👑 8 Ways to Royally Screw an Inheritance 🔩

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September 16th was the sixteen-year anniversary of my father’s death.  As many know, he passed away suddenly in a car accident and for over three years my brother and I dealt with complications shutting down his practice, wrapping up business interests and trying to close out the estate through what turned out to be an arduous, expensive and lengthy probate process.

Transforming Trials Into Blessings for Others

Our experience was one that I would not wish on anyone and has served as a catalyst that drives my passion to be a blessing to others and help them avoid some of what we experienced.  Dad had done everything most people would have advised him to do in setting up his estate plan.  He worked with one of the most prominent attorneys in town to craft his documents to create a well thought out blueprint for what should happen upon his demise.  He set up revocable trusts and irrevocable life insurance trusts, bought insurance to provide liquidity and help pay potential estate taxes, and named executors, trustees and the like.  But he made many mistakes along the way that come about all too often when people stop short of implementing well thought out estate plans.

Papa John holding his grandson Jack at the Lookouts in 2008.

One thing my father always drilled into my head is that it is okay to make mistakes.  Those who reach the highest peaks do so because they have failed more than most anyone else.  Michael Jordan missed over 9000 shots in his career, and Babe Ruth held the record for most strikeouts in the Major Leagues for decades after he retired.  The key is to keep moving forward.  Those who are most successful learn from their mistakes.  Those who become more successful even more quickly learn from other people’s mistakes.  I like to think my brother and I have learned from my father’s mistakes in this case, but I feel it is even more important to help others learn from some of these lessons.

Even though the focus of our practice has changed over time to focus more on financial stewardship, giving and inter-generational education / planning, I’ve been thinking more lately about why I got into the financial industry and how my focus has changed over time. Many people think of retiring when they realize it is time to leave the past behind and move onto the next act of their lives. Why not think of re-focusing instead?

In my twenties all my thoughts were about becoming financially independent and becoming more-free in all areas of my life. In my thirties, getting married and becoming responsible for Jen and the children, this changed to becoming a provider and what I could do for my family, my friends and clients. In my forties and into my fifties, thoughts turned to what God really put me on this earth for and how well I am fulfilling His purpose. Its an ongoing journey and one where He is continually schooling me to grow and become the man that can be used for Him. I just want to be in position when He calls me to help better fulfil His plan. For now, I know he has me exactly where He wants me.

I don’t know what God has in store. None of us do. But God continually uses broken vessels to accomplish His will.

This time of year, thoughts return to my father and making sure our kids do not suffer the way my brother and I did when dad passed away. We also want to make sure clients can learn from these mistakes and not have their kids deal with the nastiness that tends to surface when someone passes away.

Below are some of the most common mistakes we see:

Mistake #1: Not getting off the starting line.

All too often people do not want to think about what should happen if they meet their demise. It seems people become more motivated after a loved one passes away, especially when they are dealing with complications. Recently a long time client’s father passed away and he was detailing issues related to probating the estate and the amount of stress it was causing him. I personally think the issues associated with his father’s estate may be a blessing in disguise because it is serving as the catalyst to enable him to get his own estate planning done with attention to protections and provisions necessary to ensure an orderly process for his family. The stress is also inspiring him to exercise more.

Mistake #2: Failure to get spouses involved and engaged in the process

My father unfortunately did not engage my step mother in the planning process prior to or during the period he was getting his estate documents drafted. She did not fully understand or have confidence in what he was trying to do to protect both my brother and myself as well as her two boys. For this reason trusts were not funded and the bulk of the estate was open to creditor’s allowing a succession of entities and unrelated individuals to claim against the estate.

In addition, life insurance proceeds were included in the estate although the original intention was to pay potential estate taxes by transferring ownership out of the estate into the life insurance trust. In the end, the insurance my father bought added additional expense to the estate settlement process because he retained ownership.

Mistake #3: Choosing the cheapest option rather than the best option

A handwritten will in a sock drawer is better than nothing and a will downloaded from the internet and modified is probably a better solution than the former. Even though it may prove a bit more costly to have an experienced attorney draft your documents, he or she has likely seen and dealt with many issues you may not even consider. If they are detail oriented, experienced and focused on protecting clients from pitfalls before they happen, this is best. Dealing with the fallout of inadequate estate planning or an improperly implemented plan can be lucrative for an attorney and very costly for the loved ones of the deceased.

That said, we have found attorneys who recommend trusts for simple situations when they are not necessary to avoid probate. We have also witnessed attorneys who try to persuade clients that trusts are unnecessary when a multitude of issues would point to them being very beneficial. It helps to be somewhat educated before visiting with the attorney.

Mistake #4: Failure to consider what if any trusts might be necessary

Wills, powers of attorney for financial and health purposes, living wills and letters of instruction are all commonly provided with basic estate planning and often all that is needed.

However, trusts may be best in situations where multiple properties and/or business interests are owned, especially if held in multiple states.

My wife and I established trusts for our family some time ago to provide for our children if something were to happen to both of us but also to protect our families from situations that may arise if either of us were to get remarried after one of us passes.

