Thursday, 17 February 2022 12:54

Common Mistakes in Estate Planning

By Matt Dorsey | Business

After practicing law for over twenty-five years, I have unfortunately seen a lot of mistakes made in estate planning. Compiled below is a short list of some of the most common mistakes I have seen. 

Number 1: Homemade Wills. Easy access to forms on the internet is a blessing and a curse. Too often, I have seen people obtain forms from the web and attempt to draft their own Wills. While this is legally permissible, the risk for mistakes is high and can have serious consequences. Among the mistakes I have seen is the failure to include a residuary clause. The residuary clause to a Will details to whom everything goes, after whatever specific gifts are listed. For example, if someone writes a Will which leaves multiple different items of personal property to particular people and perhaps monetary gifts to others but does not provide for what happens to the balance of their assets, then there is an intestacy as to the balance of their assets. If that happens, the New York laws of intestacy will dictate who will receive the remainder of the decedent’s assets. The laws of intestacy generally provide the remainder of the assets go to the decedent’s closest blood relatives. However, that may be inconsistent with what the decedent would have wanted.

Another mistake sometimes made is a beneficiary of the Will acts as a witness. Under New York law, the Will may potentially still be subject to probate with a court approving of the Will, but the gift to the beneficiary/witness may end up being voided by the court.

In addition to a lack of a residuary clause and improper witnessing, there are a host of other traps for the unwary when it comes to Will drafting and signing. At the end of the day, you will be well served if you secure the services of an experienced estate planning attorney when doing your Will.

Number 2: Trusts with no assets. Over the years, I’ve had a number of people come into my office with impressive looking Trust documents, sometimes prepared by attorneys, which have little or no assets held by the Trust. This may be the result of the individual drafting the Trust themselves or it may be the result of an attorney drafting it but leaving it up to the client to ensure it is properly funded. Trusts are often used to take assets out of an individual’s ownership and place them in a Trust, as an alternative. Any assets so transferred will not require a Will to be probated in order for the asset to pass on to a beneficiary. However, if the assets are not transferred to the Trust after it is created, then those assets cannot pass to beneficiaries pursuant to the terms of the Trust and the probate of a Will may be necessary.

A related issue is the case where a Trust is created and properly funded, but over the course of time, the assets in the Trust are liquidated or other assets are added to an individual’s ownership outside of the Trust. This may have the effect of depleting Trust assets and increasing assets outside of the Trust in the individual’s personal ownership. If the goal of the original planning was to keep assets in Trust and avoid the probate of a Will, then this goal will be frustrated if this occurs.

Number 3: Transfers out of Irrevocable Trusts. Some people create Irrevocable Trusts for Medicaid Planning purposes and transfer their homes into the Trusts. They do this because if five years pass from the time of the transfer and they later apply for Medicaid, the house will not be counted as a resource of theirs when determining their Medicaid eligibility. This is the “five year look back period,” of which you may have heard. If you engage in this type of planning, it is critical that if the Trust later sells the house, that you not personally receive the proceeds of the sale. All Irrevocable Trusts used for Medicaid Planning purposes prohibit the distribution of principal of the Trust to the creator of the Trust. By personally receiving the proceeds of the sale, the Trust creator will be considered as receiving a distribution of Trust principal. If that were to occur, the Medicaid authorities would consider the sale proceeds individually held by the Trust creator as an available resource when determining Medicaid eligibility.

This is not to say that a house held by an Irrevocable Trust cannot be sold, because it can. It is very important, however, that the proceeds of such a sale be received by the Trust and not the Trust creator individually. If you have created an Irrevocable Trust for Medicaid planning purposes and placed your home in it, you should consult an Elder Law attorney before selling the house out of the Trust. An attorney with the proper experience can advise you how to make sure the proceeds of the house sale continue to be protected from being considered an available resource under Medicaid eligibility standards.

Number 4: Beneficiary designation snafus. As part of your estate planning, you should review all non-probate assets with a designated beneficiary to ensure that they will pass to the beneficiary that you want. These assets would include things such as: life insurance policies, IRAs, 401(k) accounts, 403(b) accounts, and annuities. It may be years since you filled out your beneficiary designation forms, and it’s certainly possible that the choices on those forms don’t reflect your current wishes. For example, you may have forgotten that the insurance policy you obtained through work is still payable to your ex-spouse and that a beneficiary change to your children is now in order. It is also possible that the financial institution has made a mistake and not properly registered your beneficiary choices. In that case, you may be considered as having no beneficiary listed and the asset will pass to your estate. In the case of tax deferred retirement accounts like IRAs, that can have adverse tax consequences. If you are embarking on new estate planning or just making some revisions to an established plan, it is best to check all your beneficiary choices to make sure they are correct and up-to-date. 

Unfortunately, minor mistakes can quickly become major catastrophes after a person loses their competency or passes away. In order to avoid such mistakes, you should work with a qualified estate planning professional to ensure you have a plan consistent with your wishes.

Matthew J. Dorsey, Esq. is a Senior Partner with O’Connell and Aronowitz, 1 Court St, Saratoga Springs. Over his twenty-five years of practice, he has focused in the areas of elder law, estate planning, and estate administration. Mr. Dorsey can be reached at 518-584-5205, This email address is being protected from spambots. You need JavaScript enabled to view it. and 

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