The 50 Biggest Estate Planning Mistakes...and How to Avoid Them

insurance designations for minor children

Let’s say you are a single parent or perhaps you are married for the second time with children from the first marriage. In either case, you would like to ensure there are funds for your minor children when you die and so you arrange for insurance. When asked to name your beneficiary, you may be tempted to name an adult whom you trust—let’s say your brother, Saveng—along with some wording to the effect that Saveng is to hold the money in trust for your kids until your children are adults. It seems nice and simple, but it raises a lot of questions that would come up pretty quickly if you did in fact die while your children were still minors:

• How would you want the money invested?

• Would you want the money available for the children’s care and maintenance while they are young?

• Do you want the funds paid out as soon as each child is an adult, or would you prefer that it be held onto by Saveng until they are, say, 25?

You get the picture. Instead of just sketching out the bare bones of a trust that could cause confusion at the time of your death and possibly even litigation in the estate, it would be wiser to either:

a. Name your estate as the beneficiary of the proceeds, with your will then containing trust wording setting out clearly how you want the insurance funds managed for the benefit of your children; or

b. Use an insurance declaration attached to and forming part of your insurance policy to set out the trust terms. A declaration like this would need to be drafted by your lawyer to ensure that it covers all of the important points of the trusts you envision for your children.

joint assets with your child or children

Past the stage of young children? Well, there can still be a pitfall in relying on the no-will-needed approach. Perhaps your spouse has died, you have a couple of grown children, and you recently listened to a talk show on the subject of avoiding probate and how your family can be spared all the hassle of it just by putting everything in joint names.

Next thing you know, you decide to put one of your children onto all of your accounts—and also on the title to your home—as joint tenant with you. Wonderful, you think, when I die everything will be in Sandra’s name, there will be no fuss or muss with a will and, of course, Sandra will share all of it equally with her brother. Who needs a will? you ask yourself.

What was the title of this mistake again? “The road to hell is paved with good intentions.” Your good intentions could work out perfectly; it would be wrong for us to suggest that there aren’t numerous families who have shared everything equally after the last parent died even though all of the assets were held jointly with just one of the children. But who knows what happens after we are gone? Sandra’s better judgment could be clouded by financial trouble, or she may have married a ne’er-do-well, as Grandma might say, who influences her unwisely . . . or perhaps she decides that since she did “everything” for you and her little brother in Los Angeles never lifted a darn finger, she should keep the cash. No matter what the reasoning, let the games begin: your plan to minimize hassle and keep things simple has suddenly exploded into the War of the Crocuses.

Again, we don’t know what will transpire after our death, and as we mentioned in the last mistake, the courts are now taking the view that when an adult child holds an asset jointly with Mom or Dad, there needs to be some proof beyond the mere ownership to show that the child was supposed to receive the asset as a gift after the parent’s death. But the fact that you are reading this book is a pretty good indication that you would prefer to avoid a situation in which your estate becomes involved in a dispute in the first place. For that reason, the wisest approach is to move cautiously about putting assets in joint names with one or more of your adult children: consult your lawyer and weigh the advantages and disadvantages.

points to take away

• Holding assets jointly with another person or naming an adult as our beneficiary for life insurance or registered plans is often an effective way to transfer assets, particularly in committed relationships where the named person is the only person to whom we wish to give those assets.

• A pitfall with the beneficiary designation approach arises where young children are involved and a well-drafted and comprehensive trust provision would be highly desirable to ensure their interests are fully protected.

• The challenge with the joint ownership approach to estate planning when adult children are involved is that your actual intentions may not be carried out.