In marriages where families are blended with children from subsequent marriages and/or current marriages, protection measures for the children become more important. In these blended families, if one spouse passes away, the temptation is great to favor one’s own children over the deceased partner’s children and all too often this happens without prior planning.

What is important to mention is that these revocable trusts can be modified at any time by the funding trustee. Subsequent trustees, beneficiaries and assets contained within the trusts can be changed at any time until the trust becomes irrevocable upon death.

Mistake #5: Failure to choose qualified trustees, executors and guardians

We have seen situations where executors and beneficiaries take so long to resolve estate issues that the beneficiaries of the deceased pass away before the estate is finalized. This causes the probate process to involve two estates and compounded complications. Other executors and trustees find ways to miss-appropriate funds and shirk their fiduciary duties, benefiting themselves rather than the intended beneficiaries. Sometimes executors and guardians are not named, in which case the courts may need to be involved. Thinking through these issues and determining if executors, guardians and trustees are up to the task is best.

Mistake #6: Failure to provide adequate protections for loved ones

Are your children too young to take care of themselves? Are they financially responsible? Do they have special needs that require additional care? Are you comfortable leaving them a substantial estate that could be attacked by creditors, future ex-spouses and others who see a potential “pay-day”? Do you wish to protect your spouse from similar circumstances? If so, you can structure your revocable trust so that it becomes irrevocable upon your death and helps to provide these protections.

Protecting IRA assets has also become more difficult over time. A few years back the supreme court ruled that inherited IRAs are no longer considered retirement accounts. Protecting these assets for children and other non-spousal beneficiaries has become more difficult without the use of trusts.

IRAs also have to be liquidated within ten years for most non-spousal beneficiaries. Knowing who can still stretch these IRAs and how to best reduce taxes proves particularly helpful.

Unfunded Trusts are much like Blueprints for Homes that have Never Been Built.

Mistake #7: Failure to implement the plan (funding deficiencies)

All too often, families do nothing to make sure the estate plan is effective after they get their legal documents drafted. What they fail to realize is that the documents are only a blueprint for the structure they need to build. Attorneys tend to be great drafters but poor implementers of estate plans. They will write detailed instructions for what the family needs to do to make sure everything is effective but fail to hold families accountable to build the structure that is intended.

Few people take empty suitcases on extended trips, but many families create estate plans without packing the proverbial suitcase afterwards. Unfunded trusts and inadequate followup caused my brother and I to spend three years and tens of thousands of dollars dealing with all the issues associated with probating my father’s estate. As we mentioned before, it is important that both spouses are on the same page with regard to following through and funding the trust, changing title to property etc…

Many attorneys cite the failure to follow through as the reason they prefer not to recommend trusts in many instances. We prefer to assume that families want to do the right thing and may just need a little more hand holding, education and followup to make sure they finish the process. It is much easier for parents and spouses to determine exactly how and what they want to accomplish and pack their “suitcases” themselves than having a family friend, loved one or corporate entity do it for them after they are no longer around.

Unfortunately the funding process becomes more complicated when executors and trustees have to figure out where all the assets are located and what the intent of the deceased was when he or she was living. We prefer to see families do this work on the front end. Dealing with the passing of a loved one is stressful enough without having to go on a extended “treasure hunt” digging into every conceivable place something might be buried.

Mistake #8: Not providing detailed instructions for executors

Early in the morning on September 16th, 2008 we received a call from one of the nurses in dad’s office. He had not shown up for one of his cases and the police had called about an accident on the backside of Signal Mountain. Dad was rushed to the emergency room. By the time my brother and I arrived to the hospital he was no longer living and barely recognizable. He was gone in a flash and we were too shocked to feel many emotions until days later.

Tim and I traveled to the scene of the accident to get more closure. From there we visited the funeral home and headed up to dad’s house. Someone had come and gone before we were able to take care of items in his home. Statements were spread out, jewelry was taken, even some luggage was missing. We had failed to change locks, combinations and codes before the looters had arrived. They hit extremely quickly.

Luckily dad had made a DVD intended for insurance purposes which detailed all the valuables in the home. We came across this a week or so later and were better able get a feel for what was taken. What we were not prepared for was how to figure out where everything else was located. Tim and I knew more than most but we were not aware how many banks outside of his primary bank he may have security deposit boxes. It took some time to find titles to properties, vehicles and statements for forgotten accounts. We were able to eventually figure out how to get into one of his email addresses which helped the situation, but the process was long and difficult just getting to this point.

We’ve seen similar situations with friends & clients when their loved ones pass away. For this reason we like to provide instruction for how to educate loved ones and detail how best to direct them with regard to distributing personal property.

Please feel free to read this Forbes article I wrote to learn more about Personal Property Memorandums and Letters of Instruction.

Over the next couple of weeks we have a couple dates open to attend our Estate Planning workshop to learn more about protecting loved ones and making the transition easier. Feel free to contact our office for open dates and times.

If you like the video above and want to learn more about being prepared for retirement and other things, feel free to check out the 9 Things to CUT OUT Before 60 (Be Like Forest Gump).