Five Common AND Costly Estate Planning Mistakes

I have been helping people plan their estates for over 26 years, and I have seen just about every kind of mistake that can by made by attorneys, individuals, families, beneficiaries, trustees, etc. In most cases the mistakes were made by well-intentioned people who nonetheless failed to take advantage of opportunities to accumulate wealth, shelter their assets from estate tax, and protect their estates for future generations. In some cases they were negligent or even malicious. In all cases the mistakes were costly.

I'll describe some of the most common estate-planning mistakes that I've dealt with (the names have been changed to protect confidentality), and how to avoid making them yourself. By taking action and exercising care now, you can save a fortune later.

1. Neglecting items of sentimental value
Several years ago the executor of an estate, a woman named Marie, hired me to probate the estate of her father, Neil. Marie had two siblings. She also had a step-mother, Neil's second wife, who did not get along with Neil's children.
Neil´s will left a portion of the estate to the stepmother and the balance to his children in equal shares. Unfortunately, the will was silent as to distribution of his personal property, which included a collection of firearms and numerous paintings of purely sentimental value. The stepmother felt she was entitled to most, if not all, of the paintings. Marie, on the other hand, distributed the paintings among the three children (and took the guns for herself). The stepmother hired an attorney to fight for the paintings, which were ultimately divided evenly among the four beneficiaries. But the legal fees far exceeded the value of the property, family relations were further strained, and in the end nobody was happy.

Solution: Some people wrongly believe that there is no place in a will for personal property that does not have significant monetary value. If you are leaving items of personal property, whether of actual or sentimental value, clearly state in your will how you would like them to be distributed.

2. Failing to secure the documents
A few years ago my client Christine informed me that her Uncle Leo, with whom she had a close relationship, had died. Leo had prepared a will but it was nowhere to be found. Christine said Leo had promised her a substantial inheritance, but because the will was missing and she was not related to him by blood, the Illinois Public Administrator's Office gave the entire estate to nieces and nephews who lived in Europe -- and who Leo had never met!

Solution: Make copies of your documents and store them in a safe place. Put the original in a bank safety deposit box; even if the key is lost and the whereabouts of the box is unknown, it can always be located by a vault box search. Give copies to your executor and attorney. And keep a copy in a safe place at home.

3. Keeping secrets
In a recent case, an elderly woman named Gwen died and left a bequest of about $40,000 to her devoted caretaker. The other beneficiaries of Gwen's seven-figure estate included four nephews and nieces, who were jealous of the caretaker's close relationship with their aunt, and who were surprised to discover, when the will was read, that Gwen had left such a sum to the caretaker -- in fact they expressed shock, anger, and bitterness. The nephews and nieces argued that the caretaker had exercised undue influence over the deceased, and therefore was not entitled to the bequest -- which to me seemed trivial relative to the size of the estate. Although the bequest was upheld in court, the challenge was costly, it caused delays, and it upset Gwen's devoted caretaker.

Solution: Make your feelings known to your executor and beneficiaries -- preferrably before you die -- about which people you wish to leave bequests to. If you think this may cause conflict, explain in a letter why you feel the way you do; send the letter to all relevant beneficiaries and attach a copy of it to your will. Ideally, you should resolve potential disagreements and quell hostilities (as much as possible) while you are still alive.

4. Naming an unqualified trustee
Rosita, a hard-working, 54-year-old, divorced mother of one child, died recently after a long battle with AIDS. Fortunately, she had revised her estate plan immediately after her divorce, removing her former husband as the beneficiary, executor and trustee. Rosita named her daughter, a junior in high school, as the sole beneficiary; and named her best friend Carly as executor and trustee.
I had advised Rosita against naming Carly as trustee because Carly had no experience managing a trust, nor was she equipped to handle the conflicts that I expected to arise with the ex-husband. I suggested an institutional trustee, but Rosita insisted on naming Carly, whom she trusted. When Rosita died, the ex-husband indeed hired a lawyer and demanded control over the estate, claiming he would do a better job than Carly in managing the trust funds for his daughter's benefit. Noting that he was insolvent, at Carly's request I spent a considerable amount of time convincing the ex-husband's lawyer that he could not possibly win this battle, before they backed off. But the ex-husband conceivably could cause more trouble down the road. This was all too much for Carly -- she resigned as trustee and gave the job to the successor trustee, a large financial institution.

Solution: If there is any chance of a conflict or dispute among family members, appoint an institutional trustee. Your best friend may feel honored to be appointed, but the work of resolving conflicts can be substantial -- not to mention the work of investing, managing, and distributing trust funds.

5. Procrastinating
Howard was in the hospital being treated for cancer when he decided to amend his will -- which he had meant to do for a number of years. His lawyer brought the documents to the hospital and Howard signed them, witnessed by two of the lawyer's assistants. Howard died quite suddenly soon thereafter. A disgruntled heir challenged the amendment in court, claiming that Howard had been incapacitated while in the hospital.

