I have been a trusts and estates (T&E) attorney for 28 years and have seen a lot of good planning, a lot of bad planning and the results of both. This installment of “Where There’s a Will” describes some of the common mistakes I’ve seen and, for each, a better approach.

‘I’ve got plenty of time.’

It is rational for a healthy 40-year-old to think of estate planning as not urgent, something to get to “someday.” The problem is we almost never know when our time is up. Vibrant and independent folks can lose their ability to act due to an accident, unexpected illness or death. Failure to plan can leave significant headaches for your family and intended beneficiaries or, even worse, leave your assets to the wrong beneficiaries and your intended beneficiaries empty-handed.

If a person becomes incapacitated without powers of attorney naming trusted individuals who can manage the principal’s person and finances, someone will have to petition a court to be appointed conservator for the ward’s person and property, a process that is more involved and costly than powers of attorney and might result in someone being appointed whom the ward would not have preferred. If a person dies without a will and owns any assets that have no surviving joint owner and no surviving named beneficiary, then that person has died “intestate” and the law determines who inherits the estate (the decedent’s “heirs”). Do not assume that a surviving spouse inherits everything. Charities and unrelated persons (including unmarried significant others and unadopted stepchildren) are never heirs.

Good planning: Start planning upon the earlier of expecting your first child and your 40th birthday and review the plan at least every 10 years thereafter. Basic planning includes an advance directive,¹ powers of attorney for health care and property, a will, and coordinated beneficiary designations. Many clients also include some form of trust.

Not valuing estate planning.

Several weeks ago, I had the following email exchange with someone I’ve never met:

Prospect: “I am considering a revocable trust over a will and have discovered that will cost $1500-2000. I wondered what your opinion is of this [sic]?”

My reply: “A ‘revocable trust’ simply refers to a type of document. Costs can vary widely based on why someone is creating a trust and what it does. My opinions are (1) in a world where a trustworthy used car costs at least $15,000, good estate planning is bargain priced, and (2) bad estate planning can be very costly for intended beneficiaries.²

Of course, that response (in addition to sounding snarky) could be seen as self-serving, but I have found the sentiments to be true. Scrimping on planning can lead to expensive lawyering later. Fifteen years ago I decided that I needed to be in the T&E litigation space because (1) good T&E lawyers would be needed to clean up messes caused by faulty or insufficient planning, and (2) T&E litigation would help my retirement savings.

Good planning: Pay more money for your estate plan than for a one-week vacation. Not as fun, but more valuable.

‘Do I need a lawyer?’

An acquaintance once told me that she needed a quitclaim deed and asked whether she needed a lawyer or could just find a form. I told her she needed a lawyer only if she wanted to know (1) whether it was a good idea to deed the property; if so, (2) whether a quitclaim deed was the right kind of deed to use; and, if so, (3) that she was getting a good quitclaim deed. I told her lawyers sell advice and peace of mind, not documents.³

One way to be “penny-wise and pound foolish” is to attempt do-it-yourself (DIY) estate planning. Early in my career, DIY planning relied on commercial forms available online or at office supply retailers.⁴ Then vendors stepped in with online software encouraging people to create their estate plans without having to hire (i.e., pay) an attorney.⁵ Now, artificial intelligence (AI) promises to help people create their own legal documents and render lawyers unnecessary.

Almost as bad as DIY planning is the dynamic expressed by the thought, “my divorce lawyer can do my will.” Relying on a lawyer who doesn’t frequently practice in an area is a recipe for disaster. You don’t want me handling your divorce or defending you in criminal court and you don’t want a lawyer who practices  primarily in those areas helping you create your estate plan. A common mistake (which illustrates that estate planning involves more than a will) is a marital dissolution agreement (MDA) that requires the father to maintain life insurance with the minor children as beneficiaries. The MDA should anticipate, and the father’s estate plan should implement, leaving a minor’s inheritance to an adult as trustee.

Good planning: Entrust your estate planning to a lawyer with estate planning experience (and your plumbing to a plumber, your flight to a pilot and your surgery to a surgeon). As my neighbor says, “sometimes, you just gotta pay the man.”⁶

‘We want simple (i.e., cheap).’

Simple planning can turn out to be costly because it doesn’t accomplish all that a good plan can accomplish. A common mistake is not considering the various types of trusts that can serve a client’s goals and needs, including “perpetual” trusts for divorce and creditor protection⁷ and a Tennessee community property trust for income tax planning.⁸ Of course, lawyers should explain the reasons for doing everything, the detailed working elements of a particular strategy, the potential implications of implementing the strategy and something of what costs a client should anticipate if going down a planning path. Then the client should decide what is best, but “best” sometimes doesn’t mean simplest (or cheapest).

