Estate plans fail when there is additional cost and delay to the loved one receiving their inheritance. Catastrophic failure is when the loved one receives none of the intended benefit. You need to know why some plans fail, so you can avoid these pitfalls.
1. No assets transferred to the trust
Trusts avoid probate because the trust owns the assets. People understand the desirability of avoiding probate; after all it’s an expensive, time consuming process. But sometimes they don’t understand the importance of making sure their trust owns the assets. Every estate planner covers this potential failure by preparing a “pour over will” by having the probate court put everything into the trust. The beneficiaries may be able to petition the court to order assets into the trust if there is evidence that the decedent intended to have the asset in the trust. None of these “fixes” however beat making sure that your trust is properly funded!
2. The trustee isn’t trustworthy
Choosing a trustee is a difficult task, and no one has a crystal ball for the future (or at least one that works reliably). Trustee’s have a large responsibility – distributing the assets to all the beneficiaries, and in some cases managing the trust assets until beneficiaries reach a certain age. Becoming landlord, investment manager, and ultimate decision maker all at once can be overwhelming. Ultimately though, having the right person in this position will make the process smooth, and the wrong person will make the process extra difficult and draining, emotionally and potentially financially for everyone else. As the knight said to Indiana Jones, “you must choose, but choose wisely.”
3. Its outdated
Times change, people change, and if you haven’t changed your estate plan with those changes, chances are your beneficiaries will have a nasty surprise waiting. James Brown, the “Godfather of Soul” created an estate plan leaving most of his estate to charity. But he failed to update the documents after his remarriage and birth of a son. This left his new wife and son to contest the outdated estate plan. While most of us won’t have to worry about having an estate the size of Brown’s (estimated $100 million with $5 million annual income from royalties) outdated plans can leave beneficiaries with little option but litigation.
4. It was never created
You’ve probably heard the saying, “a good plan beats a bad plan, but a bad plan beats no plan at all.” No estate plan leaves you and your beneficiaries – planned and actual – to the whims of the judicial system. When you take control of your estate plan, you can protect yourself and leave something of value to the people about whom you care.