Ways that estate plans fail

It may come as a surprise to learn that many estate plans fail and that most of these failures could have been avoided. For the most part, estate plan failures are not caused by problems with language in a will or tax strategies. They are most often the result of the “human” or “soft side” of estate planning which involves the nontechnical facets of a plan.

There are two main reasons for estate planning failures. The first one is a lack of follow through. Experienced estate planners know from practice that many of their clients won’t implement and update their plans on a regular basis.  

One common mistake is failing to fund a living trust. Assets that can be used to fund a trust include financial accounts, real property, investments, business interests, and notes payable to you. If assets are not transferred into the trust at the time of the settlor’s death, all of them will be subject to probate.

Plans must be up to date because changes in the law as well as your personal situation can have an effect on your plan. Therefore, it’s important to review your plan every few years or more often if there is a major change in your life or family.  

Not following through with your estate plan is just one of the ways that estate plans fail. How the estate plan is managed can also result in problems.

The missteps you need to avoid

There are some issues that are unforeseeable at the time that your estate plan is created:

1. Trustee mis-manages the estate: The trustee has three important roles — the investing of trust funds, performing administrative responsibilities such as filing of tax returns and communicating with beneficiaries, and the making of distributions. Professional trustees are better qualified to handle these jobs but need input from family members when it comes to distributing the trust’s assets.

2. Your wealth increases / decreases more than expected: Your wealth may be much greater than you thought it would be when you first created your estate plan. Not necessarily a bad thing, but it could be if your beneficiaries aren’t prepared to handle such a large sum of money. Some heirs don’t possess the skills or knowledge to handle money or property while others aren’t emotionally or mentally equipped. The result? The wealth that has accumulated over the years disappears due to poor spending decisions, bad investments, neglect, or fraud.

What if your wealth has decreased more than you expected when you first drew up your estate plan? This can create problems if you’ve earmarked money to be distributed for specific purposes, for example, to pay for your grandchildren’s college education, and the money is no longer available for that purpose.

Is your living trust up to date?

An estate plan is not fixed or unchangeable, but needs to be updated and revised as necessary. You should plan on meeting with your estate planning attorney or advisor every few years. 

If you need estate planning services, The Law Office of David W. Foley, living trust lawyers in San Diego, California, are experienced in the area of estate planning and can work with you on living trusts, trust administration, and estate planning. We can even create your living trust via email.

Contact our office to schedule your free consultation.

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