We have written before about how to prevent probate litigation or disputes among heirs which do not proceed to a full-blown court proceeding but could be avoided.
Below are some examples of estate planning and trust administration decisions that are relatively common, and the possible unintended consequences.
(1) A person writing his or her own will or codicil (unless the instrument is a handwritten codicil that disposes only of personal effects) or using an online or form document. The classic mistake here is not that it is not possible to compose a document on your own, but that "homemade" documents often tend to give specific assets to people (see note 11), and do not take into account the passage of time which results in huge differences in the value of assets which were equal when the document was drafted.
(2) Having a customized estate plan prepared by an attorney who lacks the necessary expertise to draft nonstandard provisions. Most examples of this are fairly technical, but a common mistake is when a trust or Will contains a proviso that "When I die, I direct that all my assets be sold and . . . . . . ." Typically this is inserted in an effort to avoid arguments over assets. The actual result is an argument over timing and price of the now mandatory sales. Is now, for example, the best time to sell the family home in San Bernardino? Or should the Trustee have the flexibility to wait a year or so?
(3) Creating a group trust for adult beneficiaries (that is, one trust out of which the trustee can make distributions currently to any of several persons). This can work, but should only be done after some serious consideration of the assets and who the Trustee will be that will be charged with making these decisions.
(4) Appointing one child as the trustee over another child’s trust. Depending on the situation, this could be either no problem or a disaster.
(5) An executor, trustee, or agent (“fiduciary”) not hiring an attorney to represent and advise him, at least initially. Many of the easiest mistakes to avoid are made in the first several months of an administration.
(6) An executor hiring a lawyer who lacks the necessary expertise to help with the postdeath matters when the will contains tax and other “sophisticated” estate planning. This is related to point (5), obviously, but its worth mentioning since many of the "traps for the unwary" which occur after death are highly technical in nature. Asking a civil litigator for some help who is a friend of the family is typically a bad idea for both parties.
(7) A fiduciary or trustee failing to file required tax returns affecting the estate, trust, and/or the beneficiaries. Most non professional fiduciaries are simply unaware of the various filings. They are also unaware that in many cases they are personally liable for payment of the decedent's taxes.
(8) A parent not explaining or discussing his estate plan (at least in general terms) with his children. This is a highly personal decision, and many parents prefer to maintain privacy, but explaining some decisions in advance, such as treating children differently, can go along way towards smoothing feelings later.
(9) A person naming a minor (a person under age 18) as the direct beneficiary in a will or living trust or as the beneficiary of life insurance, IRAs, retirement plans, and so on. Avoiding a large distribution to an 18-year-old is one of the main reasons for estate planning in general.
(10) Arranging for the complete disposition of assets in a nonprobate manner by using “multiparty accounts,” leaving the executor with no funds to pay debts, taxes, and expenses after death. This may be the most common mistake on the list, and the most difficult to clear up. Also, this method usually fails to take into account changing asset values over time.
(11) Attempting to dispose of all assets individually, rather than using percentages (at least for the bulk of the estate). As mentioned above, this almost never works out the way the decedent intended.
I had a much longer list to start, but ran out of time to discuss them all, so these are just some common examples. Each estate and family is different and presents unique issues. You want an estate plan that is customized and planned for you. Not all probate litigation can be prevented, of course, but a large portion of probate litigation can be prevented by good planning and hiring experts during the planning, trust administration and probate phases.
Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at firstname.lastname@example.org or call him at (626) 793-3210 or (818) 769-4221.
He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.
The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.