Common Mistakes in Estate Planning . . Part III

Creating an Estate Plan that includes a Revocable Trust, Pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization provides numerous benefits during life and at death. During life, the plan provides directions to your family regarding your medical care and finances if you become incapacitated or are otherwise unable to articulate your wishes. At death, the plan acts as a set of instructions to your fiduciaries regarding the distribution of your assets. Unfortunately, signing the documents alone does not solve every problem or guarantee that everything will work as intended. Sometimes, there are things that the grantor or testator does or fails to do that undermine an Estate Plan.

Creating an Estate Plan requires an individual to disclose sensitive information to create the plan. Many of us agonize over a discussion focusing on mortality, yet that’s exactly what a discussion about Estate Planning does. A comprehensive Estate Plan though implements a plan for that eventuality. People creating an Estate Plan often make the mistake of failing to inform their beneficiaries and fiduciaries of the plan. While the conversation may be awkward, having it not only lets your loved ones know of your plan and their role therein but also prevents hurt feelings and potential litigation if the plan deviates from a beneficiary’s expectation.

Clients may hesitate to discuss their plan because they worry that a beneficiary who knows that they will receive an inheritance will lose motivation to work hard. Others may worry that disclosing the information will cause current conflict or believe that the details of their plan should remain private until after their death. Still, others may have a hard time assessing family dynamics or the limitations of their intended beneficiaries. An experienced Estate Planning practitioner assists a client in working through these concerns and encourages an open dialogue with the beneficiaries and fiduciaries to reduce conflict after death. As Trust and Estate litigators know, a beneficiary whose inheritance failed to meet their expectations makes a great client. Plenty of contentious battles begin because the grantor treated one beneficiary differently than another or one person decided something of which another disapproved.

Having a conversation with the beneficiaries during and at the end of the process provides several benefits. First, it allows the client to provide the beneficiary with their underlying reasoning or motivation for creating the plan. That helps the client understand and manage the beneficiary’s expectations and address the beneficiary’s questions or concerns. Second, the conversation might help the grantor or testator better understand the beneficiary’s needs. That conversation may serve as motivation for the beneficiary to undertake their own Estate Planning. Third, the conversation helps prepare the beneficiary for experiencing the testator’s end-of-life. Imagine a healthcare agent faced with the decision to terminate life support, now imagine they never had a conversation with the individual hooked up to the machines. Imagine trying to make that decision without all the information. A conversation about your wishes with those who will make the decision reassures them that they know what to do when the time comes.

Having a tough conservation with your beneficiaries about the contents of your plan goes a long way toward preventing litigation. Unfortunately, it can’t prevent all litigation. The plan itself also plays a role. If the plan fails to address incapacity, that could cause significant issues. A comprehensive Estate Plan that includes all the documents noted above addresses incapacity if the Revocable Trust has been funded and contains provisions regarding who serves as Trustee if the original Trustee (who is typically the Trustor) cannot because of incapacity and how distributions from the Trust should be made during the period of incapacity. If there are assets outside the Trust, then the Attorney-in-Fact acting under the Property Power of Attorney can make decisions about those assets. Relying upon the Property Power of Attorney could cause issues if the Power of Attorney is outdated or otherwise insufficient. In any scenario, the individual acting pursuant to the Health Care Power of Attorney will control decisions regarding health care for the incapacitated individual. If an Estate Plan lacks these documents or the documents don’t properly address and plan for incapacity, then the family or loved ones will have to go through the time, effort, and expense of initiating incapacity proceedings.

As this article has demonstrated, while there are reasons that folks want to keep the details of their Estate Plan secret, that can backfire in big ways. Further, failure to include provisions in an Estate Plan can result in expensive litigation for the estate, ultimately reducing the benefit to the beneficiaries. I encourage clients to have tough conversations, includes provisions that address a range of circumstances that the client might experience in their life, and ultimately creates a plan that honors their legacy and protects their beneficiaries. Any plan that fails to address these matters ultimately fails the creator of the plan and their loved ones, at a time when they are least equipped to deal with it.