Good planning: Give the lawyer accurate and complete information, rely on her advice and seek the best plan, not the simplest (or cheapest).

‘I put my daughter on my account so she can pay my bills.’

I hear this all the time. Failure to manage beneficiary designations and titling can override good planning and produce inconsistent results. Unfortunately, when a person asks a financial institution to “put my daughter on the account,” that almost always results in joint ownership, which causes the daughter to inherit the entire account if she survives the parent.

Suppose a client signs a will and power of attorney that provide precisely what he wants to happen in his estate. Then a bank teller suggests adding a daughter as joint owner on bank accounts so she can manage them if dad becomes unable to do so, a financial advisor recommends naming children as beneficiaries to “avoid probate and make things easier,” a life insurance agent helps name children as beneficiaries because dad says⁹ they are to benefit from the money, and an attorney other than the estate planner prepares a deed to children, with dad retaining a life estate, to “protect the property from creditors” and to make the transition “easy” at dad’s death.¹⁰ Those steps can make a power of attorney and will largely or completely irrelevant. Similarly, a client might not use recommended beneficiary designation language for a $500,000 retirement or investment account because the language exceeds the character limit in an online form’s text box.¹¹

Good planning: Allow your estate planning attorney to guide you through titling assets and naming beneficiaries.

‘He would be offended if I named someone else.’

Choosing a fiduciary is not a popularity contest or a birthright, but vitally important to the principal and beneficiaries. Many people name a parent, the oldest child or a sibling based not on ability and trustworthiness but on family relationship. If Uncle Jim or oldest son Josh is a great guy with little or no experience managing money, because he feels responsible (“they wanted me to handle this”) he might feel obligated to serve but then get in over his head and make mistakes in investing, spending, keeping records and filing tax returns.

Good planning: Name as a fiduciary the person who will be the best decision-maker and will carry out fiduciary duties effectively.

Bonus mistake for the lawyers.

If a prospect tells you he wants to “hide” his income or assets from the government, it could be a mistake to accept the prospect as a client. A lawyer can be held civilly or criminally liable for assisting a client in fraudulent or criminal behavior. Remember this advice, given to me early in my career: “Don’t let your client’s problems become your problems.”

Conclusion

We can help people do good planning to prevent avoidable problems. Even if good planning costs a bit more than clients expected, it usually will be significantly less costly (legal fees and otherwise) than bad or no planning. Years ago, I coined the following to describe the economics of my practice: “Doing good planning pays the bills. Fixing bad planning pays for nice vacations.” |||

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EDDY SMITH practices with Kennerly Montgomery in Knoxville. He focuses on planning, administration and litigation related to trusts, estates, businesses and nonprofits. Smith is a fellow of The American College of Trust and Estate Counsel and served as chair of the TBA Estate Planning and Probate Section.

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NOTES
1. See the “Tennessee Advance Directive for Health Care,” available at www.tn.gov/content/dam/tn/health/documents/Advance_Directive_for_Health_Care.pdf.
2. I correctly predicted that I would not hear back from the prospect.
3. She did not hire me. One could conclude that this and the preceding endnotes evidence a pattern.
4. See, e.g., the Chastain case discussed in Eddy Smith, “Strictly Speaking, When Is a Will Not a Will?”, Tennessee Bar Journal, August 2015, available at www.tba.org/smitheddy_strictlyspeakingwill.
5. I know little about and offer no opinion of any specific provider. I suspect sometimes customers come away with serviceable documents. The problem is that many don’t and, often, no one knows until it’s too late to fix.
6. My neighbor’s hiring is not limited to males.
7. See Smith, Eddy, “Shifting the Paradigm: Should Most Tennessee Trusts Last Indefinitely?”, Tennessee Bar Journal, December 2017, available at www.tba.org/smitheddy_shiftingtheparadigm.
8. See Smith, Eddy, “In Praise of the Joint Revocable Trust”, Tennessee Bar Journal, September 2022, available at www.tba.org/smitheddy_praisejointrevocabletrust.
9. Clients sometimes sabotage their estate planning by acting without involving their T&E attorneys.
10. Making children remainder beneficiaries could expose the property to their creditors and could disqualify dad for government benefits that he otherwise would have received.
11. Clients sometimes don’t ask whether the language can be submitted as an attached “custom” beneficiary designation. Too many clients refuse to move their money to a financial institution that will allow them to engage in thoughtful estate planning for their six-figure accounts.