Martin M. Shenkman, CPA, JD, MBA, PFS, AEP (distinguished), estate- and tax-planning attorney based in New York City. He is coauthor of Powers of Attorney: The Essential Guide to Protecting Your Family’s Wealth. ShenkmanLaw.com
Will your will actually do what you want it to do? You might never know—but your heirs could pay the price if it doesn’t. Working with an experienced estate-planning attorney reduces the odds of many potential mistakes, but there’s still plenty of room for things to go wrong—your attorney’s default strategy might be a poor fit for your priorities…your will might fail to account for changing circumstances…or it could ignite a family feud.
Here’s how wills can—and have—gone wrong for other people—and what you can do to avoid these unwanted outcomes…
Mistake: Failing to think through the “what ifs.” A married couple with an estate worth between $3 million and $4 million told their estate planner that they wanted to leave $1 million apiece to each of their three children, with the remainder going to their favorite charity. Another man said he wanted to bequeath $50,000 to his favorite uncle and have the rest of his estate divided among his children.
These people were requesting things that produced the result they wanted if their wills distributed their assets at the moment they were drafted. But wills often don’t take effect for decades, and situations can change dramatically by that time—estates can rise or fall in size…heirs can pass away.
Better: Always ask the following “what if” questions before finalizing your will…
The couple who planned to leave
$1 million to each of their kids with the rest going to charity should consider whether they would be pleased if their estate grew to $10 million and the bulk of their wealth went to charity. Maybe that is what they want…or maybe they want their kids to get most of the money. Perhaps their will should instead give each child 30% of the estate with the charity receiving the remaining 10%.
Does that man who left $50,000 to his favorite uncle want that money to go to the uncle’s heirs if the uncle dies before him? And would this man want his uncle to receive that $50,000 if the entire estate was worth only $100,000 when he died?
There are no right answers to these questions—the mistake is not running through these scenarios and creating a will that delivers what you want even if the situation changes.
Mistake: Focusing so intently on a primary goal that secondary goals are ignored. An 80-year-old man who had recently remarried told his attorney that he wanted to leave $250,000 apiece to each of his three adult children, and the remainder of his multimillion-dollar estate to his new wife. His primary goal was to ensure that his wife had a comfortable life. But leaving most of his money directly to his wife meant that when she died, she might leave whatever remained to her children from a previous marriage, not to his children. Leaving money to his own children was likely a higher priority for this man than leaving money to someone else’s children.
Better: This man could have left the bulk of his assets to a trust that provides income to his new wife for the rest of her life. After her death, the remaining assets in the trust could pass to his kids or grandkids. He also could have established what’s known as a sprinkle trust to benefit both his wife and kids—the trustee of a sprinkle trust has the power to distribute assets to beneficiaries when they experience financial emergencies. Both of these trusts should have independent trustees. They could ensure his wife’s financial security—his primary goal—while also providing some financial security to his descendants.
Mistake: Not paying enough attention to tangible possessions. A couple’s will split their estate equally among their adult children, an extremely common arrangement. But this will did not specify how those adult children should divide up the parents’ personal possessions. Result: An astonishingly nasty and costly family conflict over a religious object that had little financial value but tremendous sentimental value. This is not uncommon—the division of personal property often is an afterthought in wills, but parents’ possessions can trigger surprising emotional responses among their kids.
Better: There is no one “right” way to divide possessions among multiple children in a will. What’s important is to provide a framework that allows those children to divide these things up in a way that all accept as fair. Potential frameworks that you could ask your attorney to describe in your will might include…
List who gets each of your notable possessions. You will have to update this list as items are sold or acquired.
Place stickers on the underside of each notable possession identifying which heir should inherit it. This is appropriate only if you trust all of your heirs not to swap the stickers when no one is watching.
Grant your executor authority to decide who gets which possessions. This is appropriate if the executor is not one of the heirs and will be objective.
Instruct your heirs to decide among themselves who gets what—but add a clause stating that if no agreement can be reached for an item, that item should be sold and the money divided among the heirs. This strongly encourages heirs to find their own solutions.
Create a lottery where heirs take turns choosing from among your possessions. The heirs might choose in descending age order in round one, ascending age order in round two and so on until there’s nothing left that anyone wants.
Create a hybrid system that combines multiple options from the list above. Example: Specify which heir should receive each of your most valuable possessions, such as art or antiques, with everything else divided up by lottery.
Mistake: Leaving significant amounts directly to heirs rather than to trusts benefiting those heirs. A woman left a sizable estate directly to her daughter, a successful doctor. She didn’t bother to set up a trust for the inheritance because she had faith that her daughter would use the money responsibly. Unfortunately, the daughter trusted the wrong financial advisor and invested in a tax shelter that was deemed illegal. The daughter ended up owing millions to the IRS, which took every penny of her inheritance. Had her mother left the inheritance to a trust that named her daughter as beneficiary, the money likely would have remained outside the IRS’s reach.
Better: Protecting assets from profligate heirs is only one reason to leave inheritances to trusts rather than outright to heirs—trusts can protect assets from lawsuits, creditors and divorce as well. If you have faith that the heir won’t waste the money, it may be fine to name that heir both trustee and beneficiary of the trust. When a beneficiary is also trustee, the trust should specify that the assets are exclusively for the beneficiary’s “health, education, maintenance and support.” This clause reduces the odds that a creditor or lawsuit will be able to circumvent the trust’s protections.
Mistake: Failing to discuss your will with your heirs while you still can. A couple left their Arizona vacation home to their youngest daughter in their will, with their other assets divided evenly between all of their children. They wanted to give a little extra to this daughter, who was in a weaker financial situation than her siblings, and she had often said how much she loved the Arizona property. But the couple did not discuss this decision with their kids. The daughter immediately sold the home for cash. She actually had never liked the home. Her siblings were furious.
No one likes talking about their will—it requires considering one’s own death and disclosing money matters to one’s children. But the consequences of not having this conversation can be worse. Children who unexpectedly receive smaller inheritances often feel resentment toward siblings who receive more…and might question whether their parents loved them less.
Better: If your adult children will receive unequal amounts in your will—or amounts substantially different from what they likely expect—share your reasoning with them. That way there are no unpleasant surprises or misunderstandings in the emotional days following your death. Write a letter of instruction explaining what you did (often those personal comments do not belong in a will or other formal legal document). Also, before leaving a major piece of property such as a vacation home to an heir, confirm that he/she really wants it. Sometimes adult children express fondness for parents’ property just to be polite. You might address disparate needs outside your primary plan—for example, a life insurance policy in trust for the child with greater needs while the will divides all other assets equally.