By Alan G. Orlowsky, J.D., C.P.A.
I have been helping people plan their estates for over 26 years, and I have seen just about every kind of mistake that can be made by attorneys, individuals, families, beneficiaries, trustees, etc. In most cases, the mistakes were made by well-intentioned people who nonetheless failed to take advantage of opportunities to accumulate wealth, shelter their assets from estate tax, and protect their estates for future generations. In some cases, they were negligent or even malicious. In all cases the mistakes were costly.
I’ll describe some of the most common estate-planning mistakes that I’ve dealt with (the names have been changed to protect confidentiality), and how to avoid making them yourself. By taking action and exercising care now, you can save a fortune later.
Several years ago the executor of an estate, a woman named Marie, hired me to probate the estate of her father, Neil. Marie had two siblings. She also had a step-mother, Neil’s second wife, who did not get along with Neil’s children.
Neil´s will left a portion of the estate to the stepmother and the balance to his children in equal shares. Unfortunately, the will was silent as to the distribution of his personal property, which included a collection of firearms and numerous paintings of purely sentimental value. The stepmother felt she was entitled to most, if not all, of the paintings. Marie, on the other hand, distributed the paintings among the three children (and took the guns for herself). The stepmother hired an attorney to fight for the paintings, which were ultimately divided evenly among the four beneficiaries. But the legal fees far exceeded the value of the property, family relations were further strained, and in the end, nobody was happy.
Solution: Some people wrongly believe that there is no place in a will for personal property that does not have a significant monetary value. If you are leaving items of personal property, whether of actual or sentimental value, clearly state in your will how you would like them to be distributed.
A few years ago my client Christine informed me that her Uncle Leo, with whom she had a close relationship, had died. Leo had prepared a will but it was nowhere to be found. Christine said Leo had promised her a substantial inheritance, but because the will was missing and she was not related to him by blood, the Illinois Public Administrator’s Office gave the entire estate to nieces and nephews who lived in Europe — and who Leo had never met!
Solution: Make copies of your documents and store them in a safe place. Put the original in a bank safety deposit box; even if the key is lost and the whereabouts of the box is unknown, it can always be located by a vault box search. Give copies to your executor and attorney. And keep a copy in a safe place at home.
In a recent case, an elderly woman named Gwen died and left a bequest of about $40,000 to her devoted caretaker. The other beneficiaries of Gwen’s seven-figure estate included four nephews and nieces, who were jealous of the caretaker’s close relationship with their aunt, and who were surprised to discover, when the will was read, that Gwen had left such a sum to the caretaker — in fact they expressed shock, anger, and bitterness.
The nephews and nieces argued that the caretaker had exercised undue influence over the deceased, and therefore was not entitled to the bequest — which to me seemed trivial relative to the size of the estate. Although the bequest was upheld in court, the challenge was costly, it caused delays, and it upset Gwen’s devoted caretaker.
Solution: Make your feelings known to your executor and beneficiaries — preferably before you die — about which people you wish to leave bequests to. If you think this may cause conflict, explain in a letter why you feel the way you do; send the letter to all relevant beneficiaries and attach a copy of it to your will. Ideally, you should resolve potential disagreements and quell hostilities (as much as possible) while you are still alive.
Rosita, a hard-working, 54-year-old, divorced mother of one child, died recently after a long battle with AIDS. Fortunately, she had revised her estate plan immediately after her divorce, removing her former husband as the beneficiary, executor, and trustee. Rosita named her daughter, a junior in high school, as the sole beneficiary; and named her best friend Carly as executor and trustee.
I had advised Rosita against naming Carly as trustee because Carly had no experience managing a trust, nor was she equipped to handle the conflicts that I expected to arise with the ex-husband. I suggested an institutional trustee, but Rosita insisted on naming Carly, whom she trusted.
When Rosita died, the ex-husband indeed hired a lawyer and demanded control over the estate, claiming he would do a better job than Carly in managing the trust funds for his daughter’s benefit. Noting that he was insolvent, at Carly’s request I spent a considerable amount of time convincing the ex-husband’s lawyer that he could not possibly win this battle before they backed off. But the ex-husband conceivably could cause more trouble down the road. This was all too much for Carly — she resigned as trustee and gave the job to the successor trustee, a large financial institution.
Solution: If there is any chance of a conflict or dispute among family members, appoint an institutional trustee. Your best friend may feel honored to be appointed, but the work of resolving conflicts can be substantial — not to mention the work of investing, managing, and distributing trust funds.
Howard was in the hospital being treated for cancer when he decided to amend his will — which he had meant to do for a number of years. His lawyer brought the documents to the hospital and Howard signed them, witnessed by two of the lawyer’s assistants.
Howard died quite suddenly soon thereafter. A disgruntled heir challenged the amendment in court, claiming that Howard had been incapacitated while in the hospital.
Solution: First of all, Howard should have amended his will years earlier, when there was no question about his competence. But in this situation, the lawyer should have brought along two witnesses in the health care or social services fields, who could testify authoritatively as to Howard’s competence. Better yet, the lawyer could have videotaped the signing to further prove his client’s competence.
Alan G. Orlowsky, President of Orlowsky & Wilson, Ltd. in Lincolnshire, Illinois, has been counseling people on estate planning for over 30 years. He previously worked for the IRS in its Estate and Gift Tax Division. He also worked for the Deloitte & Touche accounting firm, and he has taught taxation and accounting at Loyola University of Chicago, School of Business.
Al is a contributing author of the book 21st Century Wealth (Esperti Peterson Institute, Denver, 2000), and has written numerous articles on the subject of estate planning. Contact Alan Orlowsky by email or call 847-325-5559.
Updated November 2019