Solution: First of all, Howard should have amended his will years earlier, when there was no question about his competence. But in this situation, the lawyer should have brought along two witnesses in the health care or social services fields, who could testify authoritatively as to Howard's competence. Better yet, the lawyer could have videotaped the signing to further prove his client's competence.

About the Author

Alan G. Orlowsky, President of Orlowsky & Wilson, Ltd. in Lincolnshire, Illinois, has been counseling people on estate planning for 28 years. He previously worked for the IRS in its Estate and Gift Tax Division. He also worked for the Deloitte & Touche accounting firm, and he has taught taxation and accounting at Loyola University of Chicago, School of Business.

If you have questions about this post or about a particular legal situation, please contact Alan Orlowsky by calling 847-325-5559.

Boomers: Do Your Parents Have an Estate Plan?

By Alan G. Orlowsky, J.D., C.P.A. and David Lansky, PhD.

Baby Boomer Joe McGill (not his real name) loved his parents, and when they died, Joe and his sister grieved. The fact that his parents left their estate in a chaotic mess didn´t diminish Joe´s affection for them, but it did cost him and his sister hundreds of thousands of dollars in estate tax and legal fees, plus many hours of administrative hassles. Since their mother´s will was confusing, Joe and his sister feuded when deciding which of them would keep their mother´s collection of fine sculptures, because Joe wanted to keep it intact rather than divide it.

The taxes and fees were paid by the estate, to be sure. But if the older McGills had planned their estates wisely, their children - not the IRS and the lawyers - would have inherited that money.

Estate planning not only preserves wealth for succeeding generations, it also gives the aging parents satisfaction and peace of mind. If they really think about it, most parents would rather leave behind a grand legacy than a costly mess - not to mention help their children and grandchildren achieve their dreams and goals.
We´ll explain what a good estate plan consists of, and then suggest strategies for raising the subject of estate planning with your parents if they normally avoid talking about their financial situation with you.

What´s in a good estate plan?

Each of your parents (in fact, every parent and person with substantial assets) should have a solid estate plan. At the very least, such a plan includes a will, durable power of attorney for property, and power of attorney for health care. Affluent parents should also use revocable trusts to keep trust assets out of probate - which in Illinois can take months or years.

Depending on the value of the estate, the nature of the assets, and the family relationships, a plan might also include a life insurance policy and irrevocable life-insurance trust, or a generation-skipping gift trust, for example. Irrevocable trusts help protect assets from estate tax.

If your parents have trusts, each year they should transfer new probate assets to their trusts. probate assets include cash, stocks and bonds, limited partnership shares, valuables, and collectibles.

An estate plan may also involve life insurance to provide estate liquidity, if a substantial portion of the estate comprises illiquid business interests or real estate.

Each parent should appoint a competent and reliable executor (in the will), trustee (for a trust), and agents (for powers of attorney), and update those designations over the years if any of those people die or become disabled.

Finally, if either parent´s estate is worth more than $2 million in 2005 ($4 million for a married couple), they should give annual tax-free gifts of up to $12,000 to each of their children and to as many others as they wish.

Raising the subject

In many families, especially in your parents´ generation, talking about your personal finances is taboo. Some parents don´t feel comfortable telling their adult children how much money they have and what´s going to happen to their wealth when they die. In some families, if adult children ask their aging parents about their assets, wills, trusts, beneficiaries, or heirs, the parents might suspect their children of having purely selfish motives. If the children raise the subject of powers of attorney, the parents might wonder if their kids are trying to take control of their property. And they might feel a little wary suspicious if you advise them to give you and your spouse and your children $12,000 each, this year and every year.

Before you raise these issues with your parents, discuss them with your siblings, so you present a unified, concerted message. Then you can either approach your parents as a team, or approach them alone, acting as the quarterback of the team with their consent.

Here is the best way to raise the subjects of money, death and taxes with parents who don´t normally discuss those topics with you. First - maybe over the course of several visits - ask them questions about their lives, their ancestors, and your family history. Ask them how they hope to live out the rest of their lives, their dreams and goals, their worries and concerns, how they would like to be remembered, what they would like their grandchildren to know about them, and what family values they want you to preserve.

These questions, and the discussions that follow - if you are sincerely interested in the answers - will not only give you and your children a sense of continuity and heritage, they will also build trust and open up an avenue for talking about sensitive issues like money, estate planning, their health and welfare, and other personal concerns that your parents were previously reluctant to reveal.

If you still have trouble getting through to them, you might suggest that they talk to their legal and financial advisers about their future - including their financial security, estate plan, long-term health care, and future residential options.

If that suggestion fails, you may have no other alternative than to contact your parents´ legal and financial advisers yourself, and explain to them that you are concerned about your parents´ well-being and, frankly, your own. There´s no shame in wanting to help your parents protect their estates from the ravages of taxes, or the greedy fingers of unscrupulous advisers and peddlers of fraudulent investments.

