee fails to fund the trust:

To fund a revocable living trust, the creator's assets must be transferred into the trust name. The attorney who prepares the trust agreement will prepare transfer deeds for minerals and real estate, and have those deeds signed and sent to be recorded in the proper counties. The initial, or first trustee, however, must complete the other transfers which usually involve transfer forms for brokerage accounts, as well as having certificates of deposit and bank accounts transferred into the trust name. Stock brokerage accounts must be transferred into the trust name onto the policy insuring the home, or other real estate transferred into the trust. Sometimes, life insurance and retirement accounts will need to have the trust listed as a beneficiary.

When a corporate trustee is the Successor Trustee, after the grantor/initial trustee resigns or dies, the job of properly funding the trust is reviewed again. Remember, a trust only works to avoid probate of the assets that have been legally transferred into the trust name.

4. Procrastination:

If you fail to plan your estate and die owning assets in your own name with no will, the State of Oklahoma has a will for you! In Title 84.O.S.A. Sec. 213, the "Intestacy-Descent and Distribution" mandate dictates how a deceased person's assets will be distributed when he dies without a will or other estate plan, like a trust. The law provides that a certain percentage of the deceased person's assets will pass to his wife, children or parents depending upon the family structure and which potential heirs survived him. This law does not include who will receive specific assets like jewelry, antiques, gun collections, the family business or the ranch. The court will have to appoint an Administrator to manage the estate because the deceased, by failing to execute a will, missed the opportunity to choose a Personal Representative. By not executing his own will, the deceased also has missed the opportunity to nominate a Guardian for his children or set aside assets in the trust for the children's benefit.

By not executing his own will, the deceased also has missed the opportunity to nominate a Guardian for his children or set aside assets in the trust for the children's benefit. Lastly, for the client who dies interstate and the statutory will has to be used, the opportunity to do tax planning is missed.

5. Disposition of personal property:

When completing the estate plan, thoughtful consideration should go into deciding how to dispose of their household contents such as, furniture, family heirlooms, antiques, china, silver, jewelry, etc. These are the types of items the heirs can get into disagreements over if the instructions in the will or trust agreements are not specific about how they are to be dispersed.

6. Unwisely choosing the personal representative, executor or trustee:

Often someone planning their estate feels pressured by a family member to name someone in their will (or trust) as Personal Representative, Executor or Trustee for emotional reasons. Someone who serves in that capacity should have a great deal of accounting experience in order to deal with the business decisions required for managing the assets, filing tax returns, and accounting to the probate court, or to the beneficiary's trust. Don't be pressured by family members to appoint someone to this very important job who is really unqualified.

Trust Departments of banks and independent trust companies are often named as the second, or third, successor trustee. Professional, corporate trustees are used to dealing with appraisers, realtors, stock brokers, insurance agents and all the business issues that face a trustee or Personal Representative. Try to avoid appointing a friend or family member for emotional reasons. They will not be audited like a corporate trustee, and mistakes can go on for years, or may never be discovered.

7. Failure to plan for incapacity:

When you plan your estate and decide what you want to happen to your assets after death, it is critical that you also plan how the assets will be managed while you are still living, but physically or mentally incapacitated. Business and medical decisions become even more critical when the owner of the assets has experienced a stroke or some kind of dementia has started.

A Durable Power of Attorney should be considered as well as an Advanced Directive for Health Care (Living Will). This Directive deals with instructions to your family and doctors if you are in a constant vegetative state or terminally ill. It explains your wishes to refuse, or withdraw, artificial food and water, oxygen or treatment, etc. These medical documents should be discussed with your doctor as how they could be helpful to your future medical decisions. This can take off unnecessary pressures that you and your family might face during that time.

8. Overuse of jointly owned property-title obligations:

Most married couples register title to their assets in "Joint Ownership with the Right of Survivorship" like their home, cars, checking and savings accounts. When the first one dies, there is no probate of these types of assets, and title merely passes to the survivor. So this effectively avoids the need to probate assets registered this way on the first death. The survivor then needs an estate plan to handle the inheritance of their assets at his or her death. Many people think they can avoid the cost of having a will prepared and a probate proceeding, by keeping their assets registered in "Joint Tenancy with the Right of Survivorship" with the person or family members they want to receive the asset at their death. If the surviving owner already has dementia, he may not be able to update his estate plan again or add another relative to the title.

There are problems with the sue of the joint ownership title when the relationship of the two owners is, for example: father-child, mother-sister, or grandparent-grandchild. The younger person could die first, the younger person could be sued or involved in a divorce, and these jointly-owned assets are subject to claims. The younger person might be forced to file bankruptcy and their elderly parent's assets become part of the younger joint owner's bankruptcy due to the way the assets are titled. Therefore, it is not wise to the title assets "Joint Tenancy with the Right of Survivorship" with any non-spouse as an alternative to a good will or trust.

9. Donations of complicated assets to charities.

Many people include donations to charities as part of their estate plan to help reduce their taxable estate and support their favorite organizations. Think carefully about the type of assets you designate to be transferred to a charity. Donating mineral interests, for example, is very problematical because most churches and other charitable foundations are not staffed with the knowledgeable personnel who understand oil and gas leases, and division orders. Donations to charities are best if they are an asset that is easy to liquidate or manage, such as certificates of deposit, stocks, bonds, mutual funds or cash.

10. How to dispose of minerals:

It is very common in Oklahoma for people to own mineral rights that must be dealt with in an estate plan. Several common errors can be made such as dividing these interests generation after generation until the decimal interest of each owner is so small that it is difficult to manage, lease or sell. Sometimes, it is best to consider leaving the client's minerals to just one heir and giving other heirs something else.


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