Post Authored By: Brian M. Bentrup
Whether the mistake is creating the wrong plan or no plan at all, mistakes are easy to make in planning for your death and disability. Below are the most common mistakes and ways to avoid them.
1. Failure to Make a Plan.
It is a core component of human nature for individuals to think that only good things await them in the future. Children grow up dreaming of what they will be when they grow up, starting a career, family, or both, getting old and enjoying the fruits of their labor. It is not in our nature to think that family members will pass away prematurely, that we will fall ill before reaching a ripe age, or that we will experience any number of unexpected negatives that can affect one’s life. As a result, individuals delay or procrastinate in creating a plan. Facing one’s own mortality or failing health is a morbid exercise, but a necessary one. Losing a parent is always difficult regardless of a child’s age, but the pain is exacerbated when the child cannot locate a will or trust, cannot manage the parent’s affairs without any authority, or must meet with an attorney because they don’t know what happens to mom’s or dad’s stuff without a will or trust and the rules of intestate succession apply. What about the situation where mom and dad are still alive, but are experiencing age-related decline? This problem can be even worse because the parent’s affairs must be managed while they are still alive, they lack capacity to execute powers of attorney, and where nothing that can be done without going to court for a guardianship. Thus, enacting a holistic plan for distribution of property at death with durable powers of attorney that address any future disability is important for even for individuals of modest means.
How to Fix: Make a plan!
2. Failure to Update the Plan
You’ve made a plan, but haven’t reviewed it in years. In the intervening time, parents that were designated as beneficiaries have passed away, you’ve gotten married or had more children, or other significant life events have occurred. What if you have a new, high paying job or inherited money from your parents? The plan executed many years ago is likely not to reflect your current situation in life. Thus, it is important to update regularly.
How to Fix: Meet with your estate planning attorney for a consultation every 3-5 years, or any time there is a significant life event.
3. Failure to Designate or Update Beneficiaries.
One common estate planning mistake is the failure to designate beneficiaries in the first place, the failure to designate the correct beneficiaries, or the failure to update beneficiaries. If no beneficiary is named, then the asset will need to go through probate if the total value of the estate is over $100,000. As with Mistake #2 above, maybe you set up a 401(k) with your first job before you were married or had kids. At that time, the only people in your life that would make sense was a parent. Now, that parent has passed and the beneficiary has not been updated. Again, without a beneficiary, the 401(k) money would become a probate asset if the total estate is over $100,000. What if you have children and left the balance to them outright? If they are minors, a court-appointed guardian is necessary to receive the funds even when the child’s other parent is alive. A trust for the child would be a better vehicle so that the trustee can receive the monies on the child’s behalf. Beneficiaries may also need to be updated pursuant to a divorce, birth of a child, or the passing of a previously designated beneficiary.
How to Fix: Check and update beneficiaries on a set schedule. Put a calendar reminder for the same time each year to ensure they match the current plan.
4. Failure to Discuss the Plan and Where to Find Documents with Family and People Named in the Plan.
It is typically the best practice not to fully disclose the terms of a trust, will, or estate plan with beneficiaries out of the fear that it may disincentive them. While the beneficiaries need not necessarily know the details of the trust or the distribution framework in particular, successor trustees, named executors, agents under powers of attorney, and designated guardians should be notified before it becomes time to act. As a first step, it is important to let those individuals that they are named in the documents and also where to find said documents. Beyond telling these individuals where the documents are and informing those individuals of their respective duties, it is also important to discuss your wishes. If you want the trustee to use certain guiding principles for making trust distributions, let him or her know before it is too late. If you object to a type of medical treatment, for example, you can let your healthcare agent know should you become disabled and unable to speak for yourself. This step is important while alive and competent because it addresses scenarios when you are no longer able to speak for yourself. It is also important to locate documents at death so the transfers can occur smoothly and efficiently.
How to Fix: Tell your successor trustees, executors, agents and guardians, if any, where to find documents and advise them of your wishes in the event of (a) your death or (b) your disability.
