Don’t Neglect Your Estate Plan!

What Happens When You Neglect Your Estate Plan?

For so many important reasons, you went through considerable effort to establish your estate plan. Now it is essential to properly maintain it to ensure that it will accomplish your objectives. Let’s explore five examples that illustrate the potential pitfalls of neglected estate plans.

An unfunded trust without a trustee

I was recently asked to administer an estate plan of someone who died after failing to update his documents for over 20 years. We discovered that the name of his trust was listed incorrectly on his main investment account, his first-named trustee passed away, and his second-named trustee refused to serve. Although I was able to work with the bank to correct title on the investment account, court proceedings were required to appoint a new trustee. Many months and thousands of dollars in attorney’s fees and court costs later, we are now set to administer an estate plan that would have cost less than $500 to update if this person were still alive.

Remember that the mere preparation of documents doesn’t render your estate plan complete. If you’ve established a revocable living trust, you need to verify every year that your successor trustees are able and willing to serve, and that your trust is properly and completely funded.

Old and outdated trusts

Trusts created years ago may not only have deceased or incapacitated trustees, but they also may no longer reflect your current family or financial situation, or comply with current law. I have had many clients come to me with trusts that had tax provisions that they no longer needed and that would complicate their trust administration, others that had trusts that lacked tax provisions that they need to minimize estate taxes, and others that had trusts that were so outdated that court proceedings were necessary to rectify them.

An outdated trust may not only fail in its tax-saving strategies but can also inadvertently disinherit intended beneficiaries or enforce stipulations that no longer align with your values or goals. Regularly revisiting your trust with an estate planning attorney can ensure it remains a true reflection of your intentions, adequately protects your assets, and efficiently transfers your wealth to your beneficiaries.

Real estate in the decedent’s sole name

California is known for its lengthy probates and extraordinarily high attorney and executor’s fees. This is why so many homeowners in this state set up revocable living trusts. What many people don’t realize, however, is that when they refinance their real estate, title is often taken out of their trust – and not always put back in. Other people wait to title property in the trust due to other reasons, and never get around to completing the transfer. 

When someone passes away in California with real estate in their sole name, probate proceedings are generally required for title to pass to the beneficiaries. Even a successful Heggstad Petition (where we prove to the court that the property was intended for inclusion in the Trust, but for some valid reason was never properly titled) can take up to 6 months and is an added expense. Periodic meetings with your estate planning attorney – and/or having your attorney prepare or review property records – takes very little time and can save your beneficiaries thousands of dollars in attorney’s fees and court costs later on.

Forgotten beneficiary designations

I always remind my clients to review the beneficiary designations for retirement accounts that are not paid to their trust. You should always double-check to make sure that those who you wish to receive the funds are in the financial institution’s paperwork, since your will and trust do not govern these accounts. One of my clients was stubborn and required multiple reminders. When he finally checked, I received a big thank you – it turns out that an ex-wife from 20 years ago was still listed as the beneficiary!  

Another client wasn’t able to remedy a beneficiary designation error because the owner of the account had passed away. In that case, the deceased had failed to list a beneficiary of his large IRA, and the financial institution’s default provision was that the account be divided amongst the deceased brother’s heirs – which included an estranged sibling whom he had disinherited in his will.

Outdated and missing asset lists

Outdated asset lists can lead to administrative complexities and beneficiary disputes after your death. An accurate and current schedule of assets serves a dual purpose: First, it acts as a comprehensive checklist for your executor, so that they don’t miss anything when your estate is administered. Secondly, if one or more of your assets are not properly titled in your trust at your death, an up-to-date asset schedule can assist with a successful Heggstad petition and avoid probate proceedings.

By updating your asset schedule at least annually to ensure that it accurately reflects your current holdings, you not only aid your executor in the execution of your estate plan, but maximize the legacy you leave your loved ones.

I have worked with a number of executors and successor trustees who had to rummage through boxes of records, contact numerous financial institutions, file claims with California’s Unclaimed Property Division, and even hire private investigators to determine the full extent of a deceased person’s estate. If these decedents had created or regularly updated their asset list, the additional fees and time spent by their executors/successor trustees could have been avoided – at no cost and in less than an hour.

How Paley & Prehn Can Help You

The attorneys at Paley & Prehn, PLC have more than 25 years’ experience handling all aspects of estate planning, probate, and trust administration. We offer hourly fee arrangements, flat-fee options, and annual maintenance plans. Contact our office to learn more about our services.