Estate planning can be complex but is often misunderstood. Based on my 36 years in estate planning here is a list of common mistakes and misconceptions I have observed:
What happens if you die without a will in Texas? This is called dying “intestate”. No one dies without a will, either you provide a valid will or the state does. Chances are much better that your wishes will be carried out if you have a will than if you don’t. If you have a valid will, you may pick your executor, the trustee of any minor’s assets, and the guardian of your children – if you have a properly executed will. Otherwise, these decisions are made by the court. What complicates dying intestate, besides the emotional drain and cost, is that separate property in Texas is treated differently than community property. Separate property includes any property you brought into the marriage, inheritances, and any property that was agreed to be separate (this is called “Partitioning”). Community property generally includes property acquired during marriage that is NOT separated property as described above. Once your executor straightens out what’s what, your community property should go to your spouse if any, and your separate property goes 1/3 to your wife and 2/3 to your children, even if they are still minors. Of course, minors cannot own property so the court must create a trust, name a trustee, monitor his or her activities, etc.
Not having powers of attorney for financial and health care decisions. All adults, young and old run the risk of being incapacitated through accident or illness. If you are unable to act on your behalf, for whatever reason, someone must hold the power of attorney for you to authorize medical procedures or handle financial transactions. Just because you are married does not mean your spouse can sign your name on legal documents, cash checks, or authorize medical procedures. Absent these documents, a court-appointed guardian is required. Imagine having some significant crises in your life and a family member having to hire an attorney and go to court at the worst possible time.
Conflicts between wills and non-probate assets. One common misconception is that a valid will controls what happens to all property. This is false. A will only control what happens to your probate estate. You also have a non-probate estate. Joint checking accounts, jointly owned property, IRAs, all retirement accounts from work, life insurance, and certain pay-upon-death accounts all pass directly to a beneficiary without probate. This issue of two different estates can create all sorts of problems. For example, Joe gets remarried and creates a beautiful set of new estate planning documents. Joe thinks all is well, however he forgot to change the beneficiary designation on his $1mil life insurance from his ex-wife to his new wife. The new wife is powerless to retrieve that $1mil no matter what the will says. Perhaps the ex-wife will be super nice and hand over the $1mil. Another less obvious mistake occurs when the will and non-probate assets are at odds with each other. Suppose Joe wants to split his entire estate 50/50 between his wife and adult children. His will may make this clear, however, each beneficiary designation on employer-sponsored plans like 401ks, group life insurance, and personal life insurance must have the same distribution designations. Otherwise, someone may be disinherited.
General Problems – Often wills are created without any provision for minors. Sometimes I see this with grandparents and other times with parents. In any event, if there is any chance a child or grandchild will inherit property a trust must be created to hold those assets, otherwise the court must get involved. Another problem I see has to do with integrated families or second marriages. If you have a standard will and you leave all your assets to your spouse, you may disinherit your children. If you die and leave your money to your spouse who remarries, the new husband may get your assets instead of your children if your spouse dies without making specific provisions for your heirs. In 2026 the estate tax sunsets or resumes. Under current law, starting in 2011 you will only be able to leave $1,000,000 to your heirs without estate taxes. This is called an estate tax exemption. Your estate includes all your assets, furnishings, life insurance, and especially your retirement plans. Even though life insurance is not income taxable it is estate taxable. If one spouse leaves their entire estate to the other spouse there are no estate taxes (if they are a U.S. citizen). What this means is that the first spouse to die loses their $1mil exemption. In other words, two spouses can collectively leave $2mil to their heirs but only if they leave the first $1mil to a trust.
Copyright © 2022 360Networth Inc.
DISCLAIMER: This site is for informational purposes. Any information obtained is for your education. We are NOT a law firm. You should consult competent legal counsel before acting on any information obtained through this site.