Law Review: Identify, Avoid & Prepare: Costly Mistakes in Estate Planning

by Margaret (Mia) Lorenz, Attorney

In my 26 years of practicing law in the area of estate planning (helping people with their last will and testament and powers of attorney) and estate administration (helping people when a loved one dies), I have seen the costly effect of a person’s failure to plan. There are some mistakes that “top the list” of biggest failures; perhaps you have a loved one who needs to consider avoiding some of these Three Common Costly Mistakes In Estate Planning: 

1. Procrastination – or unwillingness to consider planning – failure to execute a Last Will and Testament and failure to consider and/or execute powers of attorney. 

Benjamin Franklin said that there are two things certain in life: death and taxes. We will all die. Failure to execute a valid Last Will and Testament has the potential to leave chaos in your wake. There are commercials that promise easy documents that allow you to tackle your Last Will and Testament in “zoom” time. If it sounds too good to be true, it usually is. If you truly do not know “how to start,” call your attorney, schedule a conference time, and ask about how to “start” thinking about constructing your Will. We are counselors who do not expect you to have all the answers. Your attorney will help you create a Last Will and Testament that reflects your wishes and leaves orderly instructions upon your passing. 

Some people procrastinate, thinking: if I become too ill to handle things for myself, my spouse/trusted child will be able to “step into my shoes” and handle things for me, right? Unfortunately the answers is NO; not without a valid power of attorney. You must be conscious, able to communicate and coherent to execute a power of attorney. If you are unconscious, unable to communicate, and/or mentally incoherent, and/or incompetent, it is too late for you to execute powers of attorney. In such a circumstance of inability, your loved ones must resort to a costly court process to gain legal authority to handle your financial and medical affairs. The court process oftentimes brings out the “worst” in a family, and this courthouse drama is an emotional drain on a family already suffering. If you want to name WHO is to help you if you are incapacitated (instead of the court); if you do not want your entire financial portfolio published at the courthouse (available for the general public to review); if you do not want to suffer the indignity of being adjudicated incompetent; and you want to spare your loved ones the cumbersome and expensive court process called guardianship, then call your attorney, schedule a conference time and ask about powers of attorney. Your attorney will advise you on what all is involved and ask you questions to determine whether having these documents in order is good for you. 

2. Failure to consider that beneficiary designations are as important as your Last Will and Testament. 

Sometimes your largest asset is an IRA, life insurance, or an investment account. Ten plus years ago, when you established the IRA or life insurance or investment account, you named a beneficiary to receive this asset upon your death. Do you remember who is named? Is it your ex-spouse? Is it your deceased mother? Is it your minor child? Is it anyone at all? Beneficiary designations are as important to have “straight” as your Will. In NC, divorce does not automatically sever an ex-spouse’s right to receive via beneficiary designations. In NC, a minor child cannot “receive” an inheritance. If you have NO beneficiary to your IRA, then the entire IRA will pay to your “estate” and avoidable taxes will be paid. Coordination of your beneficiary designation in light of your plan upon your passing is often times overlooked with serious, costly consequences. Your attorney can assist in making sure
your beneficiary designations are synchronized with
your estate plan. 

3. Naming a healthy and trusted individual outright as beneficiary in a Will – or IRA – or investment – with the idea that this individual will oversee the benefit paid on your death for an unhealthy or irresponsible or troubled child.

Sometimes you have a child, named Pat (as an example), who receives Medicaid and/or SSI (supplemental security income) and you know Pat’s receipt of property upon your passing would disrupt Pat’s important government benefit flow. Other times, you know Pat is going through – or will be going through – a divorce, and you want to protect Pat’s inheritance. Even more often (these days), Pat is an addict and you know that receipt by Pat of property upon your death will result in irresponsible and destructive use. You decide that instead of naming Pat in your Will, or Pat as your beneficiary, you omit Pat from your Will and name your other child, Sam, to take all. Sam agrees to use Pat’s “half” to take care of Pat always. What if you die in a car accident and Sam is in the car with you, and Sam also dies? What if you die in a car accident; Sam is in the car with you; and Sam is permanently relegated to a nursing home as a result of the accident? What if you die; Sam receives all; and Sam takes off for “parts unknown” never to be heard of or seen again? In all of the aforesaid scenarios, Pat is truly “out” and what you intended will not occur. Your attorney can offer ways to avoid this unintended result. Rely on your attorney as your counselor to figure out the best way to include Pat in your estate plan. 

We are all very busy. It is common to have a full day with many activities on the agenda with “real time” information regularly barraging our senses. On a day that is not-so-busy, it is nice to relax, take a nap and disengage from heavy thoughts. It is hard to think about our mortality and the possibility of becoming ill. However, what you do not think about today, may cost you dearly tomorrow. I am not speaking of pure financial cost – although that is part of it. In the event you are incapacitated, you can retain dignity and control through powers of attorney. When you die, you can avoid causing chaos and turmoil through a Last Will and Testament and up-to-date beneficiary designations that truly reflect your wishes and direction. Do you know someone who needs to avoid costly mistakes?

Margaret (Mia) Lorenz is an attorney in Southern Pines at Lorenz and Creed Law Firm PLLC, where she helps people with many legal needs such as preparing their wills and/or trusts, helping when a loved one dies, and helping purchase or sell real estate. She has been assisting people with their legal needs for 26 years. In addition to her husband, John, to whom she has been married for 27 years, she has two children (Matthew and Nicole); three furry children (Brandy (basset beagle hound mix), Mickey and Minnie (cats); and is grandmother to two furry grandchildren (Clif the dog and Aurora, the cat).