Last week, I mentioned some of the common mistakes people make with their estate plans. This week I want to focus on some other issues that you may not have thought about.

While trusts can be powerful estate planning tools, if they are not properly funded they become worthless shells. In last week’s example, it was a failure to change an insurance beneficiary designation which sunk the plan. Over the years, I’ve seen many other problems.

Do not overlook your IRA, 401(k) plan, Simplified Employee Pension Plan, annuity, or insurance policies as these must be coordinated in a unified estate plan. The way you identify your beneficiary may have significant economic impact on your family after you are gone.

A few years back, some clients had a simple trust which divided everything equally among their three children. Their oldest son was involved in a serious automobile accident which left him permanently disabled physically, mentally, and emotionally. He couldn’t work and had minimal resources so he qualified for government benefits.

His parents were so focused on his medical problems that they didn’t think about their trust. Several years passed without incident, then first one parent and then the other died unexpectedly. Suddenly, the disabled son owned a third of his parent’s estate. He was disqualified for government benefits and had to move from the government facility in which he was living.

The facility he was moved to was comparable in quality, but the upheaval overwhelmed him. His slow but steady progress stopped and he began to regress. A short time later, all his resources were gone and he was moved again as he could not pay for this private care facility. He was moved to yet a third nursing home and again began to regress.

These problems could have been avoided if his parents had revised their estate plan to limit his access to these funds through the use of a supplemental needs trust.

Even if you have an excellent estate plan, it won’t help if your family gets into a family feud. Even with the best possible estate plan, you need to discuss it with your family, especially with regard to your Advance Directive for Health Care, sometimes also called a "Living Will." Imagine the following scenario. Your Living Will that says you don’t want to be kept alive artificially. You are then hospitalized and your children won’t agree to discontinue care because they can’t believe you want to "let go without a fight." If you had explained your wishes to your children, this problem might have been avoided.

The passing of a parent or other family member often forces divisive issues into the open. It’s better to deal with sensitive matters while you’re alive, rather than expecting your children to deal with them after you’re gone. If you favor one child over another, explain why so your children understand your decision. We often plan a family conference and bring everybody together so you can explain your estate plan and answer questions about your decisions. When they hear it from you in front of everyone else, it may be unpleasant but you have decreased the likelihood of them filing suit later. It’s a lot harder for them to argue you were unduly influenced or incapacitated when you presented your plan to all of them in your attorney’s office.

If you are leaving everything to one child and disinheriting your others, tell them. The children left out will feel wronged, hurt and antagonistic toward the "lucky" child unless you explain why. If you avoid telling them so they won’t be angry with you, all you have done is create ill will after you are gone. This can quickly lead to personal and legal clashes which can tear your family apart just when they need each other most.

These conversations aren’t easy to have, but the benefit of future family harmony makes them important.

Even if you have done everything right, disagreements can still arise over money, possessions or even such family issues as who makes the decisions or "who loved who the most."

To avoid an expensive lawsuit, you might consider putting a mediation provision in your trust. You can provide for informal mediation using a trusted third party, or mediation can be formal and require the use of a professional mediator who specializes in estate planning matters. In either event, mediation, as an alternative to the filing of a lawsuit, could save your family the cost of expensive and divisive court hearings and maintain the confidentiality of your trust, which would be lost once the trust become a matter of public record as evidence in a lawsuit.

Prior planning isn’t everything. Creating a comprehensive estate plan is only the first step. Your estate plan must be properly funded, nurtured, maintained, reviewed at regular intervals, and communicated to your family members and other beneficiaries each time it is revised in order for it to accomplish its stated goals.

© Jerry E. Shiles 2004

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