retirement

Estate planning mistakes to avoid

"Her will said, 'If I'm gone, everything goes to my son.' Not in trust, not with somebody protecting him from the assets until he was in his late 20s or so, but it all went directly to him. The problem was, she had over a $1 million wrongful-death claim on her life, filed by her family. There was another on the son, both of which paid off," says John J. Scroggin, a business, tax and estate planning attorney in Roswell, Ga.

The only intestate heir of the infant was his father. (Intestate refers to the circumstance of dying without a will.)

"For the short time the son survived the mother, by her will, all of her assets passed directly to him, including her wrongful death claim. His own wrongful death claim was added to his mother's bequeathed assets, and because there was no trust for the son, 100 percent of the assets passed to the drug convict," Scroggin says.

If there had been a trust in place to pass assets to the son, the mother's assets would have passed back to her family. Not so for the money from the wrongful death claim on the son's life. According to Scroggin, the father would have gotten 100 percent of the son's assets.

Had the mother survived the son by any amount of time, the son's wrongful death claim would have been equally split by the mother and father, and all of the mother's assets would have passed to her family members as her sole intestate heirs.

No one can divine what will happen in the future, but professionals should be able to map out a plan that accounts for nearly every possibility.

Failure to communicate

Any estate plan of any size can go catastrophically wrong -- particularly if no one knows you've taken steps to leave something for heirs.

"We had a client whose father had a massive stroke. His kids swooped down into the town he was in, divided up all of his furniture and brought Dad back to a nursing home here in Atlanta. They didn't bother to look through any of his papers or anything else and closed down his bank account, closed down his mail and just shut everything down," says Scroggin.

Following the father's death months later, the client and siblings went through their father's papers and found a life insurance policy worth $1 million. Their first incredulous question was, "Is this worth anything?"

"We checked on it, and it had been. Dad was having his account debited every month to pay for the life insurance, and when the payment stopped because the bank account got closed, the insurance company sent a letter to the address they had. The letter got returned because there was no forwarding on the address, and they lost a million dollars," Scroggin says.

Trying to please everyone

Even if all the i's are dotted and t's are crossed, things can still go badly. Often, it's the little things that permanently derail plans and family relationships.

Items of sentimental value can cause serious rifts among the bereaved. Experienced estate planners recommend that the person doing the planning -- known as the testator -- communicate with heirs ahead of time to spell out what everyone will get when they die and how they can come to equitable agreements on cherished objects.

"I had two brothers one day shouting at each other in their mother's kitchen about a yellow Tweety Bird figurine that had sat in the kitchen for 50 years. And I'm going, 'Guys, I'll buy one on eBay, and I won't tell you which is the original because it is only going to cost a buck-fifty,'" says Scroggin.

Larger bequests, of course, are fraught with rivalry and envy as well. It's not at all uncommon for heirs to waste the entire value of the estate fighting over what someone else inherited. At that point, the estate and the family relationships are gone.

"It's a double-edged sword; people don't want to communicate what property is going to be given because it could cause animosity. It may cause animosity now, but you can deal with it. Later on, you have no control of it because you are gone," says attorney Senen Garcia, founder of SG Law Group in Coconut Grove, Fla.

Talking about death and dying is not something that comes naturally to most families. But communicating your plans and the intentions behind them could prevent estate planning mistakes and save everyone heartache and money.

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