5. Failure to Make Final Arrangements.
What if your religious beliefs require your body be treated a certain way at your death? What if, for example, you are the sole Muslim person in your family and all other family members have been cremated? It may be family practice to cremate, but Islamic religious law requires the body be ritually washed and draped before burial, and never cremated. If your executor is not well versed in Islamic religious law, this may be a critical error. Like with Mistake #4 above, a full and frank conversation with your executor about your wishes in advance can address this problem. A more direct way to ensure your wishes are honored is to make them in advance.
How to Fix: Make your final arrangements while you are alive and competent.
6. Failure to Incorporate Digital Assets.
This is a newly emerging issue within estate planning given the rise to prominent of digital assets and non-fungible tokens (Fts). This is a relatively new asset class and may not be addressed in traditional estate plans. The failure to do so could result in a substantial assets not being addressed and the potential for probate.
How to Fix: Ensure digital assets are included in your estate plan and that your successor trustee or executor is empowered to make your digital assets.
7. Failure to Adequately Plan for Your Children.
The difficulty for parents of younger clients is not knowing how those children will manage money or what type of people they will marry. Giving the assets to your children outright may be desirable in certain circumstances, but for young children this is rarely advisable. As referenced in Mistake #3 above, designating children outright as beneficiaries of retirement accounts and life insurance policies may require going to court to appoint a guardian to receive the funds. An asset protection trust may be advisable instead to protect the monies from adverse judgments, creditors and divorcing spouses.
How to Fix: Ensure gifts to children are left in irrevocable asset protection trusts. The child can become trustee of their own trust upon reaching a certain age and will not lose the asset protection if he or she follows all necessary formalities.
8. Failure to Consider Taxes.
State estate taxes (where enacted) affects few individuals and the federal estate tax affects even fewer. The Illinois estate tax begins at $4 million and a taxed is levied on all assets if over that amount. The federal estate tax kicks in at $11.7 million, but in contrast to the Illinois estate tax, only the amount over $11.7 million is taxed. With Democrats in control of the White House, the House of Representatives and a tie-breaking vote in the Senate (remember, the Vice President votes in the event of a 50/50 vote), it is possible that Democrats will accelerate the inflation-indexed federal exemption amount from December 25, 2025 to January 1, 2022. Prior versions of the Build Back Better plan currently matriculating through the Senate had this provision and reduced the federal exception to $6 million. Even without Congressional action, the inflation-indexed emption will expire at the end of 2025 and be reduced to $5 million. The federal tax rate is 40% so the tax bill can be substantial.
How to Fix: Consult an estate planning attorney experienced and well-versed in tax planning.
9. Failure to Fund the Trust.
This common mistake is last, but it is certainly not least. In practice, this is the most significant and common mistake short of not creating an estate plan at all. As is so often the case, clients enjoy the euphoria of executing an estate plan, but neglect the tedious but necessary task of funding the trust. This means retitling the home and non-qualified accounts in the name of the trust, assigning business interests to the trust, and designating beneficiaries on retirement accounts. Without this step, the trust is an empty and meaningless vehicle that will likely require probate.
About the Author:
Brian M. Bentrup is a graduate of Loyola University Chicago where he triple-majored in Economics, Political Science, and Psychology. In 2015, he obtained his law degree from The John Marshall Law School. In law school, Brian was selected to be an extern for the Honorable Laura C. Liu in the Mortgage Foreclosure and Mechanics Lien Division as well as the Illinois Tenant Union.
Brian joined Pluymert, MacDonald, Hargrove & Lee, Ltd. in January 2018. His practice includes estate planning, probate and trust administration, and residential and commercial real estate. Brian also focuses on guardianships of minors and disabled adults and has been named to the approved Guardian ad Litem lists for Cook County, DuPage County, Kane County and Lake County. Brian dedicates time to pro bono work with Chicago Volunteer Legal Services representing or advocating on behalf of minors and disabled adults.
Brian is a member of the American Bar, Illinois State Bar, Cook County Bar, DuPage County Bar, and Chicago Bar Associations. He is also a member of the Justinian Society of Lawyers and the Phi Alpha Delta Law Fraternity.
Brian is licensed to practice in Illinois and Missouri. When not practicing law, Brian enjoys spending time with his wife, daughter and son, and exploring new and different culinary experiences.