There is also no shame in wishing to preserve your parents´ wealth for the sake of your children and future generations.

About the Authors

Alan G. Orlowsky, President of Orlowsky & Wilson, Ltd. in Lincolnshire, Illinois, has been counseling people on estate planning for 28 years. He previously worked for the IRS in its Estate and Gift Tax Division. He also worked for the Deloitte & Touche accounting firm, and he has taught taxation and accounting at Loyola University of Chicago, School of Business. Al is a contributing author of the book 21st Century Wealth (Esperti Peterson Institute, Denver, 2000), and has written numerous articles on the subject of estate planning. Contact Alan Orlowsky by email or call 847-325-5559.

David Lansky, PhD, is a clinical psychologist who has been working with families and organizations for over a decade. His involvement with business-owning families and families in transition focuses on team building, conflict management

The ABC's Of Michael Jackson's Will

By Alan G. Orlowsky, J.D., C.P.A.

For the past several months we all have been witness to the drama surrounding the death of Michael Jackson. His personal life, played out on the public stage, was by any reasonable standards as bizarre as it was tragic. However, notwithstanding his failings of character and eccentricities, he died a very wealthy man, was revered by many and possessed the common sense to reduce his testamentary wishes to paper.

Unlike many "relatively normal well adjusted" entertainers, Michael "got it" and understood that he needed to prepare a Will to protect his family.

So, what did Michael´s Will state? What did he declare therein to protect his family and perpetuate his legacy that we can learn from? And how did he overcome the psychological hurdle of confronting his own death when most other mortals could not?

The ABCs of the Will of Michael Joseph Jackson

What was declared therein and the filing thereof are as follows:

A. Michael´s Will was filed in the Superior Court of California, County of Los Angeles on July 1, 2009, shortly after his death on June 25, 2009. Upon filing it was made public to the whole world!

B. Publication of the Will was immediately requested so that the statute of limitations for contesting such wills would immediately begin to run, thus barring claims against the estate as quickly as possible.

C. Surety Bond was waived by the Will and, hence, not required, perhaps saving the estate from tens of thousands of dollars of unnecessary bond premiums.

D. Michael appointed 3 individuals as co-executors, namely, John Branca, John McClain and Barry Siegel. Only McClain now acts as executor.

E. Michael was a US citizen and a resident of California at the time of his death, although he spent most of his time out of country.

F. Paul Gordon Hoffman, Attorney filed the Will.

G. Character and estimated value of the property of the Estate were reported as follows: "The petitioners are not certain of the value of the Estate. Petitioners believe that the value of the Estate exceeds $500 million. Petitioners believe that almost all of the Estate consists of non-cash, non-liquid assets, including primarily an interest in a catalogue of music royalty rights which is currently being administered by Sony ATV, and interests in various entities. Petitioners do not have any information at this time regarding the liquid assets of the Estate."

H. Michael was divorced and had no registered domestic partner.

I. Michael declared 3 children, natural born or adopted, namely, Prince Michael Jackson, Jr., Paris Michael Katherine Jackson and Prince Michael Joseph Jackson, II.

J. The entire estate was given to the Trustee of the Amended and Restated Declaration of Trust executed on March 22, 2002 and named the "Michael Jackson Family Trust."

K. Michael specifically excluded his former wife, Deborah Jean Rowe Jackson, from taking under the estate.

L. Katherine Jackson, Michael´s mother, was named guardian of his children and Diana Ross successor guardian.

Was Michael´s Will well drafted?

In my opinion... yes!

It has served him well by providing for the transfer of his assets to his Family Trust, by providing that his trusted mother be appointed guardian of his children and, so far, by withstanding attack from outsiders. Also, since Trusts are not subject to public scrutiny, Michael was able to keep the disposition of his estate free from the public eye. One omission I am able to infer from the filing of the Will is the failure by Michael´s attorney to have re-titled his considerable assets in the name of his Family Trust prior to death...a common mistake which not only subjects estate assets to potentially costly probate proceedings, but also to otherwise avoidable public view.

What we learn from Michael´s Will is that good planning can prevent a clash of family members and outsiders who may otherwise have pitted themselves against each other in order to lay claim to Michael´s considerable estate and to the custody of his beloved children. Clearly, millions of dollars were saved and lengthy litigation avoided because Michael planned.

Why did Michael plan while many others fail to do so? Maybe Michael understood the fragility of life and was not in denial about his risky behavior. Perhaps Michael had a death wish or just wanted to protect his children. Perhaps he had a proactive attorney who made it crystal clear that catastrophe would ensue if he suddenly died having failed to plan. We will never know for sure his reasons for planning, but you can take a cue from his forward thinking and establish a plan to protect your family as well as he protected his.

For more information on Personal Estate Planning or Asset Protection for your business, contact Alan Orlowsky at 847-325-5559.